Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


Memorandum by MDS Transmodal Limited (FUS 20)

THE FUTURE OF THE UK SHIPPING INDUSTRY

SUMMARY

Contribution of shipping to a policy of integrated transport

  The major contribution which shipping can make in promoting a more environmentally friendly transport policy is to increase its share of the transport market. The ports and shipping industries are, and will continue, to invest in new technologies and new facilities to improve the efficiency of short sea shipping and therefore their commercial offer to shippers. However, short sea shipping suffers from a fundamental disadvantage in that both roads and railways receive substantial funding from the public purse, while shipping receives none.

  The overall aim of the Government's integrated transport policy must be to ensure that all transport users pay for the full costs of using that mode. This can be achieved in the long term by:

    —  increasing the cost of fuel;

    —  introducing a system of limited road pricing.

  There may well be insufficient political will at a national level to increase fuel taxes sufficiently and to move towards road pricing in certain limited geographical areas in the medium term and therefore some interim measures may be required to assist waterborne transport in achieving a greater share of the transport market. These should include:

    —  extending the Freight Grants regime to coastal and short sea shipping;

    —  Government support for short sea shipping projects in the European Commission's PACT Programme;

    —  providing public funds to support short sea shipping projects where there is a market failure.

Role of the European Union

    —  in the medium term the European Union should legislate to introduce a system of road pricing on a pan-EU basis to ensure that road users are paying the full costs of this mode of transport;

    —  the European Commission must act an effective guardian of the Treaty of Rome to ensure that anti-competitive practices in the shipping industry in Europe are investigated and punished under existing European law.

INTRODUCTION

  MDS Transmodal is a private sector consultancy which provides specialist consultancy and data services to the world's transport industry, the public sector, financial institutions, property developers and other organisations with interests in transport-related issues. Based in Chester, the partnership also has offices in France and Malaysia.

  MDS Transmodal's main activities are concentrated in the freight market and international passenger travel. The former includes ferries, short and deepsea container traffic, intermodal movements, rail and logistics. Inland waterways, small craft and the provision of ferry services to island communities have also been the subject of studies undertaken by the partnership. The partnership concentrates on bringing together an appreciation of the economics of transport and an understanding of the commercial mechanisms concerned.

  The comments which follow concentrate on two of the issues which the Select Committee wishes to address, namely:

    1.  The contribution which shipping can make to achieving the objectives of the Transport White Paper.

    2.  The role of the European Union.

1. RATIONALE FOR COMMENTS

  The UK shipping industry is overwhelmingly within the private sector and this can only allocate resources efficiently if there is effective competition. The industry has to operate, even in the UK coastal cabotage market, within an international market and has to cover its costs and produce a commercial return. From the point of view of the shipping market, the role of the Government and the European Union is to create a fiscal and regulatory framework within which market forces can operate. The shipping industry needs a clear policy from Government which allows it to make rational decisions and to plan for the future.

2. THE CONTRIBUTION OF SHIPPING TO A POLICY OF INTEGRATED TRANSPORT

The contribution of shipping

  The major contribution which shipping can make in promoting a more environmentally friendly transport policy, is to increase its share of the transport market. This places the emphasis on short sea shipping, which should include, within the context of the UK:

    —  national coastwise traffic (cabotage);

    —  traffic between the UK mainland and outlying islands;

    —  traffic between the UK and the Continent, Scandinavia and the Mediterranean.

  It includes traffic carried in sea-river vessels i.e., sea-going vessels which can use inland waterways such as the Rivers Humber, Trent and Thames.

  Shipping should be able to make a greater contribution to removing lorries and cars from the UK road network in the following ways:

    —  there is some scope for increasing the amount of coastwise unitised traffic over relatively long distances e.g., from London/SE to the east coast of Scotland.

    —  there is likely to be greater scope for carrying bulk commodities by sea coastwise, although given the nature of the traffic, waterborne transport already has a reasonable market share;

    —  there is considerable scope for ships making longer sea journeys between the UK and the Continent i.e., ships sailing closer to origins/destinations of traffic, and thereby reducing road mileage. This includes sea-river vessels sailing up suitable inland waterways to inland ports, as well as greater volumes of traffic to regional sea ports.

Problems with the shipping offer

  At present short sea shipping is often not competitive for unitised traffic, even over relatively long distances, for a number of reasons: door-to-door delivery times are often longer when a short sea leg is included; short sea shipping has a poor image in the eyes of shippers; and while shipping can deliver the lowest cost solution, the speed of delivery is slow and the service frequency is poor.

  The ports and shipping industries are, and will continue, to invest in new technologies and new facilities to improve the efficiency of short sea shipping and therefore their commercial offer to shippers. However, short sea shipping suffers from a fundamental disadvantage in that both roads and railways receive substantial funding from the public purse, while shipping receives none.

Long-term solutions

  The road haulage industry in the UK is highly fragmented, highly competitive and has been very successful in reducing its costs against other modes of transport. However, EU analysis suggests that road transport is subsidised on a net basis and this distorts the allocation of resources. Similarly the Royal Commission on Environmental Pollution estimated that current tax revenues raised through taxation from HGVs account for only 49-68 per cent of the infrastructure, environmental and other costs imposed by these vehicles. Research for the European Commission by INFRAS and IWW (External Effects of Transport, 1994) suggests that a lorry causes environmental damage of about 0.6p per kilometre. This compares to waterborne transport which causes only 0.005p of damage per kilometre.

  The overall aim of the Government's integrated transport policy should be to ensure that all transport, users pay for the full costs of using that mode. This is not only "fair" but ensures that there is an efficient allocation of scarce resources between modes. However, road haulage is, effectively, subsidised making it difficult for the shipping industry to compete.

  An immediate measure would be to increase fuel taxes incrementally over 5-7 years so that users are paying the full environmental costs (i.e., including externalities such as pollution and accidents) for their use of the roads. In the freight market this would provide the incentive for shippers to switch to more fuel efficient, and more environmentally friendly, modes of transport. This, in turn, would encourage private sector investment in waterborne transport.

  Such a measure may not be wholly effective for international traffic as short sea shipping has to compete with international road hauliers who can buy cheaper diesel on the Continent. The only effective solution to this would be tax harmonisation on a European scale which is likely to be politically unacceptable in the UK for the foreseeable future.

  In the medium term a system of road pricing may also be appropriate, so that road users are, in addition, charged for the road space they take up in particularly congested areas. The system should only be applied therefore in inner urban areas and on particularly congested sections of the trunk road network. Introducing a system to cover the whole country would be unnecessarily complex and expensive. The charges should be such that they cover the external costs involved in particularly congested areas (i.e., the costs of congestion and the additional environmental damage caused). Again this would encourage private sector investment in short sea shipping.

  In conclusion, once a "level playing field" has been created between the different modes, shipping can achieve its "natural" level of traffic through the workings of market forces. These market forces can only work effectively when there is a sufficiently strong system of regulation, to ensure that markets are genuinely contested.

Short Term Measures

  There may well be insufficient political will at a national level to increase fuel taxes sufficiently in the short term and to move towards road pricing in certain limited geographical areas in the medium term and therefore some interim measures may be required in order to assist waterborne transport in achieving a greater share of the transport market.

  Coastal shipping is excluded from the Government's Freight Facilities Grant regime despite its far greater potential than inland waterways to remove lorries from the roads. Short sea shipping strategies to extend the sea leg (e.g., more traffic from the north of England via Hull to Rotterdam rather than driving the length of England to take the Dover-Calais crossing) are also ineligible. The Government should therefore extend the Freight Grants scheme to coastal and short sea shipping. Where sufficient environmental benefits can be shown and it can be demonstrated that there is an economic disadvantage for shippers in using short sea shipping, grant could be provided for:

    —  capital assets such as short sea vessels, handling equipment and terminals at ports;

    —  assistance with port charges.

  This would mirror the regime for rail freight where funds are available for capital assets such as leased or purchased wagons and intermodal handling equipment, as well as for track access charges. Care should be taken to ensure that grants for sea ports are not to the detriment of inland ports located on inland waterways.

  A further measure, which could be introduced immediately, is full implementation of EC Directive 92/106. The Directive allows 44 tonnes gross weight to be carried on the feeder legs of combined transport, i.e., road distribution of up to 150 kms to/from a railhead or port before/after a rail/sea journey. This gives, effectively, a four tonne advantage to a combined transport service compared to a standard road haulage journey. The Directive includes short sea shipping within the definition of combined transport but currently the UK Government has only applied it to rail combined transport. This is an outstanding area for decision left over from the previous administration and action should be taken immediately. There is no case for discrimination against short sea shipping. It would provide an enormous boost to regional roll-on-roll off services from local ports direct to the Continent and Ireland if 44 tonnes gross weight was allowed for inland hauls of up to 150 kms. As fuel taxes are increased and localised road pricing is introduced the need for this advantage will decrease and it can be withdrawn.

  The Government should also be prepared to support worthwhile short sea shipping projects in the European Commission's PACT (Pilot Actions for Combined Transport) Programme. The programme aims to provide funding for up to three years to support the launch of combined transport services using both rial and short sea shipping for the main leg of the journey. It is seen as an interim measure to support combined transport vis-a-vis road haulage. Even if projects are worthwhile and have the support of a wide range of commercial organisations and local authorities, they require the support of central government for the European Commission to be able to provide funding. There is a perception within the shipping industry that the responsible government department, the Department of the Environment, Transport and the Regions (DETR) has a policy of favouring rail projects rather than short sea shipping projects.

  Public funds could be provided to support short sea shipping projects where there is a market failure. MDS Transmodal has identified many opportunities to reduce the amount of road freight by launching short sea shipping projects which the private sector appears reluctant to take up because the risk is too great. For example, a direct ferry service from Scotland to the Continent can be shown to be viable and would transfer traffic which is now driving to Humberside or Dover. Some of the new revenues from increased fuel taxes or from road pricing could be used as a "fighting fund" to invest in (and subsidise) new short sea shipping services or port infrastructure and services, if only for a limited, say three year, period. Continuing increases in fuel taxes should render them viable and create a return which would be paid back to this fund. The state would effectively be acting as a shareholder in the enterprises, thereby reducing the risk for private sector investors.

  In order to avoid the accusation that the public sector is competing unfairly with the private sector, the Government could adopt a franchising solution, whereby the services are operated by a private sector company with the lowest level of subsidy. As many of the best opportunities are on international routes, there may also be a role in the franchising process for the European Union.

3. THE ROLE OF THE EUROPEAN UNION

  There is some evidence that the UK Government may find it difficult politically to take radical measures to increase the cost of road transport to a level which allows waterborne transport to compete on equal terms with road transport. There is also an argument that UK road hauliers which operate in the European market should not be put at a disadvantage when operating in their own Member State.

  Furthermore, as the UK shipping industry currently enjoys no protection for cabotage with the UK and operates in an international market, only the European Union has the powers to ensure fair competition in the shipping market in Europe.

  The role of the European Union is therefore two-fold:

    —  in the medium term the European Union should legislate to introduce a system of road pricing on pan-EU basis to ensure that road users are paying the full costs of this mode of transport. The European Commission has already begun this legislative process, although it is likely to be perhaps 10 years before such a system is in place. All EU governments will find it expedient for "Brussels" to introduce such a system which is likely to be unpopular with car-owning electorates.

    —  the European Commission must act as an effective guardian of the Treaty of Rome to ensure that anti-competitive practices in the shipping industry in Europe are investigated and punished under existing European law.


4. CONCLUSION

  The "vision" for the future should be a freight transport "system" where a far greater proportion of long distance intermodal traffic is carried by short sea shipping services on longer sea legs making use of a network of efficient regional ports.

  The role of Government at national and European levels should be to:

    —  ensure that shipping is able to compete on a fair basis with road transport by a combination of increased fuel prices for road transport and a system of road pricing. As these measures could take 10 years to be implemented, interim measures such as the extension of the freight grants regime to coastal and short sea shipping would be justified.

    —  ensure that a strong regulatory regime is in place at both national and European levels so that the shipping market is contested properly.

  Short sea shipping should then become more competitive. The private sector should be more prepared to invest in the required infrastructure and short sea vessels. Where there are market failures preventing the launch of short sea/coastal shipping projects, there may be a case for the Government becoming a shareholder to reduce the risk for private sector investors.

  The fundamental problem is that the private sector cannot be expected to accept excessive risk in order to cover the start up costs of new longer short sea shipping links, to substitute for publicly funded road infrastructure. Rail receives assistance from the public sector to compete with road transport and shipping needs similar assistance until a proper pan-European system of transport pricing can be introduced. The public sector needs to ensure that different modes of transport can compete on a fair basis, to ensure the efficient allocation of economic resources.

December 1998


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 8 June 1999