Tuesday, March 1, 2016

New Report Makes Case for CalMac Retention of Vital Freight and Passenger Ferry Services

As Race for Clyde and Hebrides Routes Hots Up Union Commissioned Arguments Revealed
Shipping News Feature
UK – As the decision as who will run the vital RoRo freight and passenger ferry services between the Clyde and Hebridean Islands moves inexorably closer, a report was revealed today at the Scottish Parliament commissioned by the RMT union, illustrating how damaging a switch away from the incumbent company, CalMac, might prove for those who depend on what is a vital lifeline for the 45,000 or so inhabitants on the patchwork of islands.

The report has been compiled by Jeanette Findlay, Senior Lecturer in Economics at the Adam Smith Business School, University of Glasgow, and in a foreword RMT General Secretary Mick Cash describes CalMac as a ‘national treasure’ and explains how the service can only be maintained because of government subsidies. This of course is what has attracted the only other company tendering for the contract, Serco, which the report points out, exists to reward shareholders, not offer a public service.

Such a report tends of course to be biased toward the commissioners viewpoint but it makes some frightening observations should the services switch from essentially public, the service is currently owned by the Scottish Ministers, to private hands. The report illustrates the need for an ‘Operator of Last Resort’, a concept more important when a private operator is used. The lack of such an option means that in future negotiations the operator has carte blanche to impose its own terms on the principal as there is no other alternative.

In reaching this conclusion Ms Findlay harks back to previous reports which concluded that, should CalMac lose the contract, this would likely result in the demise of the company. As we have seen with subsidised train services, once a private operator has a contract it has the power to negotiate more favourable terms after the deal has seemingly been done simply because the principal has nowhere else to turn.

The basic conclusions of today’s report have been summed up by the RMT thus:

• CalMac has operated in an efficient, innovative and strategic way on the current CHFS contract and has shared with the Scottish Government all the benefits of cost savings.

• CalMac has the potential to be a leader for the economy as a whole in delivering fair work, good quality work, training and innovation, as well as a good quality service to passengers and the public. Indeed, to a considerable degree, it was found that CalMac already is leading in these areas of the Scottish economy.

• In contrast, there was much less evidence that Serco Caledonian could or would wish to play that role and its motivation and focus in winning the CHFS tender is naturally based on its status as a profit-seeking entity.

• The report finds that Serco Group the owner of Serco Northlink has an extremely troubled history in relation to its public sector contracts; it has no significant experience in the maritime industry and its financial health and business model raise concerns.

• The economic value of a public sector provider to the fragile island economies and to the Scottish economy remains enhanced relative to that of the private sector provider examined here and, possibly, relative to that of any private sector operator.

• The estimated costs of tendering remain very high in the context of very limited scope for cost savings in the operation of the tender.

• The perverse outcome that if CalMac were to lose the CHFS tender then competition well into the future would be destroyed remains a very significant risk and a striking example of an unintended consequence of the tendering process.

Commenting on this latest development in what has become a protracted and controversial process Steve Todd, RMT National Secretary said:

“Jeanette Findlay’s report is a ringing endorsement of the vital role that CalMac’s near 1,500 employees play in delivering an efficient, affordable and popular lifeline ferry service to Clyde and Hebridean communities. The report also justifies the Scottish Government’s decision to invest hundreds of millions to 2022 in new vessels, IT, port and harbour infrastructure, maritime skills and passenger fares on this complex, 26 route network. Handing this jewel in the crown to Serco would be a scandalous betrayal of CalMac workers and passengers, not to mention the Scottish taxpayer.”

Todd’s comments with regard to the report were backed up in conclusion by RMT General Secretary, Mick Cash who said:

“This is a sober analysis of the economic case for keeping CalMac public which finds, resoundingly in favour of the 2016-24 CHFS contract being awarded to CalMac, in order to preserve and increase the considerable economic benefits of publicly funded services, good employment and training standards already in place. Scottish taxpayers, ferry workers and passengers cannot afford these lifeline services being placed by the Scottish Government into the hands of Serco who would seek to drain profit from lifeline Scottish ferry services.”