An independent report (obtained by Manx.News) has revealed that the state-owned Isle of Man Steam Packet Company (IOMSPC) has freight costs among the highest in the world based on similar operations.
The report which was commissioned by the Manx National Farmers Union (MNFU), was conducted by Birnie Consultancy.
It has identified that the costs of export of agricultural products on and off the Isle of Man, are high from a total cost and a cost per mile perspective and these costs are inhibiting the export of food products from the island.
It also found that the high charges are contributing to much higher input costs for farm businesses, leading to reduced profitability and in some cases viability.
The Birnie Consultancy were chosen due their experience in the Isle of Man having previously been commissioned by Isle of Man Government to investigate the Meat Plant.
The MNFU sought funding from the Department of Environment, Food and Agriculture (DEFA) for the report, although DEFA played no part in influencing the brief or the findings.
The report is evidence that the IOMSPC charges are one of the key contributing factors in the decline of agriculture.
This is due to freight costs inhibiting the export of food products from the Island, and they are contributing to much higher input costs for farm businesses.
Freight cost per mile
The 59-page report has compared the miles from Douglas to Heysham with other countries that are dependent on sea travel for essential products and trade.
Tables in the report show the comparisons with other services and that the Isle of Man rates are high from a total cost and a cost per mile perspective.
This also affects the costs of all imports and exports for goods, therefore directly affecting the cost of living on the Island.
The report shows that the IOMSPC is £24.91 more expensive per mile to the ferry that travels the closest distance.
Rosslare to Fishguard travels a total of 67 miles and for a 12m rigid truck costs £5.03 per mile, whilst the IOMSPC is a staggering £24.93 per mile, on a distance that is four miles less than the Stena Line route.
The cost for the 12m lorry with Stena Line is £337, whilst with IOMSPC more than quadrupled at £1571.
The cost for 17m truck with Stena Line costs £410, whilst the Steam Packet is over £2000 at £2234; which makes it £35.56 per mile compared to £6.12 like Stena Line.
Full Commercial Cost Model
The most usual method of establishing the cost of a ferry service is via the actual cost of delivering that service.
Essentially the operator estimates running costs for the desired service levels (length of journey), frequency of journey, size of ships, fuel costs, staffing, port costs, depreciation, reinvestment costs, necessary profit levels etc.
These costs are set against the predicted commercial and non-commercial traffic and passenger levels, and an algorithm is used to estimate the most appropriate fares.
This is the model which is being operated by the likes of Stena Line and P&O ferries for their routes across the Irish sea, and is essentially the model which is being operated within the Isle of Man.
The IOMSPC however, is also bound to deliver against a service level agreement which does impact on the actual cost of the service.
Road Equivalent Tariff
The Birnie Report explores the Scottish model of Road Equivalent Tariff (RET).
This is a system where farmers in remote parts of Scotland pay for the shipping what be the price had the goods gone via road.
It is a theoretical means of setting ferry fares based on the costs of traveling an equivalent distance by road.
DEFA Minister Clare Barber MHK committed to working on a similar scheme last year with Enterprise Minister and former farmer, Tim Johnston MHK.
She spoke about this in a documentary about the future of agriculture, but to date no such scheme has been brought forward.
Creamery Lost Business
Stakeholders in Isle of Man agriculture were also asked to give feedback.
Isle of Man Creamery revealed they had lost a significant contract due to the costs of export.
High ferry costs had prevented the company obtaining new business in GB..
Isle of Man Creamery
Isle of Man Creamery say that high ferry costs had prevented the company obtaining new business in GB, stating that an agreement for liquid milk supply had been made with a GB retailer at a competitive price which would have benefited the creamery and farmers on the Isle of Man.
However, once the cost of transport to England was factored in for relatively low value liquid milk, the price rose substantially to the point where the contract would have been loss making.
Government
Manx.News understands that MNFU officials are due to meet with government representatives soon.
The report does not make easy reading for Chief Minister Alf Cannan’s administration, which is trying to build the economy.
The state-owned company boasted profits of £11.1 million when the accounts were laid before Tynwald last year; this on a revenue of £72.2 million.
Manx.News has contacted MNFU, IOM Government and the Isle of Man Steam Packet Company for comment and invited them for interview.
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