THE government has said that its 20-year ferry agreement with DFDS will “shine a light” on “a very obscure and untransparent part of Jersey’s economy” – namely, freight service providers, and the dominant actor in this sector, Ferryspeed.
Economic Development Minister Kirsten Morel said that previous deals that Condor had made with freight service providers had resulted in the consolidation of the market.
Speaking to Scrutiny recently in a frank and revealing exchange with the Economic and International Affairs panel, Deputy Morel made it clear that he believed that ferry operator DFDS’s new “transparent” rate card – with prices set at £56 per lane metre and £45 for commodities, whether one is shipping one pallet or 500 – would lead to more competition in the freight logistics sector.
He said: “We’re shining a light on a very obscure and untransparent part of Jersey’s economy, and we’re shining a light on it through this new system.
“And that means that everyone will be able to have a much better understanding of where people are profiting – whether it’s excess profiting, or whether it’s not; they’ll be able to move to other competitors.
“I know that businesses are already shifting their supply chains precisely because of the flat rate charge, because it gives them the ability to do that, and that does mean that some companies will lose as customers move away from them, potentially.”
Deputy Morel told the panel that previous ferry operator Condor had offered opaque discounts to the biggest freight logistics firm based on volume, which had led to “anti-competitive tensions”.
Panel chair Deputy Montfort Tadier raised the point that if one of the big importers used to benefit from a discount, they could then pass that discount on to customers, but now they were unable to do that, therefore prices were going up.
Deputy Morel replied: “They can [still] pass many discounts on to customers because, breaking down the cost of freight to the Island, only 40% of it is the ferry cost and 60% is the ferry service provider, so Woodside and Ferryspeed.
“I’d love to say there are others, but they all went out to business because the previous operator was discounting to such an extent against the biggest provider that all these other businesses went out of business.”
He added: “60% of the cost of anything coming across the Channel to Jersey is the freight services operator; 35% is the cost of the ferry and 5% is port dues.
“They still have 60% to play with, and that’s the bit which has been opened up. If I decide to set up a freight services provider today, I can now set my pricing in that 60% area to compete against the other [freight] service providers.”
He continued: “Previously where discounts were given – and none of us know what discounts were given by Condor to freight services providers – that was building up anti-competitive tensions within the freight services market because we saw many freight services go out of business.”
Deputy Morel, and his Chief Officer Richard Corrigan, referenced a current investigation by the Jersey Competition and Regulatory Authority into freight logistics and storage.
In announcing the investigation in July, the JCRA said: “[We are] in possession of information which suggests that two or more businesses in Jersey’s transportation, logistics and storage sector have been party to an agreement which may have detrimentally effected competition in this sector.”
Mr Corrigan said: “At the time we [the government] first heard some firm evidence, which came from an individual very closely engaged with the operations, that was referred immediately to the JCRA.
“They determined that that had crossed the threshold for them to start a formal investigation. That is ongoing, so we await the outcome of that with interest.”
Justifying the new arrangement with DFDS, the minister said: “We’re treating what is a monopoly route as though it was a toll bridge. Whether the ferry is running empty or the ferry is running full, it’s still costing the same amount to run that ferry.
“We are not asking the ferry operator to discount against itself, because there’s no competition to be had, so there is nowhere it can win business; it’s stuck with this level. One of the mistakes of the past is that we didn’t do this for Condor.”
In 2022, the JCRA published a ‘market study’ into freight logistics in Jersey which concluded that, among other things, the Island was “heavily dependent on one large freight logistics provider” which could be a “potential market resilience risk”
It also said that a “lack of space in the port limits new entrants” and “that competition in the freight logistics market could be more effective”.
It recommendations included that Ports of Jersey should ensure that its Ports Masterplan “will support effective competition in freight logistics sector” and that the government “should develop a policy framework to support effective competition in the freight logistics sector”.
In response to the JCRA’s draft report, Ferryspeed co-owner Stan Markland wrote: “We were disappointed that having successfully kept the Island’s businesses trading during the worst of the pandemic, we were faced with our fourth inquiry in our sector in about 17 years.”
Ferryspeed – a threat to competition or a necessary and inevitable dominant player?
Deputy Morel has made it clear that he wants to see more transparency in the freight logistics sector, in order to potentially make it more competitive. But as he concedes, companies have come and gone, including Condor Logistics and Paul Davis Freight Services.
Ferry and freight services have also come and gone, including Emeraude, Sealink, BCIF, HD Ferries and Huelin Renouf.
Like the ferry market, is the freight market too small for multiple companies to compete?
Ferryspeed, which was founded by its Jersey-resident co-owners with a single van in 1985, now employs 750 people. Jersey is a relatively small part of its cross-Channel operation, which includes a 22-acre regional distribution centre for the Channel Islands that it has built in Portsmouth, where items arrive from all over the UK to be broken down and loaded onto trailers suitable for the islands.
Everyday, up to 100 deliveries arrive at Hillsea, where they are unloaded, reloaded and shipped to Jersey and Guernsey, including goods destined for Waitrose, the Coop, M&S, Morrisons and Next.
The company has said it the past that the investment required to maintain that daily service is considerable. They add that, in relative terms and considering it is serving a market of 200,000 people, Ferryspeed is a minnow compared to the likes of XPO and Wincanton.
Ferryspeed might argue that it is under constant scrutiny by its customers: it is understood that its refrigeration units can be inspected by its major supermarket customers at any time without notice and some of these retailers, including M&S, own their own logistics businesses but still choose Ferryspeed to ship their goods across the Channel, and the firm is held to the same standard.
The company has traditionally kept a low public profile, with Mr Markland writing in his letter to the JCRA: “Whilst we do not interact with the various States bodies as often as other businesses do, this is mainly due to the fact that we tend to resolve the issues we face as a business internally.”
However, trying to look at the issue from Ferryspeed’s perspective, the business might contend that were the Channel Islands market to split between multiple freight businesses, with customers moving between rival operators should they be unhappy with the service they receive, each would still need capacity to handle 100% of trade, so the market would be inherently inefficient.
The volume-based rate card, which Condor operated, was introduced with the agreement of the government in 2011 and was based on simple economics: if you buy ten televisions instead of one, you would expect the shop to give you a discount.
Ferryspeed would probably argue that this discount was passed on to customers. Why else are supermarkets putting up their prices now, it might say, since DFDS brought it its flat-rate card?
Under that new system, smaller businesses should be benefiting. As an example, M&S, which brings in trailers every day, and a small retailer, which imports the equivalent of one or two trailers once a year, are now paying essentially the same rate.
However, the smaller retailer should be paying a lot less than it did before because they didn’t enjoy significant discounts under the volume-based rate card, which could raise the question as to whether this is being passed on to customers.
And are smaller freight operators passing on savings to the customer? The government would hope that they are.
If Ferryspeed are right and economies of scale and required investment mean that there is only room for one major freight services provider, could the government negotiate a similar arrangement to the one it has signed with DFDS, setting clear rules, including levels of service, investment and agreed returns?
Ferryspeed has previously said that economies of scale are essential to the logistics and freight sector, and people who accuse it of using its dominance to profit excessively need to understand the industry better.
Perhaps big players such as the John Lewis Partnership and Coop ensure that Ferryspeed’s feet are kept firmly to the ground?
However, clearly not everyone agrees, including the Economic Development Minister, who wants to see more competition. Ports of Jersey too, who is Ferryspeed’s principal landlord in Jersey, has approved plans to build a new distribution centre at the Elizabeth Harbour, which addresses a concern of the JCRA that warehousing capacity at the port is a “specific constraint” to more competition.
As Deputy Morel said last week, only time will tell if DFDS’s new rate card will bring prices down for consumers by opening the door to new entrants to the freight logistics market.
