This is a tale of the Scottish Government, Transport Scotland, CMAL [Caledonian Maritime Assets Limited], the money markets, Stornoway Harbour, Ullapool Harbour, the Flensburger shipyard in Germany, Capita [project management consultants] and ferry operator, CalMac.
It is a tale of new tonnage for an important lifeline ferry route, specifying it, funding it, getting it out of the yard, project managing the physical developments at both ports to accommodate the new ship, convincing both destinations that a single new large fast ship was the right formula to handle their combined ferry and freight needs – and then operating the service.
The reason why the ferry operator is the last piece of this jigsaw of a tale is that this is exactly where CalMac’s role comes in: at the fag end of decisions taken by others, some who know what they’re doing and some who do not.
The picture of the actual responsibilities and authority can be seen at work in the recent saga of the very late arrival on the Stornoway-Ullapool route of MV Loch Seaforth, CMAL’s new superferry – and her further delayed ability to enter service.
This last delay has been due to serious project management failures in physical developments at both ports to enable the new ship’s operation.
Let’s start with facts emerging from a series of written parliamentary questions tabled by Highlands and Islands MSP, Jamie McGrigor, answered by new Transport Minister, Derek Mackay on 11th February 2015.
The infrastructural development to accommodate the Loch Seaforth
Jamie McGrigor asked: ‘What the cost is of infrastructure improvements at Ullapool and Stornoway that are associated with the introduction of the MV Loch Seaforth on that route?’
Derek Mackay replied that: ‘The Scottish Government is contributing £9.52m towards the £12m Stornoway project and £17.82m towards the £19.32m Ullapool project.’
Transport Scotland provided the funding to Stornoway Harbour Authority which then itself undertook the procurement of the works, contracting Bam Nuttall and installing consultants, Capita, as project manager. This was not a well managed operation. CMAL were not directly involved at this end but were the project manager at Ullapool, which, despite delays there too which were covered by the late arrival of the ship, has arguably been the only successful element of the saga.
CalMac had no involvement with any of this, simply being the end operator of the service, using the new boat procured by and leased to it by CMAL for the purpose; and using harbour facilities procured and belatedly delivered by other parties.
Additional costs associated with the delays to the new port facilities
Jamie McGrigor asked: ‘ What additional operational costs have been incurred by CalMac in the operation of the Ullapool to Stornoway ferry service that are associated with the delay in the installation of suitable berthing facilities for the MV Loch Seaforth at Ullapool and Stornoway?’
Derek Mackay replied that these additional costs ‘relate to the extension of the charter of the MV Clipper Ranger. The vessel is expected to be required until the end of May 2015. The additional charter costs for this extension are £1.4m.’ The Clipper Ranger is a freight boat that had to be chartered to replace the MV Muirneag, the former freight boat which was meant to be replaced by the Loch Seaforth by October 2013.
Problems of processing a full order book and some side issues at builders Flensburger led to a series of delays to their completion of Loch Seaforth which, aggravated by laggardly development at the two harbours, saw the boat’s delivery delayed first to June 2014; then to entering service in September 2014; then to December 2014; and finally to February 2015. These delays saw the expensive extended chartering of the Clipper Ranger to take over the Muirneag’s freight carrying, until the Loch Seaforth and the harbours were able to coincide.
Here again, CalMac was not responsible for the procurement of the new ferry, for project managing its progress to completion by Flensburger – both undertaken by CMAL; not responsible for the delays to the boat’s emergence from the German yard; or for the delays to the works at both ports. Together these slippages led to the additional cost of £1.4m for chartering and extending the charter of the MV Clipper Ranger to keep the freight service moving.
Costs to CalMac of the delays to Stornoway and Ullapool harbour developments
Jamie McGrigor asked: ‘What the total operational cost is that has been incurred or will be incurred by CalMac that is associated with operating the MV Loch Seaforth until such time as it commences operations on the Ullapool to Stornoway ferry route?’
Derek Mackay replied: ‘The total operational cost that has been forecast to be incurred by CalMac Ferries Ltd for operating the MV Loch Seaforth until it enters service on the Ullapool to Stornoway ferry route is £3.9m.
These are the estimated costs of running the crewed vessel for the period between her completion of normal sea trials and the ability of the two harbours to receive her in service. CalMac is left to bear the costs of running her, with extended crew trials and promotional port visits as part of her prolonged working up, until the responsibilities of others for the two harbour developments are fulfilled and the vessel is able to go to work.
This forecast of £3.9m is unlikely to include the opportunity cost of the Loch Seaforth’s enforced limitation to a passenger-only service for four weeks with the Ullapool linkpan unready.
The financing of the Loch Seaforth
Jamie McGrigor asked: ‘What the full financed cost is of the MV Loch Seaforth; and whether the Scottish Government would provide a breakdown of any difference between this and the reported capital cost of £42 million?’
Derek Mackay replied: ‘The MV Loch Seaforth was purchased and financed by Lloyds Banking Group whose financial arrangements with the shipyard are commercially confidential.’
What happened is that CMAL went to the money markets for a bidder to pay for this new ship and lease it back to them. Lloyds Bank stepped up, so MV Loch Seaforth is owned by Lloyd’s but was procured and specified by CMAL who also ‘managed’ the serially delayed build project.
Jamie McGrigor’s information is accurate – that the Loch Seaforth build cost was around £42m. Interestingly, while the Transport Minster coyly refused to answer the parliamentary question of her cost on 11th February, citing commercial confidentiality between owner and yard – he had felt no such constraint a week earlier when he gave the figure to the Hebridean News, saying: ‘At the end of this process we will have a new £42 million ferry and two upgraded harbours that will bring real benefits to ferry users and the communities served.’
Decisions, unanticipated costs and possible consequences
These parliamentary questions and answers have revealed the costs of inexperience and incompetence – at Transport Scotland, at CMAL, at Stornoway Harbour Authority and at Capita.
Time will tell whether CMAL’s decision to go for a single fast superferry to fulfil all of the needs of this route – from carrying passengers and vehicles to freight – will be advantageous in cost and in effective operation compared to the alternative of building two new smaller ships which would not have required £27.34m’s worth of infrastructural development at the harbours; nor the additional £5.3m CalMac had to pay to deploy the Clipper Ranger and to keep the Loch Seaforth occupied until the harbours were ready.
The Loch Seaforth is an engagingly striking vessel – although we have reservations about the optical illusion of her paint job. It makes her look as if she’s going down by the stern – not a good look for a passenger ferry.
CalMac do not own their own brand – that has been made the property of CMAL – so the company will have to live with operating a new vessel, blazing its livery across The Minch and seeming to have had an unfortunate engagement with an underwater reef.
However – back to the necessary sums. If you add her £42m build cost to the total of £27.34m in Transport Scotland contributions to the harbour works and the £5.3m CalMac had to pay for the Clipper Ranger and for running the Loch Seaforth around for three months when she could not work, we’re looking at a total spend of £74.64m to enable a single boat to operate this route.
When the Transport Minister was in Stornoway to see the Loch Seaforth there on 3rd February, he also told the Hebridean News [in the article linked above] that: ‘We have also agreed to look at running extra sailings with the Isle of Lewis to supplement the service provided by the Loch Seaforth during peak periods in the summer.’
The perceived need – already – for supplementary sailings looks like a bit of a facer for CMAL’s logic, approved by Transport Scotland, of commissioning a single superferry as the delivery mechanism for all the needs of the route. This would have very substantial unanticipated additional cost implications.
However, the story is not quite so straightforward. When he was in Stornoway, the Minister was lobbied directly by islanders who are trying to find ways to keep the MV Isle of Lewis in the two-ferry service they have always wanted – but whose costs would be heavy.
The Minister and CalMac are together looking at running a trial supplementary service in high summer to test capacity – since the Loch Seafort has 40% extra vehicle carrying space and expert opinion is that she should be able to deliver to demand.
The test supplementary service has been announced by Transport Scotland this morning [5th March]. An extra return crossing has been added to the Friday and Saturday timetables and will operate for 10 full weekends from Friday 26th June 2015 until Saturday 29th August 2015. Sailings will depart from Stornoway at 10:30 and Ullapool at 14:30 on both days. The additional sailings will be carried out by the MV Isle of Lewis, in support of MV Loch Seaforth.
The parallel issue here is that of the island’s capacity to absorb significant volumes of extra visitors in the six week peak season. Accommodation is often straining at the seams at this time as things are. It would be better for entrepreneurial islanders to develop their own capacity and demonstrate actual demand, with the means to serve it, as the best incentive for Transport Scotland to agree to supplementary sailings as a permanent peak season facility.
Other unknown costs [hint for Jamie McGrigor to go back in to bat] to be added to the tally include those of running services out of Uig on Skye to compensate for the unavailability of Ullapool in the run up period to the Loch Seaforth being in full operation.
Add too the opportunity cost of the Loch Seaforth being limited to passenger carrying only for the first four weeks after entering service until the Ullapool linkspan is ready to take her.
No private sector organisation would ever have taken the series of expensive decisions to which Transport Scotland and CMAL committed in this process of vessel replacement. A ground rule of commercial wisdom is to leave the new and experimental to others because it will cost.
But these bodies have no public face, so any popular ire can only be directed at the operator, which has a very high profile public presence – in the ships it does not own and has not procured but which are sailing in its livery all over the Clyde and the west coast of Scotland. Yet CalMac bears no responsibility for any of this. It has to work with the boats and port facilities CMAL leases to it and within the operating circumstances dictated by Transport Scotland.
The Stornoway-Ullapool ferry route – and its freight service – is now in the charge of a single superferry. If that vessel goes out of service, there will be freight as well as the ferry services requiring immediate short term replacement. And that is more unanticipated cost.
However well the Loch Seaforth scores in the eye-candy stakes – and she does – it has to be asked whether what Scotland has witnessed in this entire and complex procurement of a vessel and of new infrastructure has been anything more than underinformed desk-bound metropolitan civil servants and politicians indulging their fantasies of boys toys with public money? And CalMac will get the flak.
