A greater measure of Irish participation in the cross-Channel trade has for long been an important objective of Government policy and has been the subject of debate and questions in the Oireachtas. Possible measures to achieve this objective were considered as long ago as 1938 but there have been certain fundamental difficulties. The trade was carried on by long established undertakings who possessed all the necessary docking and other facilities at both sides of the Irish Sea as well as the important business connections.
It was obvious that for a new Irish company to break into this trade on a competitive basis would be a hazardous and costly undertaking even if they could secure satisfactory portal facilities. The alternative to setting up a new undertaking was to buy an existing undertaking or take a share in one and this was the solution which the Government saw to be inevitable from an early date. Possible arrangements of this kind were explored on a number of occasions over the years but for one reason or another did not come to fruition.
The agreement to purchase the B. & I. from Coast Lines is the result of exploratory contacts which commenced as long ago as 1960 and of detailed negotiations on the purchase which commenced in September, 1963. These negotiations have been carried on by officers of my Department in consultation with officers of the Department of Finance. A tribute is due to the senior officers of my Department for their labours in carrying out the negotiations involving many complex matters. They have advised me that throughout the protracted discussions they were met in a fair and reasonable way by the Coast Lines representatives, to whom a tribute is also due. The secrecy of the negotiations had to be preserved for many reasons, including the need to avoid speculation on the Stock Exchange and I think it fair to say that the secret was well kept. We have also had the benefit of the advice as consultant of a distinguished accountant, Dr. Howard Robinson of the firm, Polden Robinson & Co. Ltd., Dublin.
The B. & I. with its subsidiary, the City of Cork Steampacket Co. Ltd., is one of the two major cross-Channel companies, the other being British Railways. The company has a fleet of nine motor vessels including the large passenger/cargo/cattle vessels, the "Munster", the "Leinster" and the "Innisfallen." It operates regular passenger cargo and cattle services daily (except Sundays) between Dublin and Liverpool and thrice weekly between Cork and Fishguard as well as cargo or cattle services between Dublin and Liverpool, Dublin/Preston, Dublin/ Manchester, Cork/Fishguard, Cork/ Liverpool, Dundalk/Liverpool and Drogheda/Liverpool.
The B. & I. carries a very substantial proportion of the regular cross-Channel trade. The report of the Tribunal of Inquiry into cross-Channel freight rates published in 1959 showed that the B. & I. carried about 45 per cent of the livestock traffic and, together with Coast Lines and Burns and Laird, carried some 56 per cent of total traffic. The B. & I. Dublin/Liverpool service alone carried 24 per cent of total liner traffic. Broadly, the Company's share of regular cross-Channel liner trade at that time appeared to be of the order of some 40 per cent. Up to date estimates of the proportions of traffic carried by the different companies are not available.
Apart from freight, the company's passenger services between Dublin and Liverpool which handle about 250,000 passengers per annum and Cork and Fishguard which handle about 80,000 per annum are of considerable importance to our tourist trade as are the facilities provided for tourist cars on the Dublin/Liverpool route. The company employs about 800 regular staff ashore and 320 afloat as well as giving employment to an average of over 300 dockers in Dublin and 50 in Cork and to a further 20 to 30 each at Dundalk and Drogheda on days when a vessel is loading or discharging there. The purchase will, therefore, assure complete Irish control over a very substantial sector of total cross-Channel trade.
The conclusion of the agreement to purchase the B. & I. is the result of protracted negotiations and very hard bargaining. Coast Lines Ltd. were prepared to enter into negotiations only on the firm understanding that the B. & I., if acquired by the Government, would continue to be operated on strictly commercial lines. Coast Lines have been given a firm assurance in writing that the B. & I. will be managed on commercial lines as a self-supporting commercial entity without special Government measures which would place it in an adventageous position as compared with Coast Lines other liner services and generally that it will not be operated in such a manner as to damage the legitimate interests of the Coast Lines group. Coast Lines similarly have given an assurance that the companies of the Coast Lines group will not be managed in such a way as to be detrimental to the interests of the B. & I.
It is very desirable also that other cross-Channel shipping companies, whether Irish owned or otherwise, should be assured that the company will be run on sound commercial lines and that they will not be exposed to unfair competition by a State-subsidised concern.
The Agreement scheduled to the Bill provides for the purchase of the entire issued share capital at a price of £3,606,922. This price is based on a valuation of the assets. The fleet was valued by a leading firm of ship brokers and valuers, Tamplin & Co. Ltd., London, who were commissioned by my Department with the agreement of Coast Lines. Their valuation represents their estimate of the open market value of the ships of the fleet. The company's real property in Dublin was valued by Montgomery & Son Ltd., a Dublin firm of surveyors and valuers, who were commissioned by Coast Lines and the Commissioner of Valuation advised me that their valuation was acceptable. Other movable assets, such as cranes, etc. were taken over at book value.
The price of £3,606,922 also includes a sum of approximately £650,000 owing by Coast Lines to the B. & I. This sum represents the depreciation reserves of the B. & I. which have up to now been placed on loan at the disposal of the parent company. This sum will be repaid to the B. & I. by Coast Lines as soon as the exact amount is determined when the accounts for the year 1964 have been completed and audited. Certain assets listed in the Schedule to the Agreement have been excluded from the purchase and the value of these as shown in the books of the company at £202,277 must also be paid by Coast Lines to the B. & I. The purchase price, therefore, includes in all some £850,000 in liquid assets. No sum is included in respect of goodwill and the company is, therefore, being taken over at the estimated market value of the assets.
In accordance with normal commercial practice, interest is payable on the purchase price as from the date of the Agreement, 2nd February, 1965 until the purchase moneys have been paid to Coast Lines. This cannot be done until this Bill has been enacted and the transaction completed. In the interval Coast Lines have agreed to appoint nominees of the Government to vacancies on the Board of the B. & I. so as to ensure that Irish interests will be represented until the transaction is completed.
The Agreement also provides for the conclusion of an Agency Agreement between the companies under which Coast Lines will be appointed the sole agent of the B. & I. in Britain and Northern Ireland. Similarly, there is provision for the conclusion in due course of corresponding agreements between the B. & I. on the one hand and constituent companies of the Coast Lines group on the other under which the B. & I. will continue to have the sole agency in the State for these companies.
These agreements provide in effect for the continuation of the present commercial arrangements which exist between the companies subject only to such changes as necessarily arise out of the change of ownership of the B. & I. They provide for rates and terms of commission, etc. and specify the services to be performed by each company for the other. They ensure, inter alia, that the important passenger and cargo terminal facilities controlled by Coast Lines at Liverpool and elsewhere will be available to the B. & I. and that the B. & I. in its turn will continue to make corresponding facilities available to the Coast Lines group of companies including the passenger terminal and other facilities for the Burns & Laird Line at Dublin.
Among other arrangements provided for in the Agreement are the provision of relief vessels by Coast Lines to the B. & I. on the same terms as to the constituent members of the Coast Lines group. The availability of satisfactory relief vessels for the large passenger/cargo/cattle vessels the "Munster", "Leinster" and "Innisfallen" is most important to the maintenance of the regular B. & I. services and such specialised vessels could not readily be chartered for temporary periods in the open market. The agreements are mutually beneficial commercial agreements between the companies and in accordance with normal commercial practice the detailed terms are being treated as confidential.
The purchase will be effective as from 1st January, 1965 and profits after that date will accrue to the Government. Profits up to 31st December, 1964 will, of course, accrue to Coast Lines. The Agreement provides for the payment of a dividend to Coast Lines in respect of the year 1964 limited to the net profit earned after deduction of all expenses properly chargeable to revenue and payment of tax.
Turning to the future, I must quite frankly dispose of any idea that the ownership of the B. & I. will result in dramatic changes in the cross-Channel freight rate structure. The accounts of the B. & I. have hitherto been incorporated in those of the Coast Lines group and have not been published separately. In connection with the negotiations, however, we had to get the separate audited accounts of the B. & I. for a number of years past. These reveal that the net profits of the company have been falling steadily. Profits after taxation which amounted to £184,000 in 1952 had fallen to £124,000 in 1956 at the time of the investigation into cross-Channel freight rates and to barely £2,600 in 1963. This was a particularly bad year for a number of reasons, however, and the profits for the year 1964 are expected to be of the order of £77,000 before taxation.
These profits are calculated on the basis of depreciation on historic cost and, in view of the very substantial increases in shipbuilding costs, depreciation at this level does not provide nearly sufficient reserves to finance the replacement of the company's vessels in due course. For instance, one of the large passenger/cargo/cattle vessels like the "Munster" which cost in the neighbourhood of £650,000 in 1948 would now be likely to cost from £1½ to £2 million to replace. Senators will appreciate, therefore, why it was that the Government was able to drive a hard bargain for the purchase of the company.
At this point it is desirable to summarise the general economics of cross-Channel sea transport particularly in relation to the low profits of the B. & I. Senators who have read the report of the Tribunal of Inquiry into cross-Channel freight rates will recollect the analysis made by the Tribunal of the effect on conventional shipping services of the new specialised container and ferry services. The conventional services like the railways have operated a rates structure based largely on the value of the goods.
The container and ferry services on the other hand have adopted the road transport system of charging according to the size and weight and loadability of the goods irrespective of their value. This has enabled the specialised services to compete with lower rates for the high value goods which the conventional shipping companies had hitherto carried at high rates. On the other hand, the container services do not compete for low value goods on which conventional shipping freights are much lower and which in general are not in any case suitable for containerisation. Neither do the container or ferry services compete for the carriage of cattle or of passengers.
While in an effort to meet increased costs there have been a number of increases in the general rate book levels of cross-Channel freights, actual rates charged on goods passing in regular and reasonably substantial quantities have generally been at exceptional rates settled with the shippers on a bargaining basis. In effect, the shipping companies carrying mixed cargoes have had to reduce rates in order to compete with the container services.
They have also provided container services of their own, using either the conventional vessels or specialised vessels, but all these specialised services whether independent or not are inevitably in competition with the regular liner freight services. This competition from specialised container services has grown steadily in recent years. At present independent container services are operated daily between Dublin and Preston, twice weekly between Drogheda and Preston and thrice weekly between Greenore and Preston. The B. & I. itself operates a specialised container service between Dublin and Liverpool five times weekly and British Railways carry containers to a growing extent on their regular services.
The cross-Channel companies have had to face very substantial increase in costs which because of competition, customer resistance and public pressures, they have been unable to recoup fully by increased charges. Net freight revenue of the B. & I. which amounted to £547,000 in 1952 had declined to £396,000 by 1963. Over the same period expenditure had increased from £233,000 in 1952 to £493,000 in 1963. These increases in costs were largely determined by factors outside the control of the company. Labour costs at sea follow international standards and for shore staff have been determined by national increases in levels of remuneration. Loading and unloading charges which amount to between 30 per cent and 40 per cent of the Company's total expenses are also to a considerable extent outside their control.
It will be well to recall the general conclusions of the Tribunal who reported in 1959 on the subject of cross-Channel freight rates that from the standpoint of the trading results it could not be said that the level of rates had been unjustifiably high but that a major criticism of the conference arose from its tendency to create a situation in which innovation entailing a possible disturbance of the existing pattern of traffic was discouraged so that its introduction might be gravely delayed. As I have already indicated, this is no longer the position and the rapid development of container traffic has precipitated a period of rapid change in the cross-Channel trade and of difficulties for the major shipping companies operating regular liner services.
It would be helpful to Senators if I make it clear that comparisons between individual freight rates on different routes are in general most unrewarding. In comparing individual freight rates on the cross-Channel services with rates for similar goods on routes elsewhere, the following factors have to be taken into account:
(1) The overall costs of maintaining regular services on the route including such factors as seasonality, balance of trade in each direction and the cost of terminal facilities at the particular ports used.
(2) The rate structure obtaining on the route, i.e. whether rates are determined by class or by such factors as cubic weight and loadability.
(3) The quantities of particular goods and the regularity with which they pass over the services and whether a package deal or exceptional rate has been negotiated with the particular shippers because of the volume of business.
Examination by my Department of complaints made from time to time did not establish that rates in any particular case could be regarded as excessive. Even where comparisons with other routes showed lower rates for particular commodities than on the cross-Channel services, it was found that differences in circumstances arising out of one or more of the factors I have mentioned made the comparison invalid. The only valid comparison that can be made between freight rates on the cross-Channel services and comparable services abroad is on the basis of the profitability of the undertakings, assuming reasonably efficient operation in both cases. The trading results of the B. & I. which are now available to us make it clear that on this criterion it cannot be argued that the freight rates charged by the company have been excessive.
The cross-Channel shipping trade is in fact at present in the throes of a period of rapid evolutionary change which in some respects is comparable to the position which was brought about in inland transport by the competition of road with rail. On the one hand, the conventional shipping companies operate regular liner services for passenger/cargo and cattle which must operate on a regular basis irrespective of short-term variations in the volume of traffic. They likewise carry all goods offered just like the railway. On the other hand the specialised container services compete only for what is to a great extent the cream of the traffic and do not provide services for other goods. While the analogy with road and rail competition is helpful in understanding the nature of the changes that are going on it should not be carried too far. Shipping companies will fortunately not have to cope with competition from small units comparable to privately owned lorries or motor cars. The prospect is that over a period of some years the character of the cross-Channel shipping services and the freight rates structure will be modified by the various factors I have mentioned.
Our ownership of a substantial part of the cross-Channel services over these critical and formative years will help to ensure that the changes carried out and the ultimate structure of the services which emerge will be such as to reflect Irish interests. The B. & I. will in these matters be the watch dog of Irish interests.
A further important consideration is that in a situation in which the B. & I. profits were diminishing rapidly outside interests might not be prepared either to meet heavy temporary losses or to incur substantial new capital expenditure, if that were necessary, in order to maintain and improve the services so as to ensure their adequacy for our trade. The services operated by the B. & I. are most important ones both for our trade and for tourism and it is essential to our interests that they should not be run down or disappear. Were that to happen the Government would in any case have no alternative but to step in and measures taken at a later stage might be much less effective than taking over the company now.
The company will be run on commercial lines and there can, of course, be no question of substantial freight reductions or discriminatory action in favour of Irish trade which would in any case be contrary to our international commitments. Moreover, it should be remembered that shipping is an important business in its own right and that freight earnings are the precise economic equivalent of export earnings. Even if it were possible to do so, it would not make economic sense to accept heavy losses on our shipping services merely to provide a general and unselective subsidy for a part of the cross-Channel trade carried by the services and over the routes of one particular company.
The Irish company will be requested to examine all the factors and elements which together constitute the basis for a nationally orientated commercial policy. Since this old established company is coming under new management and control, it will be desirable to outline them briefly:
(1) An analysis of the cross-Channel merchandise freight market.
This involves some assumptions as to the growth of trade over the next ten years—its content, related to the detailed analysis prepared for the economic programme; its division between merchandise suitable for containers or pallet and for other means.
(2) The same examination in relation to livestock and a critical analysis of the cycles in cattle exports—the possibility of smoothing out the cycles and of changes in the volume of exports.
(3) An analysis of the present-day traffic and its content related to method of packing, use of unit loads, the available cargo space, the frequencies of sailings, onward road and rail services and destinations.
(4) The evaluation of efficiency and productivity in regard to all the above elements of study, in turn related to the handling at the ports, movement of merchandise from port to ship, the stowage of cargo and utilisation of space, the costs of ship operation, the costs of maintenance, the keeping of clerical records, accountancy, stock control and so forth.
(5) The examination of the passenger traffic facilities in respect of tourists and Irish people coming on family visits, both in relation to amenities and to future potential. This study would, of course, extend to the very vital contribution of the B. & I. to motor car traffic to and from Ireland.
(6) The examination of the sales organisation.
There is a whole complex series of problems, referred to by consultants and by experts, connected with joint marketing, the amount, size of consignment, packaging, and how exporters can secure lower transport costs by more careful examination of their procedures under every head.
(7) These elements having been examined, the company would base its conclusions and decisions on the following general principles:
(i) The provision of the most economical, efficient service to advance the trade of the country.
(ii) The assessment of commercial viability.
(iii) The continuation and further development of the best possible communications and relations with the staff at all levels in order that growth of productivity may be fully understood and linked with conditions of employment and monetary reward.
May I make it absolutely clear that the new Board will inherit a respectable tradition of competence in freight handling. Relatively few complaints have come my way on the freight side. A few complaints have been evident in regard to the second-class passenger facilities. Considerable improvements have been made in the past two years and this year further improvements.
The new Board will, I am certain, be able to effect progress, although quick results cannot be expected. The staff will, I am sure, work together with the object of demonstrating that a wholly Irish owned and managed cross-Channel shipping company can show the same spirit of endeavour as, for example, the cross-Channel national airline has already done. For this there must be enthusiasm on all sides.
I have thought it well to give a realistic report on the present shipping position so as to dispel all talk of subsidies. On the other hand, I should like to affirm my confidence and that of the Government that under wholly Irish direction and management, and with the assistance of modern management and other techniques and the support of the trading community, the B. & I. can render services to the community with greater efficiency and satisfaction and, in due course, provide a reasonable return on the investment we are now making.
