The Government, in March 1965, purchased from Coast Lines Limited that company's wholly-owned subsidiary, the British and Irish Steam Packet Company Limited. The purchase price of £3,600,000 was based on valuation of the assets without any allowance for goodwill. The assets included three passenger/cargo/cattle vessels, six cargo/cattle vessels, properties at Dublin, Cork, Drogheda and Dundalk and liquid reserves amounting to £720,000. It was a condition of the purchase that the B & I should enter into an agreement appointing Coast Lines their agents in Britain for a period of 20 years at an agreed commission. The Government also had to give Coast Lines a written undertaking that the B & I would operate their business on strictly commercial lines as a self-supporting commercial entity without special measures which would place the B & I in an advantageous position as compared with Coast Lines.
When moving the Second Stage of the British and Irish Steam Packet Company Limited (Acquisition) Bill, 1965, my predecessor outlined the reasons why the Government had acquired the B & I. These were, mainly, to ensure effective Irish participation in the cross-Channel trade which was so important both from the point of view of tourism and our foreign trade. The B & I profits were diminishing rapidly and it was essential to acquire the company to ensure the continuation of its services as well as to ensure that in the rapidly changing situation in the cross-Channel services the national interest would receive proper consideration. He pointed out that the shipping trade was then facing a period of rapid evolutionary change which posed great difficulties for shipping lines operating conventional services.
The 1965 Bill provided for the operation of the company on a strictly commercial basis. There was no provision for Government assistance nor any provision for increasing the capital of the company. It was hoped that necessary new investment to meet the technological changes in the industry could be financed from loan capital which would be serviced from profits.
Following their appointment, the new board of the B & I decided, after full investigation, that the existing management structure in the B & I, which was geared to the overall management structure of Coast Lines, was not suitable to operation of the company as an independent Irish entity. The board recruited new management personnel with knowledge and experience in the marketing and financial fields and introduced a new management structure based in Dublin and including a modern sales and marketing organisation.
In order to compete effectively with the new passenger/car ferry services between Ireland and Britain introduced by their competitors and to stimulate the demand for this type of transport, which is particularly significant for the promotion and expansion of tourism, the B & I decided to replace their three conventional passenger/cargo/livestock vessels with car ferries. Two of these vessels have been brought into operation on the Dublin/Liverpool route and one on the Cork/Swansea route. The acquisition of these car ferries and the provision of the necessary terminals at Dublin, Cork, Liverpool and Swansea involved the company in capital investment and commitments of over £9 million. This sum was raised almost entirely by borrowing and the servicing of this borrowing has constituted a very heavy financial burden.
These services, however, have been operated on a profitable basis and the record shows their spectacular success. In 1966, 378,000 passengers were carried by the company. The serious outbreak of foot-and-mouth disease in Britain in 1967 contributed to a reduction in this figure to 306,000 in that year. In 1968, when the first car-ferry was introduced, the number of passengers carried increased to 360,000. This figure improved further to 480,000 in 1969 and 547,000 in 1970. The number of cars carried in 1968 was 43,000 rising to 78,000 in 1969 and 82,000 in 1970. Although they only commenced car-ferry operations in 1968 the company now control 37½ per cent of this market. I should add, perhaps, that these up-to-date vessels enabled B & I to pioneer the roll-on/ roll-off type of freight facility in this country. Now they are the only Irish operator of this type of service which is increasing in popularity. In 1968 they carried 5,157 wheeled-transport units, increasing to 14,300 units and 24,120 units in 1969 and 1970 respectively. These figures represent an estimated 30,000 tons, 90,000 tons and 140,000 tons of freight in each of the years 1968, 1969 and 1970 respectively.
In earlier years livestock traffic had been one of the main and most profitable activities of the B & I. Over recent years, however, this position has altered substantially. British Rail decided in 1968 to concentrate their declining stock of cattle wagons at Holyhead and were no longer able to guarantee an adequate supply of rail wagons at Birkenhead. This, and the preference of shippers for onward transport by rail in Britain, resulted in a fall-off in the numbers of cattle shipped by the B & I. Where, in 1966, the company had carried 176,000 head of cattle to Birkenhead, in 1969 they carried only 49,000 and none at all in 1970. In the years 1968 and 1969 they lost £376,000 on this traffic. A further factor was the announcement by the Mersey Docks and Harbour Board, which controls Birkenhead, that livestock facilities at that port would be closed down if the port were not guaranteed an annual throughout of 200,000 head of cattle and an annual income of £103,000.
The likelihood that Birkenhead would no longer be available for Irish cattle obliged the B & I company and British Rail to re-examine their entire position vis-à-vis the livestock services. There was a serious danger that the B & I would be forced out of this trade entirely, leaving British Rail with a virtual monopoly of a sector of shipping of vital national interest. After prolonged negotiation between the B & I and British Rail, agreement was reached last year on a proposal, which had the approval of the livestock trade, to operate joint livestock services through a consortium. The agreement provided that the two companies would provide ships to a common pool and for the operation of regular scheduled services to Holyhead, for cattle requiring onward transport by rail, and to Heysham, for cattle destined for onward transport by road. The consortium is under the control of a management board, consisting of representatives of the two shipping companies and of the livestock trade. The new management board will determine rates and negotiate on any proposed increases with the Irish Livestock Exporters' and Traders' Association. Any such increases will be related strictly to new factors, such as increasing costs, and machinery will be established to relate rates to actual costs of operation.
This agreement secures considerable benefits for shippers as well as for the B & I. For shippers, regular scheduled services are guaranteed for an initial period of five years with the possibility of extension for a further five-year period. Shippers are also assured of reasonable stability in freight rates. Furthermore, for the first time, they have secured a voice in the cattle shipment business through their representatives on the management board. For the B & I, the agreement means elimination of their losses on livestock carryings and a continuing guarantee of participation in the cattle trade.
The agreement also recognised that the future of Birkenhead as an entry port for Irish cattle was in doubt. This development was a cause, and not a result, of the inter-company agreement.
The livestock trade recently made representations to me and to the Minister for Agriculture and Fisheries about the desirability of ensuring that Birkenhead should remain open to receive Irish cattle. I arranged for officers of both Departments to discuss the matter with the trade whose views I conveyed to the consortium. It must, however, be kept in mind that the question of the future of the livestock facilities at Birkenhead is one solely for the Mersey Docks and Harbour Board. What is essential, in the interests of the trade, is that there should be a guarantee of regular service between this country and Britain.
The most difficult problem, financially and otherwise, which faced the company following the take-over was the declining profitability of their conventional cargo services and it was found essential to convert to containers and unit loads as rapidly as possible. By early 1969 all the company's cargo was being carried in specialised unit load ships. B & I are now market leaders in this field and account for 35 per cent of total freight movements in the cross-Channel trade. To achieve the full economic benefits of containerisation, however, required the construction of automated terminals and the provision of cellular container vessels designed for automated handling of containers in conjunction with the terminals. Because of the high level of dock labour which had been employed in the loading and unloading of the conventional vessels, the changeover to container vessels and the progressive approach to complete automation of loading and discharge involved heavy redundancy.
The B & I have long recognised the need to deal with this problem and, in July, 1967, with British Rail and Bristol Seaway Ltd., initiated a survey of operations at the Dublin cross-Channel terminal with a view to formulating a charter for cross-Channel dock workers. This survey culminated in the "Murphy Report" of May, 1968. However, even before this important report was made, the three companies had introduced an interim scheme of redundancy compensation payments, jointly operated and financed by themselves.
Following completion of the survey, negotiations on the recommendations contained in the Murphy Report commenced, under the auspices of the Department of Labour, between the companies and the trade unions concerned. Arising from those negotiations, the first stage of implementation of the Murphy recommendations on redundancy was the introduction, in January, 1969, of the voluntary options scheme. This replaced the interim scheme which had operated since 1967. Basically, both schemes provided for payment of a lump-sum to a docker on his retirement, together with a weekly pension in the case of those dockers with the necessary qualifying years of service. Depending on age and service, dockers can now qualify for lump-sum payments up to a maximum of £1,500 and for pensions up to a maximum of £7 per week. A total of 223 dockers who opted for retirement have benefited from the schemes to date. This has resulted in a reduction in the number of dockers on the register from 446 in September, 1967, to the present-day level of 223. Negotiations with the unions are continuing on the full implementation of the Murphy Report proposals and it is hoped that agreement will be reached in the near future. This will involve the B & I Company in further heavy redundancy payments to their dockers.
The company's full freight plan was estimated to cost £9 million and it had been hoped to find the necessary finance mainly by commercial borrowing and partly from internal resources including the disposal of redundant assets. The company were also exploring, in the context of their freight plan, the possibility of reaching an understanding with British Rail, their principal competitor, on the rational long-term development of cargo services between Ireland and Britain which would exclude unnecessary duplication and, by being open to all container operators at standard rates, would avoid the dangers of monopoly.
The company's development and the implementation of their plans have thus made excellent physical progress, but financial problems have arisen. Apart from the heavy losses sustained in livestock carryings, the company were involved in very heavy losses due to strikes at Liverpool in three successive years and to the outbreaks of foot and mouth disease in 1967-68. These, together with the maintenance strike in 1969 and the British dock strike in 1970, involved the company in losses estimated at nearly £700,000. The disposal of their older vessels, particularly the passenger/cargo/cattle vessels, yielded £1 million less than the figure at which they had been taken over. This was due to premature obsolescence of their passenger/cargo/cattle vessels because of the rapid development of specialised cargo, ferry and container vessels and also because newly adopted international fire safety regulations require costly modifications in their vessels which reduced their attractiveness to potential purchasers overseas.
By the end of 1969 the B & I found themselves at a crucial stage of their development. Apart from the financial difficulties caused by unforeseen losses and the heavy drain on liquidity imposed by the servicing of substantial loan capital, the company found that British Rail had also committed themselves to a major programme of containerisation with new cellular container ships and automated terminals on the same lines as their own freight plan. It was known that, in order to secure the volume of traffic necessary for economic operation of their new ships and terminals, British Rail aimed at securing a substantial increase in their share of the market. The developing situation threatened to bring about a freight war in the cross-Channel trade which would wipe out small independent operators and involve the two major companies in over-investment and heavy losses which would eventually fall on the taxpayer.
The B & I reported this situation to me at the beginning of 1970. They pointed out that in the absence of some agreement with British Rail they would have to face a period of very substantial losses until the growth in traffic would permit both companies to secure adequate traffic for economic operation. The B & I were also concerned that in a situation of unrestricted and uneconomic competition they should be supported by CIE who had developed container operations of their own on the Irish Sea in association with one of the other British nationalised transport companies. CIE operated containers only and not ships and with their British partner aimed to ship containers through the cheapest services available. In this very complex and rapidly changing situation I decided to engage specialised consultants to examine and clarify the issues arising. I invited McKinsey and Company Inc. to undertake this task because of their special knowledge and experience in this field. They had already carried out major studies for British Rail on which, inter alia, were based British Rail freight plans for the Irish Sea. They were engaged in similar studies for the European Railways Consortium.
British Rail were kind enough to agree that McKinseys could use the same consultancy team that worked for them and could also use the data already supplied by British Rail. As I announced at the time, the study aimed in the first instance at analysing operational methods, routes and scales of service and identifying and contrasting possible alternative policies for the Irish State-owned operators. In the light of this part of the study, adoption and implementation of definitive commercial policies would be considered. I made it clear that any measures recommended would have to be in accord with overall Government policy in relation to cross-Channel shipping which aims at ensuring efficient services at competitive rates for shippers, maintaining an equitable level of Irish participation in the trade, encouraging participation by private operators and excluding restrictive practices which are contrary to the public interest.
In their first report to me McKinsey and Company found that both the B & I and British Rail had each separately planned the most economic services for their own routes but that the total market for some years to come was not large enough for both the B & I and British Rail to obtain the traffic levels on which their plans were based. There would thus be considerable over-capacity throughout the early 1970s. Two separate Dublin terminals and too much ship capacity were being provided. British Rail were preparing to improve their market share by cutting rates which could mainly be at the expense of the B & I and B & I would have to match these rates to stay in business. Both companies would lose money which would ultimately have to be met by the taxpayers in Britain and Ireland.
McKinseys estimated that if the shipping operations of both companies were rationalised on lines recommended by them the two companies would be able to reduce their total shipping costs by over 12 per cent and achieve higher load factors. On the basis of the information available at the time of their report McKinseys estimated that there would also be a saving from operating to a joint terminal on a one-berth system at Dublin. However, escalating costs have in the meantime eliminated any prospect of such saving; as separate berth operation is now cheaper, the companies intend to proceed on that basis but to set up a joint terminal operating company to control and manage the two berths as a unit.
At my request, McKinsey and Co. communicated their report to British Rail also. At subsequent meetings between British Rail and the B & I, agreement in principle on rationalisation of shipping operations was reached, and settlement of the various operational and financial details leading to formal agreement is proceeding. This will lead to substantial savings in both operational costs, and capital costs in the purchase of equipment and ships as far as the two companies are concerned.
These agreements should not only protect the companies against losses caused by the operation of excess capacity but ensure the provision of adequate services at the lowest real cost with consequent benefit to both exporters and importers. On the other hand, the agreements do not constitute any kind of monopoly and will not provide unfair competition for independent operators of economic services on other routes.
McKinsey and Co. subsequently reported to me on the steps which might be taken towards the integration of the marketing operations of B & I and CIE. They envisaged the possible hiving-off of marketing by both concerns to a separate jointly managed undertaking which should enter into a partnership with a similarly representative British nationalised undertaking with safeguards against monopoly operation. These recommendations have been under examination by the B & I and CIE in consultation with the different British nationalised undertakings which would be concerned.
Because of the distribution of functions among the British nationalised transport bodies concerned and their commercial relations with B & I and CIE respectively, the proposal to establish a joint CIE-B & I marketing organisation was not found to be practicable and its adoption could threaten the proposed agreement between B & I and British Rail for rationalisation of ships and terminals and resurrect the threat of a rate war. B & I and CIE have now agreed, however, on marketing policies which will safeguard the efficient and economic operation of ships and terminals and provide for standard rates of charge for all users, public and private sector alike. These objectives provide for separation of the operation of ships and terminals from the marketing and through-forwarding of containers. B & I (Freightway) will operate as a separate marketing and through-for-warding operator on both sides of the Irish Sea. CIE will continue in partnership with the companies of the National Freight Corporation in Britain as a second marketing and through-forwarding organisation using the ships and terminals of British Rail and B & I or other nationalised shipping companies as appropriate. The ships will be open to other through-forwarding operators and marketers of containers at the same standard rates. This arrangement, which is expected to be acceptable to the British partners, will ensure the most economic utilisation of the heavy investment in ships and terminals by British Rail and B & I while avoiding monopoly and keeping rates at the lowest economic levels.
The proposed agreements and arrangements I have outlined should ensure the provision of satisfactory services at low cost for years to come while safeguarding the heavy public investment in the B & I.
I took advantage of the availability of McKinseys to ask them to examine and report also on the financial structure and capital requirements of the B & I. They reported to me that the company is in need of extra capital; that too high a proportion of its existing capital is in the form of loans, the servicing of which causes an undue burden and that additional equity capital to meet the company's immediate financial needs should be provided by the State. McKinseys consider that if this capital was made available, and provided rationalisation was agreed with British Rail and was speedily implemented, the company would be in a more favourable position to operate successfully on a commercial and competitive basis. They assessed the need for new equity capital at £3 million. This would be required principally to meet the B & I share of the cost of the new container terminal at Dublin, the cost of containers and other equipment and the buying out of the Coast Lines agreement. McKinseys confirmed the B & I viewpoint that the existing agency agreement with Coast Lines is now an anomaly. The agency concept had become outmoded because of the company's vigorous marketing by their own personnel in Britain of a door-to-door service and because of the changeover from conventional vessels to car ferries and unit-load ships.
The B & I in co-operation with the Holland/America Line inaugurated a twice-weekly container service at the end of April, 1971, linking the ports of Cork and Dublin with Rotterdam and Le Havre. This co-operation between the two companies offers a comprehensive door-to-door container service to and from the mainland of Europe. The service should prove a valuable asset to this country's continental trade especially now that we may be on the threshold of entry to EEC.
While this Bill provides for the contribution of up to £3 million by the Minister for Finance for shares in the B & I it is not contemplated that this new investment should be made all at once. In present financial circumstances it is not foreseen that more than a part of the equity required can be made available in the coming financial year. The B & I may, therefore, have to increase its borrowing for the time being and for this reason the Bill also provides that the Minister for Finance should be authorised to guarantee borrowings by the company. I should emphasise that the company has received no subsidies and no subsidy is provided for in the present Bill.
Since 1965 the whole structure of the company has been transformed. The company now provides a fully integrated shipping and marketing service. Their passenger services have been remodelled by the introduction of three modern car-ferries signifying the company's new role in passenger transport and their full commitment to the development of tourism. These vessels also enable the company to cater for the growing roll-on/roll-off freight traffic. From the carriage of conventional loose-stow freight in obsolete vessels, the B & I have developed to the position of offering through their marketing organisation a door-to-door unit-load service using cellular ships, automated terminals and freightliner trains. Through their agency agreements with foreign container operators they can offer service not alone to Britain and the continent but to North America and Australia. Mass-movement sea operations, coupled with an efficient inland network have produced improved services and operational economies for the company, the benefits of which continue to be passed on to shippers.
It may be said that these achievements during the company's early development stage have not so far provided commercial profits. However, the company's investments have now begun to pay off; the company made a profit in 1970. It must also be realised in retrospect that the company were faced with an impossible task when they attempted to undertake so vast a programme of capital investment on borrowing alone in the face of rising costs, rapid changes in the commercial environment and a number of unforeseen difficulties which involved them in heavy losses. I think it is enough to point out that when the company commenced operations in 1965 their fixed assets were valued at £1.2 million. At the end of 1970 they were valued at £8 million. Moreover, as I have explained, these changes brought about great benefit to the community and to shippers. Whereas the average sea freight realisation per ton of cargo through the Port of Dublin to the B & I in 1966 amounted to 102s 7d, in 1970 it amounted to 85s despite the inflationary increase in cost since then.
I confidently recommend the Bill to the House and I hope Senators will join with me in congratulating the board, management and staff of the B & I on the progress they have made since the newly purchased company was entrusted to their care by the Oireachtas in 1965.
