Time for a sea change
AT THE risk of sounding like Victor Meldrew – I don’t believe it! The States rejecting the recommendations of the Pay Review Panel, that is.
Not expecting it to be contentious, I didn’t listen to the debate, so I look forward to reading Hansard when it is published and providing you with my thoughts.
In the meantime, it does look like a major break with convention, and a clear, logical, evidence-based opportunity to save £200,000 being thrown away – where exactly is the commitment to save money?
Onto a different subject.
A couple of weeks ago my wife and I travelled by Condor to Poole. We were lucky – everything was on time and the crossing itself was fine. What disappointed us was quite a small thing, just after checking in.
We decided to buy a cup of tea from the Condor ‘cafe’ trailer, which was OK except that the milk was little plastic containers of UHT milk. Why? They have a fridge in the trailer for soft drinks, so why not keep some fresh milk?
What made it a little worse was that the only waste bin was a black bag, so nowhere to separate out anything which is recyclable. A shame.
But the main subject I want to discuss is the potential sale of Condor.
To start by stating the obvious, it provides a true lifeline service. Virtually all of our freight is brought in by Condor, something made even more important over the past few years because supermarkets have little or no food warehousing capacity – often products come off the boat and go straight onto the shelves.
For this reason, we, and especially the States, should be very concerned with any sale of Condor.
It is fair to assume that the volume of freight going to Jersey is greater than here and my understanding is that it would be very unlikely to be economical to have a ferry service for Guernsey alone. This means that, unlike with airlines, the Channel Islands are considered to be one market for ferry services and we are linked to whatever Jersey does.
Unlike Guernsey, Jersey has a ro-ro ramp agreement with Condor. While the agreement does not stop other operators serving Jersey, it does say that Jersey will grant a licence to other operators only if they provide the same level of service as Condor.
Since a new operator would need at least four ships, the result of the agreement is that Condor has effectively got a monopoly on freight and passenger services.
Why should that concern us?
Well, retailers often cite freight costs as a reason for higher prices, so is Condor using this monopolistic position to its benefit? I do not have the information to say one way or the other, but my experience in corporate finance is that companies owned by private equity funds often have a pressure to maximise profits, especially when they are being sold.
The rumoured price of around £300m. looks high but is not the end of the story. All of Condor’s ships are getting on a bit – Goodwill was built in 1996 and the Clipper in 1999. I know some other operators depreciate their ships over 25 years so these are nearing the end of their lives. Liberation is not as old, but does seem to suffer greater operating stresses than it was designed for and so may need to be replaced in the medium rather than long-term.
This means additional costs for a buyer – costs it will need to recoup from ferry users.
The concern is that if an operator pays too much, either service will drop or prices rise.
The big question is what can our governments do? After all, this is the sale of a private company.
The first aspect to consider is in the hands of Jersey – should they renew their ramp agreement? Clearly it provides Condor with security against competition, therefore helping to protect their future income. As a result, it helps to support the value, and therefore the price, of the company.
There is sound logic for the agreement: that the certainty it provides to Condor would reduce income risk and make long-term investment in vessels a more attractive option. The question is, has that happened?
The majority of opinions I have heard is that the Liberation is not the best type of vessel for a cross-Channel service. In which case, the ramp agreement may be positive for Condor, but has it resulted in Condor making the best investment decisions for the islands? Many will think not.
I think Jersey should make it known that there is no guarantee the ramp agreement will be replaced or extended. Without that agreement, income projections become less certain, and therefore the price of Condor should fall.
What could our government do? I am not suggesting we buy Condor, but I think there is an argument for getting involved with any buyer – perhaps some joint venture. Perhaps providing funding to replace the vessels – obviously this would have to be on commercial terms, but this is what the French government has in place with Brittany Ferries.
The ferry service is critical to Guernsey, possibly more so than Aurigny, not only for when we go on holiday but also for virtually all of the goods imported into the island – therefore our governments would be failing us if they just sit back passively. They need to act to minimise the price and ensure the new owner has the right long-term vision so we have the ferry service we need.
To end on a positive note, as I mentioned, we had two very nice crossings with considerate, helpful and polite staff – so not all is bad with Condor.