Oireachtas Joint and Select Committees
Wednesday, 5 February 2014
Joint Oireachtas Committee on Transport and Communications
Competition in Ports Sector: Competition Authority
The purpose of today's meeting is to meet the Competition Authority to discuss its study of competition in the Irish ports sector and how port services might be improved. On behalf of the committee, I welcome from the Competition Authority Ms Isolde Goggin, chairperson, and Ms Vivienne Ryan, Mr. Ciarán Aylward, Mr. Ciarán Quigley and Mr. David McFadden.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or an entity by name or in such a way as to make him, her or it identifiable. I advise that any submissions or opening statements submitted to the committee will be published on its website after the meeting.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I invite Ms Goggin to make her opening remarks.
Ms Isolde Goggin:
I thank the committee for the invitation to discuss our work on competition in the ports sector. We are pleased to be here. I am accompanied by Ms Vivienne Ryan. She is head of the advocacy division that examines studies into markets where there is not an enforcement issue but where we feel areas of competition could be improved. I am also accompanied by Mr. Ciarán Aylward, a case officer in the Competition Authority. He is the main author of the ports study and I intend to direct hard questions to him. Mr. Ciarán Quigley is the secretary of the authority and head of corporate services and Dr. David McFadden is our legal adviser.
Let me put the study in context. We got a request from the Minister for Jobs, Enterprise and Innovation to carry out a study into the ports sector in the context of the Action Plan for Jobs. The underlying motivation for the study is competitiveness, jobs, keeping exports competitive and import prices down, and the role that can be played by the ports study. Timelines were set out in the Action Plan for Jobs. We worked towards that and produced the study last November.
We asked whether the competition in the Irish ports sector worked well for consumers and the economy. In many ways the ports sector has a very low profile. It is enormously important for exports to remain competitive. As an island nation we are dependent on ports. Therefore, our future economic success depends on our ability to trade. Prices are very sensitive to transport costs, particularly to port costs, and unnecessarily high charges or inefficient ports will increase the cost of importing and exporting goods. It is estimated that a 10% hike in transports costs can lead to trade volumes being reduced by more than 20%. Additionally, it is not just about costs but efficiency. It is about the throughput of ports and the speed with which goods are turned around or brought in and out. It is estimated that every extra day in transit reduces trade volumes by about 1%.
As part of the process of conducting a study, we decided in December 2012 to issue a consultation document. The rationale behind it was to verify our understanding of how competition works and invite interested parties to identify ways to strengthen competition. Before that we held a series of one-to-one consultations and had over 30 meetings with those involved such as Departments, public agencies, industry representatives, the ports and transport companies, port authorities and other port users. The consultation helped to build an understanding of the sector and identified key issues because not a whole lot has been written about the sector.
We received 33 submissions and the response was generally very positive because people were in agreement and indicated how it works. We also had a very good response from the various stakeholders because we sought further information and meetings to verify our understanding. They put a lot of time and effort into their responses and we thank them all for their co-operation.
There are two aspects of ports that are important: first, competition between ports, or inter-port competition; and second, intra-port competition, which is competition in the same port between different terminals and different service providers. The main focus of the study was on unitised cargo, of which there are two main types. The first is lo-lo, or lift-on/lift-off cargo, for which large cranes and port infrastructure are needed to move cargo in and out; the second is ro-ro, or roll-on/roll-off cargo, which is driven on and off a ship. There is also bulk cargo, which refers to large and heavy material such as liquid fuel, coal, fertiliser or animal feed. Exports are dominated by the unitised ro-ro and lo-lo cargo, while imports are dominated by bulk cargo.
The kinds of thing that influence inter-port competition are port location, traffic trends, the quality of road infrastructure, haulage costs, the degree of specialisation at ports and service frequency.
We found that the level of competition between ports in Ireland, that is, inter-port competition, is limited as is the scope for inter-port competition, mainly for historical and geographical reasons. Lo-lo terminal users increasingly utilise larger ports like Dublin, Belfast and Cork that are located next to large urban centres. They have the volume of traffic that justifies investment in the port infrastructure. Exporters and importers value the level of choice, service and frequency, while container shipping lines value large scale terminals that can minimise cost by facilitating bigger vessels and larger more efficient cranes.
Competition for ro-ro services is limited to east coast ports, including from Belfast, Warrenpoint, Drogheda, Dublin, Rosslare and across to the different ports in the UK. Frequency is a big issue because many ro-ro services are time dependent where people look at the supply chain from start to finish. They need to minimise the transit times and fit in the rest times for lorry drivers and so on so frequency of service is a big deal for those users. Where there is heavy bulk cargo, customers will generally seek to use the nearest port as happens at Shannon and Cork. I sent a copy of some documents to members of the committee which includes some useful diagrammes. Much of the bulk cargo goes into Shannon, coal into Moneypoint and aluminium ore into Aughinish Alumina. They are location dependent. Customers will not go to some other ports and incur the transports costs to go to those industries. Similarly Whitegate is used for the oil going into Cork.
Customers will also seek to use the nearest largest port which has the greatest frequency of service. Ensuring that competition within a port, that is, inter-port competition, works well is very important. It is particularly important in Dublin Port because it is the largest port in the country and the only one in the State that has grown its market share since 2005, and export focused cargo is becoming increasingly concentrated there with the improvements in the road network. In 2012, Dublin handled 43% of ro-ro and 57% of lo-lo cargo.
We looked at the leasing and licensing arrangements for lo-lo terminal operators and for service providers in Dublin Port. We are concerned that they may be restricting competition because they are very long arrangements. Some of the arrangements were entered into about 20 years ago. One has 110 years left of the lease and one has 85 years left and there is no scope for improvements in terms of performance measures. The third is providing lo-lo services under a general stevedore licence granted 20 years ago and is due for renewal. It can be renewed for another 20 years on identical terms once certain conditions are met. That is a concern. Those are very long timescales and it is hard to see how anybody else can get in. If they could do it better, how are they to get in because of the restricted capacity? What tends to happen if there are restrictions in competition is that the service gets worse and the charges increase.
While Dublin Port Company can impose performance measures on the licensed operator it cannot do it on the lease holders which have 85 and 110 years left to run. We recommended that Dublin Port Company should consider reducing the duration of those leases to address their anti-competitive impact. It should look at whether the repeated renewal of the licence of the third lo-lo terminal operator should be amended to facilitate new entry. We think those leases should be awarded for a shorter period on a fair, reasonable and non-discriminatory basis and should include efficiency measures that are enforced by Dublin Port Company. That means turnaround times and so on and ensuring that the operator is getting the cargo in and providing a good service to users.
There are only two general stevedore licences for the common user quays in Dublin Port - effectively, one operates on the northside and the other operates on the southside - and the licences are for 20 year periods and are automatically renewed. Dublin Port Company should issue at least two new general stevedore licences and should not have the clause in the current licences which allows for repeated renewal on more or less the same terms and conditions. In all ports, general stevedore licences should be granted to applicants on a fair, reasonable and non-discriminatory basis or through a tendering process. If cargo lines want to self-handle they should have that opportunity because many of them do that and are able to save money in that way and do not necessarily have to hire the services of a stevedore.
One issue that arose in the consultations when we talked to people was the idea of port closure and amalgamation. If ports are struggling, amalgamation may reduce and lower administrative costs. It is not likely to have much effect on inter-port competition or to generate the necessary scale to compete with Dublin Port. If a merger between ports is being proposed, we recommend that the Department of Transport, Tourism and Sport be required to seek the views of the authority, as we have a general function to look at mergers within the economy but they have to be above a certain threshold and normally the ports would be below that threshold. Either the Department of Transport, Tourism and Sport should seek our views or there is a facility to designate a certain class of mergers as being notifiable to the authority regardless of the turnover. That could be done by our own Minister. We recommend that the Department of Transport, Tourism and Sport should seek our views on competition effects of possible port mergers and amalgamations. The ports should be given intra-port competition as a key objective, that is, if a port can sustain competition for ancillary services, the stevedoring licences and so on. Some port authorities do not recognise the benefits of intra-port competition as a way of attracting users. In regard to competition and monopoly it has been said that the best of all monopoly profits is a quiet life. Sometimes if one has a single monopoly and a quiet life one does not feel the urge to do everything one possibly can to promote competition.
Investment to improve road and rail infrastructure may be justified for a number of reasons, one of which is competition, but also to remove bottlenecks or to abide by EU requirements for access to ports or to drive regional development objectives. We do not consider that type of investment will be warranted purely on competition grounds. We recommend that people consider it from other points of view but not to put money into ports on the grounds that it will drag traffic away from larger ports because the experience shows it does not happen but goes the other way around.
An issue that haunted the authority throughout the study was the difficulty in measuring performance and having access to proper data. This is not just an Irish phenomenon, it appears to be the case generally that ports differ a great deal. It is very hard to compare them across countries. If we take a concentration of ports along the North Sea coast such as Rotterdam, Amsterdam and Antwerp they do much transit traffic and are not just looking at traffic for that country, whereas here, being an island nation, the traffic is in and out, it is for Ireland. It is a bit different here than in continental countries. We recommend that the Department of Transport, Tourism and Sport should prioritise the collection and development of new data metrics and port performance measures for the main ports in order that it is able to track performance over time and see that the ports are improving. The study was published in November. Its recommendations are mainly directed towards the Department of Transport, Tourism and Sport, the Department of Jobs, Enterprise and Innovation and Dublin Port Company. The Department of Transport, Tourism and Sport has committed to responding to all the recommendations within six months of publication. We are interacting on a constant basis with our parent department, the Department of Jobs, Enterprise and Innovation.
Dublin Port Company is reviewing its franchise arrangements and concluded its consultation at the end of last week. It had held off doing so until it had an opportunity to look at our study. In its review Dublin Port Company acknowledged the length of the leases and licences and said that it would not consider granting leases and licences on such terms today and will seek to replace existing leases and licences with more modern and appropriate franchises. It indicated that there has been substantial investment and growth over the years and has raised the question as to how far it can go to undo the terms of an existing licence. We will await the outcome of that review and the response from the Department of Transport, Tourism and Sport. This will be an ongoing process when we will be working with all the relevant parties. We will be happy to answer any questions the committee may have.
Thank you, Ms Goggin, for all that information. Before I hand over to members I wish to put a quick question. I note in today's edition of The Irish Timesa big investment in Ringaskiddy port, which is categorised as a tier 1 port. For clarification purposes, what are the other tier 1 ports? What is a tier 2 port? Perhaps we can have examples to clarify that?
Mr. Ciarán Aylward:
It is quite similar to the categorisation that the EU Commission has adopted. Tier 1 ports are deemed to be of high national significance and generally ports whose overall tonnage exceeds 20% of the national total. Dublin, Cork and Shannon Foynes are tier 1 ports. They are in line to get priority in terms of investment from the European Union.
The tier 2 ports, which are of regional significance, would be Waterford and Rosslare.
I thank Ms Goggin and her colleagues for their presentation. Their study is very important in terms of ascertaining the level of competition and how the ports are operating. At a time when Ireland is performing well when it comes to exports, any ideas or contributions towards improving that performance are worthy of consideration.
Traditionally, there have been very lengthy leases on many of our ports, which do not allow much scope for new operators to enter the fray. The delegates indicated that these leases should be reviewed. I am not sure how that might work and am very interested to hear the witnesses' thoughts in this regard. I assume operators would, in general, be very protective of their leases.
Wage structures, the workforce and the potential for job creation are not mentioned in the review, presumably because they were not part of the remit. There has been a great deal of discussion in recent times about the salaries being paid to chief executive officers in various organisations and management companies. Will the witnesses comment on that?
There is little or no mention of the potential for some of our ports to enhance their leisure facilities, which is another issue we have discussed in this committee. Will the delegates indicate whether they took account of that issue as part of their review?
Road and rail infrastructure is an issue that is raised regularly in the committee, particularly in the context of the inadequacy of access at certain ports. Does Ms Goggin have any ideas in that regard?
On the question of combining ports, I am not clear which particular ports might be considered suitable in that context. I do not doubt there is scope for more interaction between different ports, including shared management. I am interested to hear more from the witnesses on how such mergers might work. An issue that comes immediately to mind is that people are generally very protective of their own patch. How is it envisaged that different ports might operate together and what benefits are foreseen from such co-operation? Would those benefits be primarily monetary, for example, or would there also be benefits in terms of tourism?
There has been a great deal of talk about new ports coming on stream. For instance, a location near Drogheda has been mooted as suitable for a deep-sea port. Do the delegates have any ideas as to whether there is scope for new facilities in new locations?
Ms Isolde Goggin:
Deputy Ellis has raised several interesting questions. In terms of how leases might be changed, we are looking to Dublin Port Company to come up with ideas in that regard. The company has acknowledged that existing leases are too long but the reality, as the Deputy noted, is that contracts are in place and cannot not easily be altered. The company might certainly look at whether it would be possible to negotiate some changes to the leases. Even if their duration cannot be changed, we are strongly of the view that consideration should be given to building in performance measures. The operators might be obliged, for instance, to ensure quick turnaround times and the provision of a good professional service to users.
We did not look at wage structures and the workforce, but we do see scope for more companies to enter the sector. New entrants would, of course, be looking to grow jobs and employment. We have made recommendations regarding stevedoring licences, because what is there now seems quite restrictive and operators do not have the incentives they could have to grow competition.
The Deputy is correct that we did not look at the leisure industry, including cruise and passenger business. Our mandate was very much focused on competitiveness in the sense of jobs and exports and in the context of the Action Plan for Jobs. The cruise sector is growing, but many of its concerns are common to operators across all cargo types. Improvements to services in the ports will benefit cruise licence holders in the same way they benefit other operators. It should be noted that cruise vessels account for less than 2% of the total number of vessel calls to Irish ports. Passenger and tourist car numbers have been declining over the past decade. As with cruise operators, the same types of issues arise for passenger operators as do for all operators.
Mr. Aylward referred to the categorisation of ports as tier 1, 2 or 3, which is the classification system operated by the Department of Transport, Tourism and Sport under its national ports policy. Tier 3 ports have been instructed to look at their tourism potential, leisure facilities and amenities for both larger and smaller vessels. This aspect, as I said, was outside of our competitiveness remit, which required us to focus on tier 1 and tier 2 ports because they are the ones of national and regional significance.
In regard to management structures, we did not look at that issue from the bottom up, but we did make recommendations that management be given a greater incentive and mandate to promote competitiveness by providing better services and seeking to attract more business.
The Deputy asked about amalgamations. Dublin Port took over Dundalk Port because, as I understand it, the latter was losing money. When it comes to amalgamations, the benefits are more in the back office end of things. Management and administration functions might be merged, but that will not make more ships call to Dundalk, for instance, if they are not going there for other reasons. We took into consideration the rationale for amalgamations, but we do not see them as being of critical importance in terms of promoting competition. In a situation where two adjacent ports come together, there might be a negative impact on competition. Normally when two companies with, say, a turnover of €40 million each seek to merge, there is an obligation on them to notify us of the proposal. We will give clearance or otherwise, generally within a month. Where particular issues arise, we can extend the period of consideration before coming to a decision. Our view is that it would be worthwhile to have a similar process for port mergers, even if they are below the threshold, in order to prevent mergers that might damage competition.
We did examine the proposed Bremore development north of Dublin and concluded that it could place more competitive pressure on Dublin Port. Under the national ports policy, no further Exchequer funding will be forthcoming, so this and any similar projects will be dependent on private investment, significant increases in trade and a capacity to attract container shipping lines away from Dublin Port. The current climate is not particularly conducive in terms of attracting people who are looking to make that type of investment. The Dublin Port tunnel and the new motorways have greatly improved access to Dublin Port in the past ten years, which makes the city more attractive for food exporters and others who are very sensitive to such factors as frequency of service, timing and so on. Dublin Port is well placed to serve the needs of the greater Dublin area. Looking through the competitiveness lens, our view is that the Government should focus first on enabling ports like Cork, Shannon and Waterford to develop more and better services and ensuring competition within Dublin Port is working as well as possible. These, in our view, are the priority issues at this time. In five or ten years, when the climate has changed, we might have a different view.
Mr. Ciarán Aylward:
As Ms Goggin mentioned the development of Bremore Ireland Port will take significant private investment and will require the shipping lines which invest to commit to it. At present, Dublin Port, in particular since the development of Dublin Port tunnel, is serving the export-import industry very well. When Stena Line and Irish Ferries ships come in at 5.30 a.m. to 6 a.m. one sees a trail of trucks go up the port tunnel and out on to the M50 to serve the central distribution centres of the food and chemical industries. That appears to be working quite well. It would be quite difficult for another port to attract the shipping lines from Dublin Port.
I thank the delegation for coming before the joint committee. From the perspective of public policy, this discussion is helpful and timely. The body of work of the Competition Authority will feed into the process of restructuring. I support the idea that the Department of Transport, Tourism and Sport would consult the Competition Authority in advance of restructuring of the port system.
I wish to make a slight correction to Mr. Aylward's contribution on the categorisation of the tiers structure of ports. He mentioned that the Port of Waterford and Rosslare Europort were regional ports. Tor the record, they are categorised as national ports. The tier 1 ports, which are responsible for 15% to 20% of overall tonnage through Irish ports, are Dublin Port, Shannon-Foynes Port and Port of Cork. The nationally significant - tier 2 - ports are Port of Waterford and Rosslare Europort. The remaining ports are tier 3 ports.
I represent the Waterford constituency. I am specifically looking at balanced regional development, something for which I have always argued. The infrastructure servicing Dublin Port, the Dublin Port tunnel and access to the motorways, is brilliant. Rosslare Europort and the Port of Waterford are the gateways to mainland Europe. All the main trunk roads and motorways are adjacent to both ports. The ports are also serviced by rail and major national infrastructure such as water and gas. I believe they have not been developed to their full potential. I am not taking the parochial view, but there is a push towards a dominant player in the sector. My fear is that if Dublin Port on the eastern seaboard continues to development at its present rate, it could almost monopolise imports and exports. I would have major concerns in that regard. That is the reason I think the Competition Authority's input is essential. The Competition Authority would have a broader view on how port infrastructure should develop. It would obviously be observing fair practice and fair competition.
Did the Competition Authority look at the destination of the imports that come in through Dublin Port? Is the cargo staying in the Dublin region or is it being transported beyond that region? That is an interesting factor because we need to be aware of how the internal transport costs are playing into the whole mix. Similarly, are the exports from Dublin Port originating mainly in the Dublin region or have they been transported from other regions for onward transport from Dublin Port? Has the Competition Authority gone into that level of detail? If we are to maintain healthy competition, we need to look at the regional movement of export and import cargo and consider utilising the potential of existing ports. Perhaps some of the traffic could be directed to other ports in a more efficient way.
Regarding proximity to trading partners, I repeat that the Port of Waterford and Rosslare Europort are nearest to mainland Europe. When transport costs were mentioned, I presume it was in reference to the cost of rail and road transport, but the proximity of the port to our trading partners is also a factor. Is the proximity of the Port of Waterford and Rosslare Europort to the ports in Great Britain and mainland Europe taken into account? How do the transport costs balance once they arrive on the mainland?
I note the concerns about existing practice and management. I would have serious concerns about the continuation of leases without a review of the terms and conditions. I am amazed that key performance indicators and efficiency measurements are not included in the new licensing applications for stevedores, for example. If they are not, should we as policy-makers not be asking questions on the reason they are not part of the licensing arrangement? What can be done about this in the short to medium term? Another Deputy mentioned that one cannot break long-term leases or licence arrangements, but when they come up for review, is it just a recommendation that the Competition Authority will look at the means of making them more competitive? Has the Competition Authority a view on what we can do about addressing that problem, which has not been under the spotlight?
What three things should change in the short term to improve competition in the port sector? I am aware that the Competition Authority has made recommendations, but I would like its representatives to outline the three things that should change in the medium term to improve competition in this area. This is very important for the economy, given the level of imports to and exports from our island nation.
Mr. Ciarán Aylward:
It is worth making the point that in recent decades our way of thinking about transport has changed. It is not just about what port one uses but the overall cost of transporting a product from A to B. An exporter in the south east wishing to send product to the Asian market must take many factors, including geography, on board. For example, it might be worthwhile to bring the product by road to Dublin or it might be worthwhile to transport it from Waterford. One must take account of the infrastructure, road and rail, the proximity to ports in other countries and also the onward connections from the port to Shanghai. One of the problems with Waterford Port in particular, is getting the cargo container onto a ship to Rotterdam for the outward journey to Shanghai. The demand for services in Waterford will not be as high as they are in Dublin.
In response to the Deputy's question about the origin and destination of cargo, some studies have been done and many of the imports are being sourced along the M50 region. It makes natural sense to send imports to Dublin Port. Generally there is more freedom when exporting products. Most of the food export companies are based around Cork, Tipperary and the south east, and many of them would tend to use the Port of Waterford and Rosslare Europort. It is worth mentioning that we formed a view from speaking to those involved in the Port of Waterford that they expected the new road would open up opportunities for Waterford Port, but in some ways it has harmed the port. When the road was poor, Glanbia, for example, might have preferred to use Waterford Port because it was cheaper for it, but with the brand new road, once their product is at Dublin Port, they have a greater choice of destination and a higher level of frequency which is particularly important for manufacturing firms. Waterford Port might have only one sailing on a Thursday but Dublin Port will have a frequent service. The cost to a company of missing an order is extremely high as jobs can be lost if they fail to supply on time, and that cost is much greater than the increase in the haulage charge to drive the product to Dublin.
The Department is looking at the management structure of Rosslare Europort in particular. The structure is different compared with other ports in Ireland. Rosslare Europort has a complicated structure and is partially owned by Irish Rail. It is not a semi-State. The view of hauliers and exporters in the south east is that more could be done to improve Rosslare Europort and there is a feeling that if the management was more proactive, more could be done to improve the quality of service.
Mr. Ciarán Aylward:
On performance measures in respect of stevedore licences, which matter is under consideration in Europe, among the factors that must be looked at are efficiency measures such as the number of lifts per hour versus the number of staff employed, tonnage per hour, ship turnaround times and so on. As mentioned by Ms Goggin, comparison between ports of efficiency measures for stevedores is difficult because ports do different things. For example, Shannon-Foynes Port is largely bulk operated while the Port of Waterford is largely lo-lo operated. It is akin to trying to compare apples and oranges. In the context of performance of stevedores, we are considering benchmarking their performance over a ten year period to see if there have been improvements. It is not perfect but it is a start. The Irish Maritime Development Office, IMDO, which comes under the remit of the Department of Transport, Tourism and Sport, is gathering the statistics in this regard. As this is a matter relevant to that Department's national ports policy, it is an issue it needs to address.
Ms Isolde Goggin:
I thank the Deputy for his support and suggestion that we be consulted in relation to mergers, which I believe would be very helpful. Reference was made to there being a push towards dominant players in the ports sector. It is true that the trend is that larger ports get bigger because they provide more services, attract better infrastructure and have greater frequency of services. However, there are other developments. In recent weeks there have been developments on the ferry side in terms of the new ferry from Rosslare to St. Nazaire in France and to Gijon in Spain. Irish Ferries will also operate a new route from Dublin to Cherbourg. Ports manage to attract or create business. However, we have not looked specifically at that issue.
The main focus of our study was intra-port competition and, if big ports tend to get bigger, which appears to be the trend in continental Europe, what can be done within those ports to ensure operations are run as efficiently as possible. There tends to be little change in terms of operators, and as such we would like to stir things up a bit. We were asked earlier what three things we would do in the short term. I do not believe things in the port sector ever happen in the short term as what is involved is big heavy infrastructural investments. We would like TPC Management to reduce, by way of negotiation, the leases under which the lo-lo terminals operate, building in efficiency measures and publishing them. Publishing this type of information adds a great deal to the public debate and allows people to see what is going on and whether things are improving from year to year. We would like to see more stevedoring and handling licences granted, which will act as an incentive for people to seek more business. We would also ask that licences in all ports be granted on a fair, reasonable and non-discriminatory basis or through tendering.
I welcome the delegation and thank them for their interesting submission. As stated, 90% of goods moving in and out of this country come through our ports. This means the manner in which ports operate is important to the overall national trade picture. Was analysis carried out of the impact of the charging structure in ports on the overall transport costs for Ireland? I acknowledge that is a very broad question and may be difficult to answer but I would welcome any information the witnesses can provide in that regard.
On the submissions received by the authority, did any of them raise the issue of the impact of increased competition on safety in ports or on industrial relations? I share the delegation's concerns in relation to the long leases issue in respect of the terminals and stevedores. Leases of 20 years in such a restricted market are quite lengthy. I take the point that competition is not always around the corner and people are not always readily available to carry out that work. I am interested in hearing the delegation's views on intra-terminal competition within our ports and on performance related targets for stevedores. It is disappointing that the only statistics to which the authority can look in the context of the performance of stevedores is performance indicators over the past ten years, which means it could be copperfastening poor performance over ten years. It cannot be beyond the authority to find some international ports with best practice or that have achieved what could be regarded as best practice. I submit that that would be a more appropriate way of looking at performance targets for stevedores.
I believe short term rolling leases, under which security not alone for the companies but the State could still be guaranteed, might be more appropriate than 20 year leases, including 20 year leases with automatic options to renew. This issue needs to be addressed. Many of the savings that can be achieved will come from larger vessels carrying larger loads but not necessitating larger ports. How will this impact on competition? While it might drive economies of scale in the short term, is there a longer term impact? Has the authority looked at any of the European initiatives introduced in this area? For example, would the Marco Polo and Motorways of the Sea initiatives, which encourage states to transport goods by sea rather than road, which initiatives are largely driven by carbon emissions targets and so on, improve our ports' ability to do business?
Mr. Ciarán Aylward:
In terms of actual costs, the literature to which we have looked in this regard indicates that the cost of moving goods through our ports in terms of overall transport costs is approximately 10%, including haulage costs of approximately 5%. The largest cost is generally cash and cargo handling, which is the stevedore and lo-lo handling charges, which amounts to 60% to 90%. As mentioned by Ms Goggin, it is not necessarily the cost that has a disproportionate effect on trade volumes. A 10% increase in transport costs results in a 20% decrease in terms of volume.
On the submissions, concern was raised about the safety issue, although more in the context of the level of space on quays in particular. The concern as expressed by the ports is that there should not be ten or 11 stevedores operating in a confined space. We are seeking information from the ports, supported by evidence, in regard to where limited space is available. If in some cases there is only limited space available and it is not possible to provide for ten operators in a quay space, there are ways of getting around this, including tendering, which would ensure competitive influence is retained. For example, where for safety reasons it is only possible to allow three operators in a particular space, a five year contract could be awarded and renewed thereafter.
In regard to intra-terminal competition, we have looked in depth at the different types of ports in Ireland, their sizes and the best management model for each. For example, Dublin port is a type of landlord port. When a port is large, it is generally operated by a public operator and private service providers operating under lease and licence. The economic literature indicates that in some cases it is better to have a tool port structure, whereby the port company is publicly owned but in some cases owns some of the infrastructure and leases out operation of the labour.
We believe that would work and would be a more efficient operation in ports such as Cork and Waterford. However, we feel more could be done in terms of internal competition. For example, in Cork all the lo-lo cranes are operated by the port company. Perhaps there could be two competing stevedores who get a contract to operate the same crane. That has been done in other countries and is often deemed to be best practice.
In terms of the lease lengths, we looked at best practice in a number of different countries. Ms Goggin mentioned that the lease length in Dublin, in particular, is 80 to 110 years. It is generally deemed that 15 to 30 years should be the adequate length. Deputy Harrington mentioned rolling contracts. Belfast recently renegotiated the length of the lease structure and it has a five-year lease that operates to a maximum of 20 years. We would like to see something along those lines to improve competition.
We did some research into the effect of increasingly larger vessels; they seem to be increasing across the board. There is some scepticism over the impact this will have on Ireland, as an island nation on the outskirts of Europe. Most of the ships tend to be feeder-type vessels that either go directly to the UK or the hub ports in continental Europe. While there has been some increase there, will they become vessels of the size of the large Panamax ships? They probably will not because they tend to have their disadvantages. The throughput in Dublin Port, for example, is not sufficient. While there might be economies of scale in having a large vessel, it might take a week to fill it up so there is not much point in it.
However, Cork Port and the Shannon Foynes Port have natural advantages in terms of water depth. If there is an increase in vessel size in the future, it will be important for the Government to be aware of improving the transport links to those ports, particularly the rail links, because the depth of water in Dublin might not be sufficient to accept the larger vessels.
Ms Isolde Goggin:
Deputy Harrington asked about the impact of the cargo handling charges. They form a very substantial part of the port costs - between 60% and 90%, depending on the degree of automation. For some reason, transport volumes are very sensitive to port charges. If the port charges increase by 20%, the cargo volumes decrease by 20%. So it is a very significant element.
I thank the witnesses for the submission. The physical constraints in ports should be a consideration. Panamax vessels are already a fact of life for bulk ports, particularly the Shannon Foynes Port in my constituency. It is no coincidence that the port will attract the investment and the attention it deserves into the future simply because it happens to be the deepest. What analysis did the Competition Authority carry out into the physical constraint of the water depths at these ports? Larger Panamax vessels will become a fact of life, particularly for bulk cargo. Moneypoint has the largest coal-burning electricity generation plant in the country and some of the biggest ships in the world go in there. They cannot get into any other port in the country. Physical constraints will have to form part of the basis when considering competition between ports. There is no point talking about ships that may or may not call to port; the reality is that they are already calling to those ports.
Has this been looked at in the context of the operation of European ports and intra-port competition in terms of stevedoring and things like that? In some cases the stevedores are employees of the ports and might have built up employment rights, etc., depending on their length of service. How would the model of competing interests in the port operate on the basis that the infrastructure in many cases is owned by the port, the workers are employees of the port and the port is a State entity? How has this model worked in other countries where increased levels of competition have been introduced?
During the analysis of competition within ports, what interaction did the Competition Authority have with the stakeholders, including the employers and haulage operators? Would those people have had similar experiences in European or UK ports? If there is greater levels of competition in those countries, is there evidence that it leads to improved levels of competitiveness from the point of view of the stakeholders?
Ms Isolde Goggin:
I might ask Mr. Aylward to answer the specific questions on the intra-port competition, particularly looking at the European examples.
On the physical constraints, we had many meetings with the stakeholders. We had about 30 meetings before we did the consultation and had various meetings afterwards. We asked people for specific information, once we had firmed up on our ideas as to what to look for. We found that the different sectors are quite different in terms of the physical demands. In the case of a bulk transporter transporting very heavy stuff to a specific destination, the client wants to be as close as possible to where that is, for example, with Aughinish Alumina or Moneypoint. However, they also need good deep-water ports for the bulk transport.
In other cases, the end-to-end timing is much more crucial especially in the case of food and drink imports and exports, where people require short sea crossings.
Ms Isolde Goggin:
It is all of those - roll-on roll-off, load-on load-off, and bulk. The only ones we did not look at were passenger and cruise ships because they are contingent on other activities in the port and the cruise thing is still quite short. We considered bulk in considerable depth. It is quite different from the other sectors because the transport costs on land are so crucial. That is why people want to have the power station near the deep-water port or have the deep-water port near the power station - I am not sure which is the chicken and egg in that case. Bulk is crucial and it tends to be very local; it cannot go anywhere else and has to be in that location.
I will ask Mr. Aylward to respond on the issue of comparisons with European ports.
Mr. Ciarán Aylward:
We looked at the benefits of intra-port competition in general. In Europe, there is a move towards a landlord-type model, which means there is public ownership and management of the port, with the operation of it licensed out to private operators. Ports such as Rotterdam, Antwerp and Bremen would have three or four different competing lo-lo terminal operators. In the research, not just in Europe but also in South America, that has been proved to reduce the cost of handling compared with having just one provider and where there was a lack of intra-port competition. There is considerable debate in Europe at the moment with changing directives in this area. There are certainly differences of opinion between the northern European view on this and the Mediterranean view, where there are stronger workers' unions which are reluctant to a move away from monopolies towards more intra-port competition. Overall, there is a move towards competing terminals.
In Rotterdam, for example, if three terminals are operating within the one estuary, they are essentially three standalone ports operating in the same geographical area. Obviously within each of those this issue also exists because they will be run by a single management company. Are they run along similar lines to how Irish ports operate, with the neighbouring ports, as with Dún Laoghaire and Dublin Port, for instance, but independent within the one estuary?
Mr. Ciarán Aylward:
It is similar to what is occurring in Dublin Port at the moment for lift-on lift-off vessels. Dublin Port Company oversees the regulation of the port. Then, there are three separate private lo-lo operators, operating under licence or lease. Basically, they operate their companies as they see fit.
I want to get to the kernel of the matter. I presume the basis the Competition Authority had for examining this area was to improve competitiveness and reduce costs for the importer, the service user, the exporter and the economy as a whole. Is there evidence from European ports that have done what is being suggested to the effect that this actually happens?
Ms Isolde Goggin:
Yes. Mr. Aylward made a point about the northern and southern European ports. There are numerous competition cases relating to ports. They tend to be in the area of abuse of dominance. They tend to have shown that where there is a single port and a single port operator, not only are there higher charges, but it is the area of inefficiency where the real damage gets done. There is no incentive to put goods through quickly or to invest and accept more and more traffic. There is a good deal of evidence showing where monopolies have operated against the public interest and against the interests of importers and exporters in particular, and that a lack of competition has resulted. It is not only about price, it has much to do with service quality, the services offered to importers and exporters, the frequencies of sailing, the turnaround times and the length of time goods are left on the docks before they are brought in and out. The whole area of efficiency is crucial.
Mr. Ciarán Aylward:
As part of the consultation process we had over 30 meetings before we produced a consultation document. We spoke to the Departments, public agencies, industry representatives and all the port authorities. We also spoke to the major ferry companies, the terminal operators and hauliers across a wide stream.
Yes, we had better rename it. I am a little disappointed to hear that the road has had something of a negative effect on the port. I remember from my time on Kilkenny County Council that a good deal of investment has gone into the area and the port. The new road was cited as one of the most positive reasons to put in a good deal of investment and infrastructure.
The deputation answered the question I was going to ask about modifying existing ownership and management models. Is there anything else the deputation wishes to add to that? I understand the physical constraints and that it is definitely a difficulty for ports, particularly on that side of Ireland.
In the course of the survey, did the authority do an examination of the services that exist in the vicinity of the port? Could the availability of broadband, water services or information technology services help or offer an advantage if a port was to sell itself? Would it benefit if it had several information technology areas around it? Did that come under the radar of the authority? I am unsure whether it did. Does the authority have an opinion on it?
Did the study incorporate the economic aspects of port operation, for example, leases with upward-only rent reviews? Did the study incorporate other areas of potential development, for example, maintenance or repairs of ships? Did the study incorporate an examination of the level of goods transported to ports by road that could be transported by rail freight?
Given what we have heard thus far and given the many constraints, whether geographical or because of specialised ports, is the Competition Authority satisfied with the competition that exists between and within ports? What is the level of satisfaction or dissatisfaction at the authority? Does the authority believe it might be appropriate for interventions such as legislation, or would other interventions assist?
Ms Isolde Goggin:
A question was asked about services. As Mr. Aylward said, we spoke to a large number of port users. They did not raise the issues of broadband or water services. I wonder whether these would be more relevant to the tier 3 ports, those designated by the Department of Transport, Tourism and Sport as having a future more in the leisure industry rather than national and regional transportation. The point related to the question of a port selling itself. Some ports make good efforts in that respect but it was not quite the area of our study. We were asked to examine competitiveness, the cost of imports and exports, jobs and so on.
We examined the issue of leases but people did not raise upward-only rent reviews, which is a relatively recent phenomenon. Most of the leases have been in place for so long. They date back to the 1980s. Upward-only rent reviews are more recent and came in with the property boom. I am unsure whether they were a feature.
We did not examine the maintenance repairs business because we were not examining the shipping industry. One person raised that issue with us from a port on the east coast.
Ms Isolde Goggin:
It could have been dealt with if people had come to us and said that it was a problem, but they did not.
There was a question about goods transported by road that could be transported by rail. This arose only indirectly in the sense that people would explain that there was rail freight option into a given port and not into another. However, the major point emerging was the magnet effect that larger ports seem to have. They seem to draw more and more traffic in once they hit a certain critical mass. Then, the frequency of service increases and that makes it more attractive again.
There is an issue around climate change and the relative carbon cost of various forms of transport and so on, but dealing with environmental matters is far beyond our level of expertise. Another area that could be examined relates to the point raised by Deputy Harrington earlier about sea freight versus air freight. Exporters tend to fall into using one or other category, either air freight or sea freight, by the nature of the goods in question and the value-to-volume ratio. If goods are small, light and high-value, they can go by air and everything else tends to go by sea.
Are we satisfied with the level of competition? The is the short answer is "No, we are not". We believe a good deal more could be done. We would prefer to wait until we see the response of the Department of Transport, Tourism and Sport. The Department said it would get back to us in six months. We will have a good look at what Dublin Port Company came out with last week on its franchise review. We will talk to the Department and come back in a further six months and then decide whether more needs to be done. We have put it up to people. We have outlined what we believe the issues are and what we believe is within the power of parties to change. We would like to see how that goes and whether that meets our concerns.
Is it the intention of the authority to examine air freight in future? All the air freight is conveyed through the State airports and they are all owned essentially by one company. The landing charges are set by the State company. Is it the intention of the authority to examine how the operation of our State airports impacts on importers and exporters?
Ms Isolde Goggin:
I must say that is not at the moment. We have barely recovered from the last exercise, but that was given to us in the context of the Action Plan for Jobs. The next action plan for jobs, which we are awaiting, will probably ask us either to look directly at some area or to do a study on what areas would be good to look at. We want to look at areas where people are telling us there is a problem. We do not particularly think it would be a good use of our time to look at something and for people to say there is no problem, but if the Deputy feels there is an issue here, we could have a chat about it and put it into the mix. It will probably be given to us as a job.
Thank you very much. I think it was a very engaging and informative discussion. I thank you for coming in. Many developments are taking place and will take place, so perhaps you will be back with us again at some stage in the future.