Committee Reports > List of Committees > Joint > 1979 > Committee on Commercial State-Sponsored Bodies > Report No. 02 - British and Irish Steam Packet Company, Limited

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Céadaoin, 14 Feabhra, 1979

Wednesday, 14 February, 1979

BRITISH & IRISH STEAM PACKET COMPANY LIMITED

Mr. Michael J. O’Keeffe, Chairman; Mr. W. B. Mulligan, Director and Chief Executive; and Mr. J. J. Kennedy, Assistant Chief Executive of the British & Irish Steam Packet Company Limited called and examined.

Chairman.—I should like to thank you very much for coming along this evening and also for the very interesting visit we had on Tuesday, which gave us a great deal of information about the working of the company. The procedure is that the members of the Committee will direct their questions to the chairman, Mr. O’Keeffe, who can deal with them himself or refer them to other members of his delegation, as he thinks fit.

Mr. O’Keeffe.—I apologise to you and to the members of your Committee for the fact that I have a very bad cold and am probably not as distinct as I would wish to be. My colleagues and I have been preparing in the proper manner for this session which we take very seriously indeed. Amongst other things, we are mindful of the fact that you have an obligation to publish the evidence that is given to you. This is as it should be. We would like to make the session as productive as possible by being factual and open in anything we say. Naturally, publication may put some constraints on what we have to say in certain respects, and full publication, verbatim and in toto, may make us more reticent than we would wish to be.

Chairman.—If certain matters come up which you feel are confidential and which would not be in the interests of the company to have published, we can leave them until the end of the session and discuss them on that basis. In any event, when the draft evidence is available we can discuss it with you.

Mr. O’Keeffe.—That would meet the point I was making.

Deputy O’Donnell.—It can be said, Mr. O’Keeffe, that the Committee have no desire to conduct a witch hunt. We will respect the confidentiality of information of a commercial nature which it might be unwise to reveal.

Mr. O’Keeffe.—That is the particular aspect we were concerned about.

1. Deputy B. Desmond.—Many questions are being raised about the role of State-sponsored bodies; their long-term role as individual companies. About 13 or 14 years ago the Minister for Transport and Power said that one of the chief objectives of the B + I was to increase Irish participation in the cross-channel trade and he used the word “control”. In discharging our responsibility as a Joint Committee, one of the fundamental questions we would ask you is to what extent over that period have the B + I succeeded in discharging that national responsibility in cross-channel trade? It is a key question in our assessment of the role of the B + I.

Mr. O’Keeffe.—As a general response, which can be expanded upon by Mr. Mulligan and Mr. Kennedy, if we cast our minds back to the time when the B + I was acquired by the Irish Government, the influence of Irish-owned interests, apart from State-owned interests, on traffic, people and goods across the Irish Sea was minimal. It is true to say that the action of the Government in acquiring the B + I in 1965 for the purpose of creating a strong influence on State interest in traffic across the Irish Sea has been fulfilled through the B + I. We now have a very strong influence on percentages of the market in passengers, car traffic and freight which puts us in a position to influence the competitiveness of price and, more importantly, to influence the quality of service given to Irish tourism and to Irish exporters and importers. The quality of service was deteriorating in the mid-sixties. The evidence now is that the quality of service has increased. In addition, the B + I have not confined their activities to the Irish Sea. At the same time as EEC membership became a factor in our lives we entered into the European freight business as well. We now have a well-established freight service to and from Europe. From that point of view we have conformed with the original purpose for which the Government bought the company.

Chairman.—There is a slight complication regarding procedure. A reporter from one of the newspapers wishes to be here and he is entitled to be here. We will have to revert to the procedure which I mentioned at the outset. If there is anything you would like to mention in confidence, we can leave it until the end of the meeting.

Mr. Mulligan.—We control 36 per cent of all containerised movements between Britain and Ireland. We have 26 per cent of containerised traffic between Ireland and Europe and we have 42 per cent of the market of cars and their passengers between Ireland and Britain. We have about 27 per cent of the traditional foot passengers between Ireland and Britain. The percentage of foot passengers may seem small in relation to the other figures, but the foot passenger movement is traditionally heavy during the summer period and comes, traditionally, through Dun Laoghaire from the London area. It rises to a high peak and that is why we have a lower portion of that market.

2. Senator Cooney.—Has your share of the market been growing?

Mr. Mulligan.—The foot passenger market has been growing but in a very small way. The main growth has been in traffic in cars and associated passengers, that is, approximately three passengers per car.

3. Senator Cooney.—Are the B + I satisfied with their share of the markets in freight and cars?

Mr. Mulligan.—We had up to 48 per cent of the car market at one stage. We are now down to 42 per cent. Shipping lines have variances from time to time. We are not satisfied but we believe that that percentage gives us a measure of control over the Irish Sea operations.

4. Deputy O’Donnell.—What sort of scope have the B + I to increase their percentages?

Mr. Mulligan.—We look at economic growth and translate it into movement of passengers and goods and then our share of that which we see within the ranges which I have given here. We would go for growth in those areas. We would invest and service those growth areas. We do see a substantial growth of cars and passengers in the coming years. Last year it grew over 20 per cent. The main yardstick we use in projecting those figures is the ownership of cars and that is starting to grow again. Once the ownership of cars starts to grow, the desire to use those cars in moving in and out of Ireland will also be there.

5. Deputy O’Donnell.—Do you see this projected increase as arising from the recovery of the British tourist market?

Mr. Mulligan.—Yes, there is a significant growth also from Europe direct to Ireland and over the UK “landbridge” as well. Embodied in the figures I am giving you is that about 6 per cent of that traffic would be European cars coming into Ireland over the “landbridge” which is small in relation to the total.

Mr. Kennedy.—Could I elaborate on this? The improvement was due to the recovery of the British economy as well as the improved climate in Ireland. It was also affected by the increase in capacity put on by the operators last year and will be further increased by B + I this year. It was also affected by the reduction in fares which happened in 1976; a very substantial reduction in fares by both B + I and British Rail helped the total market.

6. Deputy O’Donnell.—What is striking is that you have maintained a consistent pattern of growth since 1965 in the different areas. You have also commented on the fare reductions situation and your employment has been static. This, to me, is a very extraordinary combination—a desirable combination. To what do you attribute this situation?

Senator Cooney.—Good management?

Mr. Mulligan.—We did have losses at a certain stage also in those figures.

7. Deputy O’Donnell.—Labour productivity?

Mr. Mulligan.—The yardstick we use in B + I is the payroll as a percentage of turnover. That has improved. We always try to get that down to manageable proportions. Our ambition at one time was to get that down to between 25 and 30 per cent. At one time in B + I the payroll as a percentage of turnover was in the 50s which leaves you very vulnerable to movements in wages and, of course, the massive capitalisation in B + I reflects the static situation of the labour force and more productivity coming in in a total sense.

Mr. Kennedy.—It has dropped to below 28 per cent of total costs in the last year, as compared with about 40 per cent in 1966 and it will come a bit lower in 1979.

Mr. O’Keeffe.—The total staff numbers are growing and will be up by 25 per cent by the end of this year compared with two years ago.

Mr. Mulligan.—It does reflect our capitalisation which has happened and the productivity we have got from it.

8. Senator Cooney.—You mentioned fare reductions in 1976. Was that mutually agreed with the other carrier or was one of you first?

Mr. Mulligan.—In times of strife, particularly in the oil crisis, you do have to talk with your opposition. Our main opposition is British Rail. We did have to talk about oil surcharges which were necessary to absorb these huge increases. We always talked with them on an annual basis about what our policies were; we have been talking for many years. We were both moving into distinguishing in the total market between a high summer trade and a low season. We were talking in a general sense about what the basic policies of both companies would be. Quite frankly, we both went our own way in actual pricing structures. Our general policies are much the same. High season is only about ten weeks when we charge a higher fare and the rest are low or what we call economy rates in B + I in our price lists, which are lower rates. That is also an effort on both our parts to spread tourism into spring and late autumn of the year, which we have succeeded in doing. We were both arriving at the same policies but perhaps that was influenced also by certain recommendations which came out of the English Channel Report. It was a special report on traffics on the English Channel which recommended that kind of pricing strategy as well.

9. Senator Cooney.—Your forecast for cars to be carried in 1978 was 155,000. Was that forecast on target? What was the outturn?

Mr. Kennedy.—Approximately 155,000 cars.

10. Senator Cooney.—And for 1979?

Mr. Kennedy.—We are going for 200,000 in 1979.

11. Senator Cooney.—You have more capacity?

Mr. Kennedy.—Yes. We have four ships now. It is a recovery of share. As Mr. Mulligan said, we were up to 48 per cent in previous years. We were down to 42 per cent in 1978. We will recover about 2 points in 1979, back to 44 per cent.

12. Senator Cooney.—One-and-a-half million freight tons was the forecast for your freight. What was the outturn?

Mr. Kennedy.—That was just on target.

13. Senator Cooney.—And for this year?

Mr. Kennedy.—For this year freight overall will grow by about 8 per cent and that will just about hold our market.

Deputy L. Lawlor.—May I be excused as I wish to take part in the budget debate?

Chairman.—Certainly.

14. Deputy B. Desmond.—One of your projected considerations for expansion that you have outlined in your submission is— and I think your choice of words was careful—that you considered the possible introduction of a car ferry service from the Continent to supplement possibly your freight services or perhaps a joint operation. To what extent would this cut across Irish Shipping or have there been any consultations with Irish Shipping or Irish Continental Lines?

Mr. O’Keeffe.—We recognise the fact that it is essential that there should be rational co-operation between State-sponsored bodies, especially in the same line of business, and we have been very careful and indeed very enthusiastic about fostering rationality of co-operation with Irish Shipping from the point of view that, now that Ireland is an integral part of western Europe through its membership of the EEC, no longer can we look on the Irish Sea as being one sphere of activity and the seas between here and the main continent as being another sphere of activity. We are all part of a relatively small neck of the woods where trade is intensive and highly competitive and where there are very big operators with huge capital resources at their disposal already operating and have been for many years. People with spare capacity are ready to move in quickly should they consider that commercial opportunities exist. We had evidence of that last year when Brittany Ferries moved into Cork on a trial basis. Our information is that they are intensifying the service this year because it proved so successful. The opportunity was there and they jumped in. Brittany Ferries are a relatively small operation but there are other big operators, mainly shipping operators, who could move in in a much heavier way to the detriment of the total Irish influence on these routes unless there is some rationale in forward planning, in the measurement of the peaks of traffic. The peaks of the continental traffic have not yet been measured because the capacity has not been there at peak times to enable it to be measured.

Mr. Mulligan.—There is another aspect which is on our minds. We already operate freight in containers to the Continent. We operate to Le Havre, Rotterdam and Bremerhaven. What is happening in the Irish Sea is that there is a movement out of containers into RO/RO, either associated with car ferries or using a RO/RO ship in a fully freight configuration. There is a possibility in the future that we may trailerise our own traffic out of containers and into RO/RO freight. If we do that, we are in direct competition with Irish Shipping who have multi-purpose car ferries, passengers and freight, into Rosslare. Trailerising our business brings us into competition straight away because RO/RO ships can take anything. They are not confined to one load of traffic.

15. Chairman.—When you say that it would be your intention to rationalise, is that at the moment merely an intention or have you reached the stage of discussing these trends with Irish Shipping?

Mr. O’Keeffe.—We have discussed them with Irish Shipping over the last year or two. Our view is that it is rational to think in these terms because between us there are at the moment six car ferries, which is a relatively small fleet when compared with European ferries, P & O, or British Rail.

16. Deputy B. Desmond.—Has any consideration been given to a joint venture on the basis of purchasing ships?

Mr. O’Keeffe.—We have proposed a joint enterprise to Irish Shipping.

17. Deputy B. Desmond.—It would require a substantial capital outlay?

Mr. O’Keeffe.—The existing capital assets in the form of ships could form the foundation of a solid joint enterprise.

Mr. Mulligan.—If the six Irish ferries were operated as a single enterprise, no matter how it is set up, we would get more use out of the ships. There are tremendous peaks, particularly on the continental run, for passengers. A stage is also reached when you have a ship off for repair for a month. The more utilisation you get out of the asset the more you may be able to defer an investment on both the Irish Sea and continental routes.

18. Deputy B. Desmond.—Is it fair to say that you have a flexible attitude to forward planning in terms of a joint venture?

Mr. O’Keeffe.—Yes, that is a fair comment.

19. Senator Cooney.—Would a joint venture involve extra ships or would it involve using the combined fleets more efficiently?

Mr. O’Keeffe.—Better utilisation and building up from there, which might have the effect of discouraging foreign operators from coming in and creaming the business.

20. Senator Cooney.—Having regard to the recent development, is there need for urgent initiative in regard to Irish Shipping?

Mr. Mulligan.—Irish Shipping and ourselves will be sharing Rosslare next year so our ships and theirs will be operating into the same port. If they are operating into one port there is an obvious outlet for integrating ships. One ship could go to Britain and the other one could go off to Europe. There is more frequency at certain times of the year and there should be more cover for overhauls and so on.

Mr. O’Keeffe.—As Deputy Desmond has said, we are very flexible.

21. Deputy Kenneally.—Have B + I an arrangement with P & O?

Mr. Mulligan.—We have. It is a RO/RO shared ship which takes only freight. As regards the previous question, I do not see any reason why Irish shipping lines should not be operating from Britain to the Continent because there is a tremendous mixture of British, Dutch, Germans, Belgians and Scandinavians working in the high-density English Channel area. Irish traffic is going over to Europe and feeding into the services which are already there. The Irish traffic is contributing to that market on the freight side and on the passenger side. There is no reason why we should not share in that market as well.

22. Senator Cooney.—If you have a joint venture with Irish Shipping, it will be a commercial operation, yet you are both semi-State bodies and subject to certain constraints because you are tied to central Government. Do you find that these constraints inhibit the commercial aspects of your operation?

Mr. O’Keeffe.—No, not really. If we are intelligent in the manner in which we exercise our responsibilities towards the apparatus of Government, these constraints should not bear too heavily on us. We respect the discipline under which we are expected to operate. At the same time, by being reasonable with the apparatus of Government and by making a rational case for what we want to do, we have found that we invariably encounter an intelligent and reasonable response.

23. Senator Cooney.—You operate B + I —just to go back to your own corporation apart from any possible joint venture— according to a normal commercial criterion?

Mr. O’Keeffe.—Yes.

24. Senator Cooney.—I notice that in your submission when you were speaking of your capital, I think it was, you said that the Government had agreed to increase your share capital by £15 million, and £10 million of it was allocated towards buying a ferry and then the balance of £5 million was working capital to be repaid by the company. At the end of 1978 you had £3.8 million of that and it said that the outstanding £1.2 million is at present under discussion at the Department. Does this raise any difficulties for you? Do you have to make a case to draw down all of the capital that is allocated? In other words when the original capital allocation is conceded is the case for it not made then and should not the draw down come quickly without having to enter into discussions or is that an inhibiting factor?

Mr. Kennedy.—The actual £5 million for working capital was related to loan commitments of the company which were very severe at the time when the legislation was brought in to give us the extra capital. The allocation of it was designed to meet these commitments as they arose over a period of three-and-a-half or four years. So to that extent the time schedule of making the equity available was agreed in advance.

Mr. O’Keeffe.—There really was no difficulty.

25. Chairman.—To get back for a moment to the question Senator Cooney put to you: some of the State bodies would complain or say that they have certain social obligations imposed on them by the Government to do things that are not strictly within what they would regard as commercial considerations. Would it be true to say that as far as B + I are concerned that there is nothing of that kind interfering with normal commercial judgment?

Mr. O’Keeffe.—No, not as of now. We did have some——

26. Chairman.—When I say that I mean if you take an example like CIE, they run buses in areas that do not make commercial sense, but they are obliged to do it. Nothing of that kind?

Mr. O’Keeffe.—Not now. There is an example from the past: it is merely one. Maybe there are more, but I cannot think of them. It was when we were in the shipment of livestock. There was heavy loss making for us and we had to plan to extricate ourselves from that business so as to avoid losses.

Chairman.—That was an example right enough.

Mr. O’Keeffe.—That no longer exists.

Mr. Kennedy.—May I elaborate here, Chairman? It may be possible for us at times to do things in the open market that would be less costly, for instance, maybe for us to go and charter a continental ship with a continental crew because of special financial arrangements available on the Continent which would be less costly than building in Ireland and having an Irish crew. That is a thing that we would not put forward unless it was very significant. But there is a factor there, things like that. This is what the Chairman has said, we are conscious of the fact that we are owned by the Irish community.

Mr. O’Keeffe.—We have an overriding social obligation to the community. Concrete evidence of that is the money we have expended in the building of new ships at Verolme so as to keep the business at home in Ireland. That has to be borne in mind in relation to the tempting offers that exist in other parts of the world, in Germany and the Far East and so on, for the building of ships and the tempting packages that are dangled under our noses every day of the week.

27. Deputy O’Donnell.—In the context of the social obligation of B + I, can I take it that the company have continuous liaison with Córas Tráchtála, the National Tourism Council and Bord Fáilte in view of your direct and indirect contribution to the development of Irish industry, the transport means of Irish industry and so forth?

Mr. Mulligan.—We work very closely with them all the time.

28. Deputy O’Donnell.—Has the liaison reached the stage where it is more than a mere informal feeding of information as to the specific needs of Irish industry in exporting and the development of tourism abroad?

Mr. O’Keeffe.—That is right.

29. Deputy O’Donnell.—Could I ask one other question regarding the growth of traffic from the UK to Ireland—what percentage of the total passengers with or without motor cars that you bring in here would be Irish?

Mr. Mulligan.—It was as high as 80. It is down at the moment to 70 or 75, still Irish-connected we call them; it may go back two or three generations. Hence our optimism in tourism. We think we can depend on that in the long term. If we get into a real growth of the British tourist market, on top of that hard core we should have quite substantial growth over the coming years.

30. Deputy O’Donnell.—Taking into account that there will be a growth in pure British tourism into Ireland, we can take it that B + I will be conscious of the fact that there is the large Irish content in the UK?

Mr. Mulligan.—Yes, certainly, second generation and so on.

31. Deputy O’Donnell.—Arising from that, to what degree do the very attractive and wide-ranging type of special fares and incentive packages for families that were introduced some years ago contribute to a growth? Did that encourage more Irish people to come home and contribute substantially to growth in traffic?

Mr. Mulligan.—It did; they come home twice, not just once only; it encourages them to come home often. The major emphasis on this happened when we had our problems with the tourists coming; we gave special attention to what we call the Irish connected rather than the British. As you can see, the emphasis in our advertising on British TV and in the British press still has that Irish edge on it. We used Joe Lynch one year on television. We use Johnny McEvoy’s voice as a “voice over”. We find that it is attractive to both communities. We try to get our campaigns to bring in the Irish connected. We have also to be acceptable and attractive to the British tourist.

32. Senator Cooney.—To go back to the question of capital. How do you see yourselves raising the capital requirements in the future?

Mr. O’Keeffe.—As a general response for a commercial company—and B + I are a commercial company and have to operate to a commercial mandate—the need always exists to maintain a proper ratio and a proper gearing of one’s capital structure. Historically, B + I suffered from a chronic imbalance in their capital structure which has, through dialogue and through the performance of plans, been put right as of now. Our approach to future capital needs would be based on the sensible requirement that we do not allow to go out of balance again the balance between equity capital on the one hand and loan capital and borrowings on the other. We would see a need as we develop and invest to have a response from the Exchequer with reasonable, if modest, capital subscriptions as the need arises in order that this balance should not become distorted in future.

33. Chairman.—To get it into perspective, I think you said that you would need £50 million in the next five years?

Mr. O’Keeffe.—Investment needs.

34. Chairman.—Taking that as the ideal investment, how will you get that amount?

Mr. Mulligan.—There are a number of ways of doing it. One would be to raise a proportion in equity. Another way, open to all ship owners nowadays, is that people are anxious to supply cheap loans for building ships to keep the industry going. It could also be done by low cost tax-based leasing. There is always a problem with shipping. There is interference in the normal commercial practices for reasons other than shipping, which, of course, keeps shipyards busy. That is happening all over Europe. As most shipowners never use all their tax reliefs, a system has grown up in Europe of leasing of ships by people who are anxious to avail of the tax allowances. In our case, the Department would not be anxious for us to enter into any arrangements associated with leasing. I imagine there will have to be a balance of loans and equity for a longer term. The first ferry programme was in 1968-1969 and those ships are now ten years old. A new ferry would take about two-and-a-half years to build, so we have to plan for replacement over the next seven to eight years.

35. Deputy Cooney.—Do you propose to lease the jetfoil?

Mr. O’Keeffe.—Yes.

36. Deputy B. Desmond.—Is it fair to say that the company could have a capital reserve problem? The capital requirements of the company will be substantial by 1983 or 1985. Is the original forecast figure of £31 million at constant (1978) prices?

Mr. Kennedy.—The forecast was done at constant (1978) prices. As Mr. Mulligan said, certain types of capital expenditure are specifically suited to particular types of financing. For instance, part of that would be for a development in the new port at Pembroke. In that case, we will never own that facility. What happens is that the port authority will build the facility in return for, say, a long-term operational agreement which will cover the capital they have outlaid plus the running costs of the port.

Mr. O’Keeffe.—In other words, we underwrite their expenditure.

37. Chairman.—Is that a capital item or running expenditure?

Mr. Kennedy.—We would regard that as running expenditure. It is what we would call an off-balance-sheet type of commitment. It is like a lease, but it does not appear on a balance sheet. We regard that as part of our financial commitment. In arriving at our total it is desirable that shareholders’ funds, which include equity and reserves, should never fall below, say, 35 or 40 per cent of the total commitment which would include loans, leases and long-term commitments.

38. Deputy B. Desmond.—In assessing the future capital requirements of the B + I, one might well advance the argument that the State should now advance major substantial share capital allocations to the company. I am talking in the context of £20 million as of now. Are conventional opportunities of increasing share capital less expensive than, say, a loan arrangement or a leasing arrangement? It would appear that the present capital authorisation has reached its limit.

Mr. Mulligan.—That is right.

39. Deputy B. Desmond.—The State might help the B + I with another £20 million under statute. It seems from your submission that that kind of revamping is required up to 1989?

Mr. Mulligan.—We are suggesting 50 per cent equity for the project we have in hands, which is a further car ferry to replace one of the old ones.

40. Deputy B. Desmond.—That is another £10 million?

Mr. Mulligan.—Yes, we have a project already in hands with the Department. We are looking for permission to repeat the order for the car ferry. It takes two-and-a-half years lead-in time to replace a smaller car ferry. By then, our first ferry will be nearly 15 years old.

Mr. Kennedy.—We review our plans every six months. In that £50 million we have included provision for an additional RO/RO freight ship. Because of market conditions —and there is general over-supply of this type of vessel on the market—we should acquire a ship which is available and change the proposed order to one for a car ferry.

Mr. O’Keeffe.—There is a glut of RO/RO ships on the market and we could get a long-term charter at competitive rates.

41. Deputy B. Desmond.—Aer Lingus seem to be in the same transitional stage. This Committee will be examining Aer Lingus. The Department of Tourism and Transport, who are not the fastest-moving Department, might be under constraints in terms of providing major capital simultaneously for Aer Lingus and B + I. There is a growing public demand for capital for CIE, which is also the responsibility of the Department. This Committee will have to take a balanced look at all three.

Mr. Mulligan.—The difference between Aer Lingus and the B + I is that the planes they use are built abroad whereas many of our ships could be built at home. On account of the lead-in time for ships to replace the three ferries, we must plan our replacements now. We would like to work on a long-term programme which would benefit us and be of help to Irish Dockyards who could plan a three-ferry programme over seven-and-a-half years.

Mr. O’Keeffe.—The ancillary industries which service the dockyards would also be able to work to a plan.

42. Deputy O’Donnell.—Optimum plans cannot be made at present, is that right?

Mr. O’Keeffe.—That is so.

43. Deputy O’Donnell.—Could that situation be interpreted as inhibiting the development of the company?

Mr. Mulligan.—Everyone wants capital at the same time. We were able to have our new ship built when we wanted it possibly because this was more as a requirement of Verolme than the B + I.

44. Deputy O’Donnell.—I think it is a very important aspect of this whole thing that we can be provided with additional capital for a national air transport company to purchase a jet aircraft. These are factors, but we are talking here about a national shipping company and its future needs in equipment. Bearing in mind the fact that most of this equipment—or all perhaps— can be provided in Irish dockyards, does it not seem that overall planning policy would indicate that there should be greater co-ordination between the forward planning of the B + I and the forward planning of the dockyards and the plant required also? Every new ship you get is not merely meeting your requirements but is providing substantial, additional employment. Perhaps I am not expressing myself clearly but do you see the desirability of greater co-ordination in view of the shipping needs and the future planning of the dockyards?

Mr. Mulligan.—Yes—and the back-up facilities of the dockyards, the ancillary industries servicing the dockyards.

45. Senator Cooney.—That is fine, but is there an element of contradiction between that approach and the fact that you state that you operate according to commercial criteria? Because if you operate on strict commercial criteria, you would not be interested in Verolme; you would buy your ship somewhere else. When you set yourself the target of operating according to commercial criteria, you cannot fulfil that for what I can see is a very good and proper national reason, because you are a semi-State body. Does that have any adverse effect on your profitability and on your return on capital? Would you be as an attractive investment for a commercial investor because of these restrictions?

Mr. Mulligan.—But we also say that, if we do those things, the Government and the Department must recognise the fact, which is recognised by every other country in the world, that you can get ships abroad which are subsidised. Verolme is competing with subsidised yards.

46. Senator Cooney.—I do not criticise you. What I am saying is: is it not contradictory that you are put in the position that you cannot in fact operate according to strict commercial criteria because of these constraints you have to abide by at home, with which I agree?

Mr. O’Keeffe.—We do not see it that way. Admittedly, we are not as free as a company like P & O.

47. Senator Cooney.—I will put it this way. Is the level of profitability, and your return on capital, as big as they might otherwise be if you had not that constraint?

Mr. Mulligan.—The major example would be the car ferries. We bought the original car ferries—the three we bought in 1968-1969—and Verolme’s price was only marginally greater than the German prices.

48. Senator Cooney.—Then I put the question this way: are you satisfied with your present return on capital?

Mr. O’Keeffe.—No. I do not think any of us would be.

49. Senator Cooney.—Have you any idea how your returns compare with other shipping companies?

Mr. Mulligan.—They compare reasonably favourably with a cross section of companies but there is one special company we try to compare ourselves with which has a good return on capital. That is the European Ferries where the return last year was of the order of 15 per cent.

Mr. Kennedy.—Our return has averaged about 7 per cent, that is before interest. You must allow profit before interest as you are assessing your return on your total capital including loan capital. P & O, which is a very commercial organisation, has had traditionally a good return on assets, but last year had a disastrous year. Shipping is in this kind of business: it goes up and down. As you know, there is a tremendous glut of over-capacity on the world shipping market at the moment.

50. Chairman.—You would not be in that kind of situation?

Mr. O’Keeffe.—Not in that situation, I think that would be shipping lines that charter ships.

51. Chairman.—You would not have the ups and downs of a big international concern?

Mr. Mulligan.—No.

Mr. Kennedy.—Just comparing our returns with a cross section of other shipping companies, we would come out somewhere in the middle.

52. Deputy Kenneally.—It would be very difficult to have a forecast of return on your capital?

Mr. Kennedy.—Only in so far as we can assess it, as we do. Coming back to Deputy O’Donnell’s point, that is our forward planning, we discuss with Bord Fáilte the growth in the market for tourism. We discuss with Córas Tráchtála the freight growth rate. We talk about what type of facility would be required say for freight, both import and export, what type of equipment. We discuss with Bord Fáilte what type of offer or what kind of package deals would be most suited to the various communities in Britain, and indeed fare incentives which were very substantial two years ago. But we are in a risk business and to that extent forecasts are subject to change and require to be updated regularly.

53. Chairman.—You are projecting a profit of £1½ million for the next five years? If that is realised will you be able to fund your capital requirements, bearing in mind the constraints you have?

Mr. Kennedy.—What we have said is that for our new ships, ones that we are going to build, say, in Verolme, we would like those funded 50 per cent by share capital. For other types of capital requirements, say, port, we would continue as we have done in the past, with agreements with port authorities.

Mr. O’Keeffe.—Our working capital requirements are rising all the time not alone through inflation but through the expansion of our business. This year we will be looking for a turnover in excess of £50 million.

Mr. Mulligan.—What we would like is recognition of the fact that ships are subsidised heavily throughout the world at the moment. They are mainly subsidised through the shipyards. We would like you to see it that way.

Mr. O’Keeffe.—Openly subsidised.

Mr. Mulligan.—That is happening and we can get ships very cheaply abroad, even at the moment.

Mr. O’Keeffe.—We would also like to see subsidising of Irish shipyards because it is being done in every country in the world at the moment.

Chairman.—Some are more subsidised than others.

54. Deputy O’Donnell.—If we take the comparison with P & O and British Rail, is it really valid in the context of B + I in the sense that these are much larger operators? P & O and British Rail would be much larger shipping companies, geographically serving a much broader territory than B + I would. Do we not have to bear that in mind when we make our comparisons?

Mr. Mulligan.—The main comparison you could make with us would be British Rail Shipping which is mainly short sea passenger cum freight service like ourselves, although to a much greater extent. P & O is probably a bad one, because they are all over the world in oil wells and tankers and so on. It is very hard to disentangle what they make the money on. But the one we use as a yardstick is European Ferries who are the most efficient and most active sea operators in Europe. They call themselves European Ferries and also you probably hear of them under Townsend Thoresen. They are very efficient, effective and profitable.

55. Senator Cooney.—Do they run the jet foil on the English Channel?

Mr. Mulligan.—No, that is P & O.

56. Senator Cooney.—Is that profitable?

Mr. Mulligan.—We do not know at the moment: it is experimental.

57. Senator Cooney.—Will yours be in the nature of an experiment also?

Mr. Mulligan.—No. We have the first order in, but there are five more on order for European waters since we ordered ours.

58. Senator Cooney.—Does yours cover an unusually long route for a jet foil?

Mr. Mulligan.—About the maximum, three hours.

59. Senator Cooney.—Will it run the entire year?

Mr. Mulligan.—We will run it for 11 months of the year. We will take it out for a month.

60. Senator Cooney.—Will these conditions be a constraint?

Mr. Mulligan.—They will be. We have done an analysis from our own resources and we have run them through computers and done studies on them. We reckon we will get about 95 per cent departure efficiency. We have 5 per cent time when we will not sail or will not fly depending on the terminology we use.

61. Deputy Desmond.—Where will the jet foil be built?

Mr. Mulligan.—In Seattle.

62. Deputy O’Donnell.—Dublin to Liverpool. What is the estimated time?

Mr. Mulligan.—Three hours, ten minutes, as near as possible to the Memorial Bridge in Dublin.

63. Deputy O’Donnell.—What is the maximum per hour?

Mr. Mulligan.—Fifty miles per hour. We got tremendous help in Liverpool to berth it right in the centre where the bus stop is, and where there are taxi ranks and car parks. There are no locks involved.

64. Senator Cooney.—Is it a very small craft?

Mr. Mulligan.—It is 90 tons.

65. Deputy O’Donnell.—What is the capacity?

Mr. Mulligan.—It carries 240 people.

66. Senator Cooney.—Leasing is a departure from your normal policy. Have you done projections?

Mr. O’Keeffe.—Yes.

67. Senator Cooney.—Can you tell us the expected outturn?

Mr. O’Keeffe.—I would like to take that later.

68. Chairman.—Before we move away from capital requirements, I am not quite clear whether the £50 million projected over the next five years makes allowance for inflation?

Mr. Kennedy.—That is at constant (1978) prices.

69. Senator Cooney.—I notice from your report that you recently invested in a Dutch industrial haulage company and own 50 per cent of it. What was the rationale behind that?

Mr. Mulligan.—I mentioned yesterday that 60 per cent of our revenue comes from door-to-door freight. In other words, we ship a container or a trailer from the exporter’s door to the consumer. In our total revenue there is a big element of road haulage costs. We spend £9 million on road haulage. We like to control an element of that ourselves for experimental and insurance purposes. We know what the rates are and have the feel of the road transport business. As insurance, if road haulage business is scarce, as it is at certain times of the year in Europe, Britain and Ireland, we like to be able to call on a certain element of road haulage to service our main earnings. We also have 20 of our own trucks in Dublin.

70. Senator Cooney.—How old was the Dutch company?

Mr. Mulligan.—It was a very old company. It was a very successful company. It has since been purchased by another company. They are happy with the arrangements because we can guarantee business on a continual basis to a haulage company.

Mr. O’Keeffe.—It was an old solid family company.

71. Senator Cooney.—Has the original Dutch 50 per cent now been bought by some other company?

Mr. Mulligan.—Yes—by a conglomerate.

72. Senator Cooney.—What did it cost you?

Mr. Kennedy.—It cost approximately £50,000.

73. Senator Cooney.—What is the profit of the company?

Mr. Mulligan.—About 25 per cent.

Mr. Kennedy.—Road transport on the Continent is more profitable at present. It is a very-well managed company. It is an investment as far as we are concerned. We do not provide any management; we just operate as a control.

74. Deputy O’Donnell.—I am a firm believer in the concept of integrated transport. Going back to the issues that were raised earlier about the implications for tourism, exports and shipbuilding, I notice that you have your own transport base in Dublin. Have the B + I considered having discussions with our national surface transport company with a view to co-ordinating or integrating the two? If CIE were doing their job properly as a road transport operation there would be no need for B + I to operate their own trucks in Dublin.

Mr. Mulligan.—We mainly use our own trucks in Dublin for local deliveries. We do not have any licence outside Dublin. We confine our deliveries within the canal system because we get very good efficiencies. For the longer high frequency hauls, we use CIE. For example, we use CIE transport for big offtakes of exports for Bord na Móna at certain times of the year. For other purposes we use private hauliers.

75. Deputy O’Donnell.—They give more flexibility?

Mr. Mulligan.—Yes. A private haulier could have a B + I box on one end of his 40-foot trailer and a British Rail box on the other. That is the kind of flexibility they can give.

Mr. O’Keeffe.—I should like to emphasise that we give CIE a considerable sum each year and that we get excellent co-operation and service from them.

76. Deputy O’Donnell.—CIE have modernised their rail freight transport. Do CIE operate these with B + I?

Mr. Mulligan.—We have a fixed train three times a week and we can raise that to five times a week from Cork. If you were passing in the Cork train you would see our boxes in Mallow, where CIE are expanding their network of rail heads with gantry cranes. You will probably see more and more B + I boxes at various rail heads.

Deputy O’Donnell.—I am satisfied that there is co-ordination and liaison between CIE and B + I.

Mr. Mulligan.—The rail head goes right into our terminal. There was a train in there yesterday offloading in the B+I terminal.

77. Chairman.—There is no question of CIE complaining that you are not using their facilities?

Mr. O’Keeffe.—They are satisfied that we are using their facilities to the maximum degree.

78. Deputy O’Donnell.—The distribution depot at Fleetwood was mentioned. What are the facilities at Fleetwood?

Mr. Mulligan.—We have an office on the terminal with a manager and staff. We also have a compound of eight acres but we are using only about four acres at the moment where we gather our trailers. Our trailers are collected there and shunted to the ship.

Mr. Kennedy.—We cannot store all the trailers on the quay side because there is no space.

Mr. Mulligan.—It is the place where the RO/RO ramp is. If all the trailers were around the working apron, we would need a very large trailer park. We try to confine the space around the trailer ramp, otherwise we would use the whole port for parking trailers. That is the problem with RO/RO. We try to get them away as quickly as possible from around the ship’s working area and into back-up areas where they can be sorted out.

79. Deputy O’Donnell.—In the western part of the country, with which I am familiar, industries have been established in the last 10 to 15 years. What proportion of the finished goods for export are transported direct by truck to the B + I and what proportion of them are transported by CIE?

Mr. Mulligan.—I have no figure on that. We do have a liner train but do not use it all the time. We use CIE’s liner train from Limerick. We also use trailers. You see B+I trailers down there as well because trailers will have ability of possibly going out from Cork as well, or coming up to Dublin. You might have an option. B+I trailers down there would have an option on which way they go.

80. Deputy O’Donnell.—A very important aspect of national transport planning is the desirability of getting the maximum amount of heavy traffic off the roads on to the trains and even into the ships. There is a tendency towards that. Should it not be an important aspect of national transport policy that we endeavour to get the maximum amount of heavy freight off the roads and on to rail?

Mr. Mulligan.—It is not happening though.

81. Deputy O’Donnell.—I am trying to relate the recent CIE modernisation programme on freight which I have been concerned with and feed that into your shipping company, towards evolving an optimum type of efficient quicker-moving transport which will be available to exporters particularly in the western regions.

Mr. Mulligan.—The original concept of liner train is that anything over 100 miles was “on” by train. But anything below 100 miles was not “on”. Take Britain, for example: you may have a lorry which would drive, say, 40 miles to get to a rail head, to put it on a liner train, where if you drove in the opposite direction for 50/60 miles you would get to the ship. Liner trains are economic over long distances, where you have 25 trailers or carriages on a train, hauling through the night especially.

82. Deputy Kenneally.—About prices and fares and that type of thing—have you a specific policy or are you subject to control? You did say in your submission that you must get it cleared with the Department of Tourism and Transport. Are you subject to them or are you subject to the National Prices Commission as well?

Mr. Mulligan.—No. We strike our prices every year and we submit our proposals to the Department of Tourism and Transport.

83. Deputy Kenneally.—Are you inhibited in any way by the Department of Tourism and Transport?

Mr. Mulligan.—No.

84. Deputy Kenneally.—Just a kind of courtesy call to them?

Mr. Mulligan.—They do not rubber stamp them. They go into them very carefully.

Mr. Kennedy.—We have to submit a detailed account which is on the line. Up to four years ago we were subject to the National Prices Commission. Since that time we were taken directly under the Department of Tourism and Transport who review our price proposals, but the format of our submissions is still the same and we understand that Tourism and Transport discuss them with the prices section of Industry, Commerce and Energy to get their view on them before a decision is taken.

85. Deputy B. Desmond.—How do you respond to the view or the allegation that the cross-Channel trip for freight is the most expensive piece of water in the world for transshipping anything?

Mr. Mulligan.—It is a long time since you heard that complaint.

86. Deputy B. Desmond.—Has that factor been removed in recent years?

Mr. Mulligan.—If you ask the Irish Exporters’ Association or Córas Tráchtála, I think that would be refuted. The prices have come down in actual fact with the massive investment made over recent years.

Mr. Kennedy.—Just one other point on prices in general, in all the permissions we have got over the last six or seven years we have never been able to implement them in full in the market place. Our actual realisations have always been less than the permission we have received because of competition.

Mr. Mulligan.—We may make a submission to say we should get 12½ per cent increase because our costs have risen. We always do it in arrears. We ask for flexibility as between one area of business and another, day tours, cars, freight and so on and say the Department agree to that flexibility, we never get 12½ per cent out of the market because it is highly competitive.

Mr. O’Keeffe.—I think we have something about price movements vis-à-vis the Consumer Price Index.

Mr. Kennedy.—Yes, we have. From 1965 to 1975 our freight rates only went up by 22 per cent per ton which is very, very small compared with the Consumer Price Index rise of approximately 120 per cent. Since that time, and with the fuel price increases and with the reduction in capacity generally, rates have tended to move a little bit more in line but still not up to line with the Consumer Price Index. Since 1976, on the tourism side, our car-party rates have remained static because of the reductions introduced in 1976 despite a Consumer Price Index rise of about 40 per cent in that period.

87. Deputy Kenneally.—Did not Mr. Mulligan say earlier that in that year you had a peak price and an off-peak price?

Mr. Mulligan.—Yes, that is for passengers and cars. We charge more in our standard fares.

88. Deputy Kenneally.—Is that properly in relation to your costs or is it just because it is the peak period that you up the fares?

Mr. Mulligan.—Yes, we up them. The ships are all full. It is like hotels; they are all full in August. So you try and get as much money as you can in August subject to what your competitors are charging.

89. Deputy Kenneally.—You say you do not get your full price basis, even though you get the higher rate?

Mr. Mulligan.—Even that is controlled by competitive factors. We cannot charge a much higher fare than competitors are doing. They cannot do it with us either.

90. Deputy Kenneally.—Is it you or British Rail who have a system whereby if you travel with them on a particular date you can get a free trip on a later date?

Mr. Mulligan.—We had that as an incentive a few years back when tourism was bad. We said if you booked with us by a certain time of the year, you would get a free trip at the end of the year. May I just add one point about the “dearest stretch of water”. The Irish exporter has benefited tremendously from what has happened in regard to capitalisation in the Irish Sea over the last 10 years. The differential charge in favour of an Irish exporter as against someone importing in some cases could be as high as 40 per cent. In other words, a trailer coming in would be 40 per cent dearer than the price of a trailer going out to the same destination. The reason for that of course, is that there is an imbalance in traffic. You have, say, 60 trailers coming in and they all have to go out again. So everyone is competing to fill their trailers out. So you have more trailers or boxes, whatever the case may be, in Ireland than is demanded by the market. So, everyone competes to fill their boxes or trailers which has driven the rate down for exports, which is a good thing for the exporters.

91. Deputy Kenneally.—You would have to export your boxes or some of them light?

Mr. Mulligan.—You would have to export them light, but everyone in the business is under the illusion that they fill all their boxes. There is a natural advantage to the Irish exporter of too many boxes and trailers chasing the market.

92. Chairman.—In rough terms, what is the contribution to your profit—the ratio between freight and passengers?

Mr. Kennedy.—First of all, the passenger side is more profitable. Looking at the passenger side, that is really the car ferry side, a very large proportion of the car ferry traffic is freight because it is all-year round. The car ferry decks, even in the winter, are full of freight. In the summer they fill up with passenger cars. To that extent it is difficult to completely break down the profitability of freight exclusive of the car ferry.

Mr. O’Keeffe.—The passengers are subsidising the freight or vice versa.

93. Chairman.—Could you answer that to some extent by comparing the profit which is made on a vessel which is carrying freight only as compared with a vessel carrying both. Which is the more profitable?

Mr. Kennedy.—The freight side of the business has been subject to four radical changes since 1965. First of all it was conventional, that is, loose-stow cargo. That was changed in 1967 to what we call Lancashire flats, lift-on/lift-off flats. That was changed about three years later to ISO, which is lift-on/lift-off boxes. That is now changing to roll-on, roll-off. More than 50 per cent of our traffic is now RO/RO. We have only one RO/RO freight service, that is the Dublin/Fleetwood service, which is operated in partnership with P & O. The LO/LO business is still changing and the returns from it are lower.

94. Deputy Kenneally.—Yesterday we were shown new cars being imported. Are they taken on board to fill up the ship when there is accommodation for them or are they brought in on a special run?

Mr. Mulligan.—They are called trade cars. We put them on the ferry. We have two ferries a day out of Liverpool. They are ideal traffic for ferries because they can be fitted in between freight and passenger cars. The trade get a very good rate.

95. Deputy Kenneally.—They are taken when there is accommodation for them?

Mr. Mulligan.—Yes. The trade likes to get them in an even flow so the arrangement suits both parties.

96. Deputy B. Desmond.—To what extent are the B + I involved in carrying imports of chemicals?

Mr. Mulligan.—Are you talking about chemicals in tanks?

Deputy B. Desmond.—Yes.

Mr. Mulligan.—We carry chemicals in tanks but not on car ferries. They would go on the deck of a LO/LO ship or on the deck of a RO/RO ship.

97. Deputy B. Desmond.—Has the growth of the ordinary traffic in Dublin and Cork affected costs?

Mr. Mulligan.—It affects the cost of deliveries. We know a lot about this as we run our own transport. To run it economically, we should make three deliveries a day. But the heavy traffic sometimes reduces it to two a day. A further problem is that some of the smaller industries around Dublin are in congested areas and it is difficult to get a 40-foot trailer or a box van down an alleyway. There are conflicts between ourselves and the hauliers we hire. They say that we give them the tough runs and keep the easy runs for ourselves.

98. Deputy B. Desmond.—It shows in the cost of transport? Is it getting worse all the time?

Mr. Mulligan.—It is getting worse all the time.

99. Deputy B. Desmond.—Does it apply to Cork city also?

Mr. Mulligan.—Even more so. Cork is very bad.

100. Deputy B. Desmond.—Have the B + I a good working relationship with the port authorities in Dublin and Cork?

Mr. Mulligan.—I should inform the Committee that I am a member of the board of Dublin Port and Docks.

Mr. O’Keeffe.—We have a good working relationship with both authorities.

101. Deputy B. Desmond.—The B + I were the first company to appoint worker directors. Do the four worker directors attend full board meetings or are they excluded from any discussions at board level?

Mr. O’Keeffe.—It would be contrary to the purpose of the legislation if there was any discrimination. They have been sitting in fully on all board matters since 1 January and have been doing so very satisfactorily, I am glad to say. I think we are very fortunate that the election gave us four people who are mature, balanced, and have a deep knowledge not only of the business of the B + I but of the transport business generally.

102. Deputy B. Desmond.—Why was such an interest taken in that election? I believe that 86 per cent of those entitled to vote actually voted.

Mr. Mulligan.—There was a great deal of electioneering.

Mr. O’Keeffe.—The executives went out of their way to stimulate interest among the employees by saying “This is a very important issue for you. Go out and vote.”

103. Deputy B. Desmond.—How many employees work outside Ireland?

Mr. Mulligan.—Approximately 300 of the UK employees were excluded because they work for B + I (UK). The Dutch staff voted because they work for the parent company.

104. Deputy Kenneally.—Were seats allocated to different unions?

Mr. Mulligan.—The unions had power to nominate and eight candidates were nominated.

105. Deputy Kenneally.—How many candidates could each union nominate?

Mr. Mulligan.—Any union, as many as they wish up to four, they can nominate. It is up to themselves, but in between each union they have their own selection; they select their own and then put forward their candidates.

106. Chairman.—In a sense the union would be a nominating body as we would have in the Seanad?

Mr. Mulligan.—That is right. They may have their own internal election.

107. Deputy Kenneally.—But your industrial relations are reasonably good. Has the works council you were telling us about yesterday worked well?

Mr. Mulligan.—Yes. It has worked well.

108. Deputy Kenneally.—A word about profits again. Have duty-free facilities on your boats increased your profitability?

Mr. Mulligan.—Yes. We had been campaigning for this for a long time and, quite apart from bringing in revenue, one of the major points we made was that it was the missing third element of a ship’s earnings. All the continental ships in the Channel have passengers, cars, freight and duty-free, and all we ever had in the Irish Sea was passengers, cars, freight, no duty-free. If you look back on the pattern of investment in the Irish Sea, there was not much investment over the years. When we were planning our fourth car ferry we increased our campaign to get duty-free because it was a large element in servicing the return invested in the new ship and we think duty-free will go a long way to maintain investment in the Irish Sea in the coming years.

109. Deputy B. Desmond.—It is very profitable initially?

Mr. Kennedy.—It is very profitable in itself and it has also stimulated extra traffic, part of the growth last year, which was of the order of 20 per cent.

Mr. O’Keeffe.—It confirms the arguments we put forward repeatedly to Ministers in favour of the introduction of duty-free. It has vindicated the correctness of our suggestions.

Mr. Mulligan.—We said it would not detract significantly from the total State revenue.

110. Chairman.—Just one other question —an additional 650 jobs are planned under the third corporate plan. Are you confident that that will be achieved?

Mr. Mulligan.—We are. We have gone a long way. We have increased quite substantially over the last year-and-a-half or more and we are still going in that way at the moment. We have achieved . . .

Mr. Kennedy.—About 350 jobs right up to this point in time. There is one other point in relation to the interest in the elections. I think it is fair to say that the works councils and trade unions stimulated a lot of interest in this themselves extending back to 1976 when we had this employee loan plan where the staff left a national wage award with the company because of the difficulties then and arising from that we met what we call a policy committee comprising 40 people of staff and trade union representatives every six weeks to tell them how the company was going and to what extent the profits were being achieved which would repay this loan. These then in turn communicated back to the staff at large and this generated a lot of interest in the total company performance, which did help.

Mr. O’Keeffe.—We would like to continue and develop this form of participation, in other words, financial participation as distinct from structural participation by the employees in the affairs of our company. They know, because they have actually seen it working in practice, that when they participate financially in our affairs the maximum degree of consultation and communication is open to them and they participate fully in the use of that form of participation. So, it has created, fortunately, a basis for a reasonable amount of industrial peace.

Mr. Mulligan.—The way we see it is: we had the employee-loan plan which got us over a problem; the next objective was participation at board level which has been achieved now. The next objective I think should be participation in profit in investment. We think it is the logical progression on what has happened.

111. Deputy Kenneally.—You intend to sell shares to the workers?

Mr. Mulligan.—That was a project we did have, to get the employees to buy a ship for B + I, and B + I would charter from the employees. That was a project we had in mind. That would give them an interest in the profitable running of the ship and they would get income from that if the ship continued to work profitably.

Chairman.—If they finance it and they run it, you are going to become redundant very shortly. Since there are no more questions that concludes the evidence. Thank you very much indeed, gentlemen.

The witnesses withdrew.