The "NorthLink Ferry Service" by Bill Davidson, Chief Executive of NorthLink Orkney & Shetland Ferries Ltd.: Meeting of Tuesday 24 February 2004 in Aberdeen

The elements (snow and wind) and technology (a disfunctional laptop screen) conspired against Bill Davidson, but a hardy audience of thirteen people braved the weather to enjoy a thoroughly interesting presentation on the NorthLink Ferry Service.

Traditionally the Northern Isles ferry routes were operated by P. & O. Ferries, with substantial government subsidy. In 1997 Donald Dewar renewed the P. & O. contract for a period of five years, and in 1998 tenders were invited to operate the ferry routes using new ships with effect from 2002; at which time the P. & O. ships would require to be replaced to comply with more rigorous EU safety requirements. NorthLink was formed as a new company in order to tender for the five-year minimum subsidy contract on offer. The company has two stakeholders, CalMac and the Royal Bank of Scotland, who both have a 50% stakeholding. The tendering process was a protracted one, taking 27 months in total compared to the 15 month timeframe that had been intended, and finally NorthLink were announced as the successful tenderer.

The company commissioned three new ships, which were built in Finland. In October 2002 NorthLink took over operation of ferry services between Aberdeen and Shetland/Orkney, and between Scrabster (nr Thurso) and Orkney. But things were not all plain sailing as a new pier being built at Scrabster to accommodate the new Hamnavoe ship was not completed until September 2003, and in the meantime NorthLink were forced to bring in a substitute CalMac vessel, the Hebridean Isles, which was less suitable. The Scrabster passenger terminal and walkway are yet to be completed. The company have also experienced difficulties with increasingly bad weather, as experienced on the night of the meeting, when the Aberdeen ferry was cancelled due to Force 11 gales and 22 meter waves being forecast.

There are several differences between the service previously operated by P. & O. Ferries and that offered by NorthLink. The new ships provide a large increase in the number of cars and passengers, and the number of passengers carried has exceeded expectations. Indeed, the local authority has blamed NorthLink for a fall in passenger numbers experienced at Shetland airport, at a time when the other Highland airports are seeing rises in passenger numbers. The ships were specifically designed for the waters that they operate in, and provide a high quality service with faster journey times and more journeys than operated under P. & O.

The company consults on their services through a local authority forum that encompasses representatives of groups from the islands, and when designing the ships they worked closely with the disability group in Shetland. NorthLink is currently developing its tourist market; including connections with Smyril Line services to the Faroe Islands, Iceland, Norway and Denmark. It is also working with ScotRail and Citylink to provide through-ticketing opportunities at Scrabster.

However, whereas the passenger side of the business has been a success, the freight business has underachieved due to a number of factors. Between September 2002 and June 2003 a competitive freight ferry service was operated by a company set up by the three biggest Shetland hauliers, resulting in the NorthLink service operating empty when it was introduced in October of 2002. Also, NorthLink introduced a standard pricing structure, which caused some initial difficulties because some hauliers had benefitted from cross-subsidisation under the P. & O. charging system.

Figures provided as part of the service tendering documentation have failed to stack up. And more recently, accusations regarding potential health risks of farmed Scottish salmon has caused a huge drop in the amount of salmon being shipped - at a time when NorthLink had newly introduced a new freighter to accommodate the anticipated growth in the market.

NorthLink is structured differently from P. & O. the company directly employs only 60 staff compared to the 450 people employed by P. & O. This is because the company has sub-contracted ship maintenance, the loading/unloading of freight, and the on-board catering service; and it doesn't provide the on-land haulage services that P. & O. had operated. Also, whereas the P. & O. headquarters was located in Aberdeen, the NorthLink managers are based in Orkney and Shetland, as well as Aberdeen. The company sees itself as more of an island-based company; for example, the Hamnavoe berths overnight in Stromness instead of Scrabster, and the call-centre is based in Kirkwall.

As to the longer-term future of the company, the current contract expires in 2007 and, when asked, Bill Davidson was unable to say whether NorthLink was likely to tender for the continued operation of the Northern Isles ferry routes.

Report by Marion Mackay.