Ferry operators want tide turn on free market

Samisoni Pareti

Been to the wharf lately to see how the inter-island ferry MV Suilven opens its mighty bow jaws to discharge cargo? You are not alone if you think the massive blue and white vessel is 'hungry' to swallow all that swims in its wake.

MV Suilven opens its mighty bow jaws to discharge cargo

Come to think of it, its recent arrival on the local shipping scene was interpreted by competitors as an attempt to do exactly that.

When the extra competition brought freight and passenger rates tumbling down by around 25 percent, long established shipping rivals like Consort and Beachcomber, watched in horror as their slice of the market especially on the lucrative Suva/Savusavu route began to shrink.

For at least one of the ferry companies, the question is not whether one of them will fold up, but when one will.

Justin Smith

Justin Smith, managing-director of Consort, which runs the Spirit of the Fiji Islands (SOFI), says contradictory government shipping policies worsen the situation.

He asked why route licensing is allowed for land transportation like buses but not for local shipping.

"The argument from government is that basically the more ships that come in, the better for the people. That's their rationale," he says.

"On the flip side, the more ships that come in, the more diluted the volume of business for each player, therefore less revenue. And if no one makes money, then what happens?

"If everyone operates and loses money, and they all collapse, where do you go from there? You go right back to square one."

The inter-island ferry business is not actually as free of regulations as bureaucrats claim it to be.

Anyone can start a shipping service in Fiji but freight rates are controlled by the Prices and Incomes Board (PIB). The last freight rate review was done 13 years ago and charges have remained static since then.

Says Smith: "If you look at the PIB structure, it is totally flawed for shipping. For example, the rate for one tonne of cargo from Suva to Taveuni, a distance of 150 miles, is exactly the same for Suva to Kadavu (less than half the distance.)

"The rate should be based on distance but if you ask PIB, how do they formulate these calculations, they have no idea.

"You are not being rewarded for the further you carry the cargo."

Smith may be surprised to hear that officials at the Ministry of Transport agree with him. An official told FIJI ISLANDS BUSINESS that the terms of reference for a review on PIB shipping freight charges are being prepared.

At the last week of February, Chief Executive Officer of the Transport Ministry Vuetasau Buatoka announced the formation of a taskforce to review the freight rate formula.

He said the Finance Ministry is heading the taskforce with at least three representatives of ship operators.

His senior officials agreed that the current formula is flawed and that no increase had been allowed since 1992.

Smith is one of the shipping operators who want the review to consider route licencing. He feels the cost of "free for all" competition surpasses the benefits it brings to shipping companies and their passenger and cargo customers.

"We've been saying to government, if you give route licensing, if you give us some sort of security, then we would probably look at investing in newer ships because the banks would be satisfied that we have some security.

"If we have no security, then they see us as running on our own steam and how much are you going to spend when you know tomorrow a new player can enter the market and try and grab business from you?

"It's common sense that you are not going to put yourselves in it. You will only go out and invest heavily if you have some secure base from which to operate, that you know you are going to get a return from your investment."

Smith and other ship operators reinforced this position at a two-day maritime summit in Suva late last month. The summit communiqué was adamant that sea routes be licenced, a call the Transport Minister Simione Kaitani assured would be seriously considered by government.

Buatoka added his officials would look into the proposal in detail but did make the point that a study by the United Nations on Fiji's maritime sector had argued against route licensing.

He also wondered whether such a change would be for the good of users.

Mataiasi Labati, executive director of the Consumer Council of Fiji, also doubted whether the interests of consumers would be served by applying route licensing in the maritime sector.

'Spirit of Fiji'... concerned about the shrinking market in the Suva/Savusavu sector.

Smith, however, is adamant that licences would provide that "win, win" option for all stakeholders. It would mean, for instance, that operators could secure finance for newer boats.

Most ships used by local shipping companies are way past their "used-by date" of around 25 years. Trying to buy one isn't cheap. Consort's SOFI was purchased from its Greek owners for $3 million, and Smith says fuel alone chews up to $1.2 million annually.

He says competition started a fare war between the main three competitors on the Suva/Savusavu route.

Although freight rate fell by 25% when the Suilven entered the route early last year, consumers in Vanua Levu have not seen a proportionate drop in retail prices of goods.

To a point, the Savusavu ship operator agrees with his rival and relative Mervin Lepper, a director of Suilven Shipping, that quality service could be the way to go.

"Quality of service is great, there's no problem with that. When you've got nine voyages a week between Suva and the north, it's great for frequency.

"However, the number of passengers and the volume of freight are not increasing dramatically. If you're lucky, you will probably get a five percent increase per annum.

"But if you bring a new player, you are doubling the amount of space available and you only have an increase in volume by five percent, mathematically you are actually losing about 25 to 30 percent of volume from what you were getting in the previous year.

"There's a saturation on this trunk route whereas for the rest of Fiji, people are crying out for service.

"This is where the imbalance is, that the trunk routes which we have developed, which we've spent a lot of money developing, are open to anyone to come and steal tomorrow.

"However, in Lau, southern Lau is screaming for ships and no one wants to go there."
Smith says the Fiji inter-island trade is too small to absorb and sustain a free market system and that route licensing is the way to go. As his company did for Koro Island, any operator who wants to run on the lucrative Suva/Savusavu route should be required to operate an unprofitable route or two, he says.

This should be included in the licence. Government subsidies for shipping franchise scheme should be encouraged, he says. But he thinks the scheme has been poorly managed in the past.
Smith was asked by the Soqosoqo ni Vakavulewa ni Taukei Government to help plan the original proposal of the franchise scheme.

He says he has a paper trail of what he termed "questionable and corrupt dealings" over it. One mystery, he says, was the award of the franchise to a company that does not have a boat!

It seems all three major shipping companies-Consort, Beachcomber and Suilven Shipping-have managed to stay afloat thus far in a sea of what they regard as contradictory and irrelevant policies.

But Consort, Smith says, will be a survivor. "We have emotional ties with the industry. Our family is a shipping family.

"We're emotionally tied to the north because we are from Savusavu, we're emotionally tied to the people of Koro because we've had such a good relationship with them and Taveuni.

"So it's an emotive issue as well for us and we don't want to hand over to someone. I know the other companies are suffering as well, we're all suffering.

"All three of us are fighting for the same pie and all we're doing is slicing it thinner and thinner and thinner.

"Where does the madness end, and where does sensibility come back to the whole picture?"