Introduction
Transport costs are generally relatively small as a proportion of turnover (approximately 2 per cent for all manufacturers) although these costs can rise to 3.5 per cent for some food manufacturers47. As a percentage of total costs in Northern Ireland transport was found to represent approximately 3.2 per cent. Such costs are particularly important to peripheral regions as even small increases in transport costs will have a greater impact on those companies who are distant from their clients and suppliers. This chapter explores comparative data on transport fuel prices and examines the market structure of the transportation industry in Northern Ireland in terms of market size and competition.
Factors influencing Transport Costs
Transport costs for any industry will be dependent upon a number of conditions such as:
• Geography (distance and accessibility);
• Exchange Rates, Taxes and Duties;
• Infrastructure (developed transport systems have lower transport costs);
• Competition (limited transport competition will result in higher prices);
• Regulation (tariffs and labour/safety regulations will increase transport costs);
• Product Type (the type of goods to be transported is a defining element of the cost of transport and of modal choice); and
• Economies of Scale (larger quantities generally bring about lower unit costs); Any government intervention aimed at reducing transport costs for industry, can seek to influence taxes and duties, infrastructure, competition, and regulation.
In 2002/03, government expenditure on transport in Northern Ireland amounted to £207m, which when examined on an Accruals per Head basis was equivalent to £153 (see PESA, 2004, Table 8.9 and 8.10). Comparative figures for England, Scotland and Wales were £148, £180 and £160 respectively, indicating that expenditure is marginally lower compared to Scotland and Wales. Lower levels of infrastructure expenditure is typically correlated with higher transport costs.
47
Transport Costs
Fuel Prices, Taxes and Geography
The following table presents indicative freight costs from Belfast and three other UK locations to selected destinations in Europe and the United States for 2001. It also shows the cost differential borne by firms based in Northern Ireland compared to their counterparts in Great Britain.
Table 6.148
Indicative Freight Costs (based on standard package 1000m 3 weighing 100kg) – 2001
Paris Amsterdam Brussels Barcelona Frankfurt Milan New York Chicago
London £855.90 £640.55 £640.55 £1,226.50 £855.90 £1,226.50 £1,248.50 £1,248.50
Manchester £902.50 £819.00 £988.25 £1,370.40 £860.00 £1,340.00 £1,390.00 £1,390.00
Glasgow £1,020.00 £904.00 £1,100.00 £1,370.80 £945.00 £1,462.75 £1,500.00 £1,500.00
Belfast £1,040.50 £912.00 £1,100.00 £1,500.00 £950.00 £1,475.00 £1,500.00 £1,500.00
Source: UK Trade & Investment in the United States based on TNT and Arthur Andersen data
However, geography is only one factor with an influence on transport costs. It could be thought that due to its relative small size, Northern Ireland factories would enjoy a comparative advantage over their counterparts in Great Britain in terms of their distance to container seaports, for example. However, no factory in Great Britain is over 100 miles from a container seaport49; thus, no such comparative advantage does actually exist.
Furthermore, in the case of transportation of goods by surface, the price of diesel is one of the main cost determinants. Figure 6.1 below reveals that diesel prices in the UK are uncompetitive when compared to other countries within Europe or to the US.
48
Fuel costs are included; however, data exclude VAT and are prices without negotiation and without specification of product to be carried
49
Transport Costs
Figure 6.1
Chart of Pump Price of Diesel as at August 2004
0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 U K pen c e per l itr e
Source: Source: AA - UK Fuel Prices Report (August 2004)
The main explanatory factor behind this differential is the tax and duty component included in the UK fuel prices, rather than geographic location: as Table 6.2 shows that almost 72 per cent of the pump price of fuel in the UK is made up of taxes.
Moreover, Table 6.2 also shows that out of all UK regions Northern Ireland has the highest diesel prices, which could be partially due to regional peripherality. While fuel prices for 2005 have increased significantly for all regions because of the oil crisis, it should be noted that the relativities between regional prices have remained unchanged.
Table 6.2
Regional UK Diesel Prices - August 2004
Garages and Supermarkets Pence per Litre
Northern Ireland 83.8
Scotland 82.8 Wales 83.2
Northern England 82.5
Midlands and East Anglia 82.8
Southern England 82.6
UK Average 82.8
Per cent taken as Tax 71.8
Transport Costs
Table 6.3
International Road Haulage by Northern Ireland Registered Powered Vehicles Over 3.5 Tonnes Gross Vehicle Weight
Goods Carried by Country of Unloading / Loading – 2003
(Thousand Tonnes)
Country Outward Inward Total
Austria 3 0 3 Belgium 29 44 73 Denmark 0 0 0 Germany 63 66 129 Finland 0 0 0 France 121 107 228 Greece 0 0 0 RoI 41 16 57 Italy 49 68 117 Netherlands 22 18 40 Spain 18 20 38 Sweden 3 0 3 Portugal 0 0 0 Other Countries 9 3 12 All Countries 358 342 700
Source: Northern Ireland Transport Statistics 2003-2004
An additional problem affecting the Northern Ireland economy with a special bearing on fuel costs is the fact that it is the only UK region bordering the Euro zone. With a total border length of roughly 300 miles, along which there are about 300 crossing points (HC, 2002), both lawful purchases across the border and unlawful importation of fuel conspire against petrol stations and other selling points of fuel within Northern Ireland50. The price differential between Northern Ireland and the Republic of Ireland is the largest between any two adjacent countries with a land border within Europe. Although this means that local firms in Northern Ireland can benefit from lawful purchases of cheaper fuel costs in the Republic of Ireland – contrary to their counterparts in Great Britain – this should not conceal its adverse impacts upon the
50
The National Audit Office has reported that of the 700 petrol stations in Northern Ireland, about 400 to 450 sell some illegal fuel and 250 sell only or largely illegal fuel. See: NAO (2002).
Transport Costs
tax base51 and, eventually, upon Northern Ireland’s business activities and quality of life.
Contrary to what would be expected, the Republic of Ireland is not the country with more outward and inward freight haulage by vehicles registered in Northern Ireland: France, Germany, Italy and Belgium were the main destinations and origins of goods transported by roads by Northern Ireland registered haulage vehicles in 2003:
Infrastructure
The Regional Transportation Strategy52 identifies the following infrastructure problems for transporting goods in Northern Ireland53:
• Lack of rail options for freight movement;
• Lack of “freight farms” adjacent to rail network;
• Lower proportion of motorways and classified roads than GB;
• Some towns in urgent need of bypasses;
• Lack of structural maintenance of roads network;
• Poor cross-border road linkages (e.g. Belfast - Dublin should be an "expressway");
• Lack of some link roads into the Key Transport Corridor (KTC) network (e.g. Armagh City to M1);
• WestLink lacks capacity
Consequently, over the period 2002-2012, the Strategy “assumes a total investment of £3,500 million of which £1370 million is additional to current levels of transportation spend continued” (RTS, p. 88) -a total £2,085 of which is to be invested in road infrastructure with a direct relevance to freight transport, including: structural roads maintenance, conventional traffic management, routine maintenance, bridge strengthening, network management costs, development schemes and strategic highway improvements. The extent and quality of transport infrastructure imposes indirect costs on business in terms of efficiency, travel time, reliability, safety, and maintenance. Therefore, the successful implementation of the transport strategy should translate into reduced costs of business in Northern Ireland.
51 In NI revenue not collected (including evasion) on diesel was estimated at £230 million in 2003
and for petrol the equivalent figure was £120 million, See:HM Customs and Excise (2004).
52 Shaping our Future. Regional Transportation Strategy for Northern Ireland 2002-2012. Belfast.
Department for Regional Development.
53
Transport Costs
Northern Ireland Ports
Table 6.4 presents the total tonnage of goods (inward and outward) shipped through the principal ports in Northern Ireland for the period 1998 to 2003. Over 60 per cent of Northern Ireland's sea borne trade is shipped through Belfast, whilst 19.7 per cent of total traffic passes through the port of Larne.
Table 6.4
Tonnage of Goods Through the Principal Ports in Northern Ireland Total Inward and Outward Traffic
Thousand Tonnes
Year Belfast Larne Londonderry Warrenpoint Other Totals
1998 12,234 5,198 1,127 1,563 1,489 21,611 1999 12,862 5,578 1,217 1,715 1,459 22,831 2000 12,484 4,507 1,133 1,676 1,634 21,435 2001 13,402 3,520 1,060 1,480 1,705 21,167 2002 12,825 4,295 1,064 1,826 1,353 21,363 2003 13,201 4,320 1,172 1,880 1,401 21,974 Percentages
Year Belfast Larne Londonderry Warrenpoint Other Totals
1998 56.61% 24.05% 5.21% 7.23% 6.89% 100.00% 1999 56.34% 24.43% 5.33% 7.51% 6.39% 100.00% 2000 58.24% 21.03% 5.29% 7.82% 7.62% 100.00% 2001 63.32% 16.63% 5.01% 6.99% 8.05% 100.00% 2002 60.03% 20.10% 4.98% 8.55% 6.33% 100.00% 2003 60.08% 19.66% 5.33% 8.56% 6.38% 100.00%
Source: Northern Ireland Ports Traffic 2003. Table 1. NISRA (2004)
About ninety per cent of Northern Ireland's total trade, and almost 50 per cent of the Republic of Ireland's freight traffic, leaves through Northern Ireland’s ports. As Table 6.5 shows, the Port of Belfast is the first choice exit and entry point in Northern Ireland for international movement of goods. The port is the busiest break bulk and passenger maritime gateway on the island of Ireland, and one of its leading freight ports. Cross-border trade to and from the Republic of Ireland represents 40 per cent of the port’s total roll-on/roll-off traffic.
Transport Costs
In terms of air freight transport, the Belfast International Airport constitutes the fifth largest regional air cargo centre in the UK54, with almost 30 thousand tonnes of cargo handled in 200355. (see table 6.5 below).
Table 6.5
International Freight Transport by Mode
Tonnes Exported from and Imported to Northern Ireland56 – 2003 (in thousands)
Sea Port of Belfast 13,201
Road All vehicles over 3.5 tonnes gross weight 700
Air All Airports 31
Sources: Sea: Port of Belfast; Road and Air: Northern Ireland Transport Statistics 2003-2004
Road System
Considering all goods vehicles over 3.5 tonnes, the freight transport by road in Northern Ireland amounted to 63,532 thousand tonnes in 2003. Three commodities accounted for almost 68 per cent of all transported tonnage by road: crude minerals (32.97 per cent); building materials (19.20 per cent); and food, drink and tobacco (15.92 per cent)57.
All of this traffic is living off the fruits of past capital investment in the roads network. There has been no major expansion of the network over the past decade and schemes identified in the Regional Transport Strategy as priorities, including the M1/Westlink corridor and improved access to Larne and the regional airports are now a pressing concern.
There are no up-to-date data on comparative investment in Europe and existing benchmarking exercises have only focused on public or integrated transport in cities, with little relevance for freight transport. Within the UK, the regional expenditure on roads per capita could be used as a broad indicator of infrastructure investment. According to this indicator, Northern Ireland would exhibit the second highest
54
See: http://www.bial.co.uk/
55
Source: Northern Ireland Transport Statistics 2003-2004, Belfast: Department for Regional Development.
56
Only 57k of the 700k are traded to and from the RoI.
57
Transport Costs
investment effort of all UK regions in 2002/03, with about £125 spent on roads per head.
Market Size
The number of VAT-registered enterprises of freight transport by road in Northern Ireland in 2003 amounted to 1,450. This represented 2.7 per cent of all VAT- registered firms in the region. Compared to the rest of the UK regions, the freight transport industry in Northern Ireland exhibits the third highest density of firms in terms of the regional industrial structure (See Table 6.6 below).
Table 6.6
Number of VAT-based Firms in the Freight Transport by Road Industry (SIC 6024/9) per UK Region – 2003
Region Count Total VAT-based Firms %
Yorkshire and the Humber 3,615 116,160 3.11
East Midlands 3,285 111,330 2.95 North East 1,125 40,605 2.77 Northern Ireland 1,450 53,830 2.69 West Midlands 3,460 134,875 2.57 North West 3,775 152,385 2.48 Wales 1,750 72,035 2.43 Scotland 2,320 115,430 2.41 East 3,625 163,470 2.22 South West 2,780 152,050 1.83 South East 3,710 252,975 0.92 London 2,050 246,390 0.83
Source: Office for National Statistics – unpublished data and ONS (2004) UK Business: Activity, Size and Location – 2004
The high percentage of freight transport by road firms in Northern Ireland relative to most of GB suggests that Northern Ireland may enjoy some overall competitive advantage for this type of business. While this benefit may not necessarily be shifted to the rest of Northern Ireland firms in terms of lower transport costs vis-à-vis their counterparts in GB, the data is consistent with information gathered in case study interviews by the ERINI with two local companies - both of whom claimed to access relatively cheap courier costs in Northern Ireland due to the number of such players in the local market. However some concerns were also raised by companies with regard to the cost differential in moving goods out of NI (which is competitively priced) and importing goods into the region (which is relatively expensive for companies bringing in raw materials).
Transport Costs
Competition and Regulation
There are over 2,000 operators in Northern Ireland licensed to transport goods for hire and reward using a vehicle of more than 3.5 tonnes weight58. Legislation that came into effect in Great Britain in the mid 1990s introduced significant changes between the regulatory systems in Northern Ireland and the rest of the UK. In 2003 the Department of the Environment published their consultation document “Review of Road Freight Operator Licensing in Northern Ireland”, in which it acknowledges the following disparities between the licensing systems in Northern Ireland and Great Britain (in particular the absence of a licensing system in Northern Ireland). The consultation document proposes to try and tackle this deficiency by adopting the GB licensing system, which includes the following provisions:
• own account licensing (operators who carry their own goods in the course of their business or trade);
• the application of environmental conditions in relation to operating centres;
• continuous licensing;
• maintenance requirements; and
• the power to impound the vehicles of operators who do not hold an operator’s licence.
The present fee for a Road Freight Operator’s licence in Northern Ireland is £35 and lasts for five years. For a Road Freight Vehicle, the licence costs £49 and lasts for one year. The proposal to temporarily adopt the fees currently in place in Great Britain (See Table 6.7 below) would undoubtedly have an impact upon the transport sector in Northern Ireland and there is a strong possibility that these increased costs would be passed on to other businesses using private transport services such as couriers and road haulage companies.
58
This figure differs from the 1,450 reported by the ONS because the latter refers only to VAT registered businesses, other transport companies exist which are either not VAT registered (VAT registration is not compulsory for firms whose taxable supplies have not exceeded £55,000 in the previous year) or they are VAT registered in the RoI.
Transport Costs
Table 6.7
Road Freight Fees Currently in Place in Great Britain and Northern Ireland (2004)
Great Britain Northern Ireland
Application Fee £168
Licence Fee £263. The licence lasts for 5 years.
Operator's Licence
£35. The licence lasts for 5 years.
Licence
Continuation Fee
£263; this fee is payable every 5 years.
Specified Vehicle Fees
£7.25 per vehicle per quarter if paid in advance for 5 years (ie - £29 per year or £145 for 5 years). £9.00 per vehicle per quarter if paid annually (ie £36 per year)
Vehicle Licence
£48. This licence lasts for 1 year (i.e., £240 every 5 years)
Source: HM Treasury 2004b
Conclusions
Freight costs in Northern Ireland are higher relative to those in GB and fuel prices are also higher. While peripheral regions are expected to exhibit higher transport costs, Northern Ireland’s unique position of bordering the Eurozone has kept transport costs lower than would otherwise be the case for some Northern Ireland businesses (who purchase fuel and in the past have registered their haulage vehicles across the border. Evidence of a high density of transport companies in Northern Ireland, which enjoy lower labour costs relative to GB, would suggest that prices are to some extent kept down through competition. However, the DoE’s review of the licensing arrangements for Road Freight Operator in Northern Ireland could result in higher costs for transport companies locally and these costs will probably be passed on to their customers.