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Is there light at the end of the Tunnel?
Page 24
Page 25
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Eurotunnel has a new money making approach to combat its mounting debt. But operators say they won't play along — or pay more. Dominic Perry reports.
ITS BEEN A TURBULENT year for Channel Tunnel operator Eurotunnel. Back in April its board was unceremoniously dumped by rebellious shareholders. Its first-half losses mounted to £79m, boosting its existing debt of £4.4bn accrued as it attempted to keep pace with competition from the ferry operators.
There's also the issue of guaranteed revenues from the train operators coming to an end in the next few years and a promise to exchange debt for shares by the end of 2005 if they're not paid off — something that would surely infuriate current shareholders as the value of their holding was diluted.
But now it thinks it has found a way to conquer its debt mountain with a recovery plan,Project Dare. This includes extra revenue of around £100m over the next two years, with the truck shuttle business contributing £25m.
New freight director Dirk Broek explains the reason for the new direction: "When I joined Eurotunnel I sat down and looked at the freight strategy over the past five years; it has been based on capacity and rate increases. But two months after we increased both it seemed like the rates would be coming back down.
"Despite increasing capacity and improving service we have not managed to make the market pay for the value of Eurotunnel."
He says hauliers were simply using the tunnel as a bargaining tool against the ferry operators, and once they got the reductions they wanted they'd disappear back to P&O or Sea France, except for emergencies where the tunnel was effectively used as insurance.
Low-cost logistics B roe k. adds: Our pricing was not reflecting the added value of the tunnel Because logistics is very low cost companies have got to keep vehicles running, otherwise the truck becomes too expensive — if it's delayed five hours it will not make a round trip or there will have to he another vehicle dispatched.
"If you take the entire logistics chain then the price difference [between Eurotunnel and the ferries] is peanuts. There's no risk for the truck operator because the tunnel is always there. We cannot afford to be free insurance for everyone. It's time that people started to recognise the true benefit of Eurotunnel."
The extra £25m will be achieved in several ways, he adds. Firstly. Eurotunnel proposes to reduce capacity on the truck shuttle service by 15% ,sending fewer trains at off-peak times.
This, it believes, will lead to substantial savings though lower maintenance costs and downtime as the trains are used less intensively (no trains will be mothballed or sold, however, as they are not compatible with any other country's rail network).
That's simple enough, but what Eurotunnel proposes next is the tricky bit. It also wants its regular customers to forecast, month-bymonth,when they will be using the tunnel. This will be based on data collected over the past five years and will enable Eurotunnel to plan accurately for demand. Brock explains: "We will be offering people less flexibility, but that's been costing us money."
So far, he says, its top 50 customers the likes of Norbert Dentressangle, DHL and Gefco, which account for 98% of truck shuttle traffic-have signed up to the scheme. In fact, he claims that out of around 180 key accounts only half a dozen have raised any objection to the plans.
In return for forecasting their truck movements these key customers pay only £200 per crossing and receive what is effectively a priority service; something that has been lacking in the past, particularly when there have been problems with the ferries and unscheduled traffic has arrived at the tunnel, pushing regular customers to the back of the queue.
In future, if you turn up at the tunnel without a booking you'll be restricted to one of four trains and will have to pay an eye-watering £750. Obviously this has not gone down well in every quarter, with smaller operators particularly unhappy at the new system.
Back to ferries Mike Beer, boss of Kent-based Mike Beer Transport, which was sending about 150 trucks through the tunnel every month, is now switching back to the ferries: "We have now closed our account with Eurotunnel. They wanted us to give a volume forecast but there's no way we could do that, particularly as so much of our work is seasonal and unpredictable. "They seem to have come along with an attitude that says you need us' but I think we can mange without, we did in the past after all," he points out. "There was a time when it was cheaper than the ferries but what they have done this time is just crazy."
Rob Hollyman, from Purfieetbased FP Youngs Transport, argues that freight volumes are impossible to predict:-The market is so volatile at present that !barely know what I'm doing next week, let alone weeks in advance. I really don't know what it's trying to achieve -none of it makes sense.
"However, one thing that's annoyed me is a lack of priority service for regular customers. I actually subscribe to its 1Eurotunnes] view that sporadic users should pay through the nose for it."
Hauliers have also suggested that they may be able to get round Eurotunnel's strict rules by using booking agent Eurotunnel Plus (no relation to Eurotunnel). Euro tunnel Plus is reportedly offering rates far below the official ad-hoc crossing price of £750 and without any of the quota regulations.
Eurotunnel acknowledges that some operators may use this route. but says it is not concerned about these small volume users. In any case, it adds, the contract with Eurotunnel Plus expires this June.
It's early days for the scheme -it only began on 1 January but Broek says volumes are already above the forecast level. What's more on 4 January,when the Channel was stormy enough to disrupt ferry crossings, there was no additional demand for places on Eurotunnel's truck shuttle.
Broek says: "All our regular customers could pass through with their usual speed. Although stormy days now don't mean more traffic for us they do allow our customers to show their customers that they have better service integrity. I'll be watching the weather every day with interest!" •