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DESPITE THE THREAT OF ABOLITION THIS SUMMER, THERE IS STILL A POSSIBILITY THAT DUTY-FREE MAY WIN A LAST-MINUTE REPRIEVE. BUT IF ABOLITION DOES GO AHEAD, HOW WILL IT AFFECT FREIGHT FARES ON FERRIES? MIKE SHERRINGTON REPORTS.
Ameeting of European ministers at the end of March could lead to this year's second major increase in the cost of freight ferry crossings. The ministers will discuss whether to postpone the ending of duty-free concessions or to stick to the original plan to scrap duty-free from the end of June this year.
If the second option is adopted, international haulage firms are more than likely to have to stump up even more for ferry crossings because profits made from the sale of duty-free goods currently subsidise ferry operating costs and allow the companies to offer lower prices. However, the future of duty-free concessions is still very uncertain. A December meeting of EU ministers in Vienna decided to set up the extra review in March because most of the countries were worried about job losses in an industry which is estimated to be worth L3bn a year in the UK alone.
It is quite possible that the March review will produce some sort of fudge which will see the life of duty-free sales extended because the EU has not yet decided on what taxation system to impose in their place. But in order to do this al115 member countries will have to agree on a new system.
Concession
Richard Stocks of the Duty-Free Confederation, a lobby group campaigning to preserve the concession, explains the taxation problems which will occur if dutyfree is scrapped. "I estimate that ferry companies will have to increase their fares by a further 15-20% if duty-free goes," he says. "But unless there is an agreed taxation system put in place, then sales on boats will become a nightmare.
"If you take a ferry from Britain to Spain it will pass through four zones," he points out. "First British territorial waters, then French, then international waters and finally Spanish. Each stage of the journey will attract different tax systems, so in theory the same bottle of wine could sell for four different prices depending on when it was bought."
This confusion, and the short time before duty-free is likely to be scrapped, is almost certain to mean that there will be an extension of the current arrangements—possibly until Europe agrees on a single taxation system in about 10 years' time. Elowever, it is just as certain that duty-free will eventually be scrapped, and this could lead to a major increase in ferry fares.
Stocks thinks prices will go up, but Mark Thomas, a spokesman for 1IM Customs and Excise, thinks the effects have been exaggerated. "Don't believe all the hype about job losses, soaring fares and the closure of some routes," he says. "Yes, duty-free is important to airports, ferry companies and Eurotunnel, but they are all working out different ways to provide an alternative service."
P&O Stena, which operates the short crossings to France, is already developing shortterm plans to deal with the abolition of duty-free. "Even if duty-free does go, there will still be tremendous differences in taxation rates," says a spokesman. "For example, the duty on a bottle of wine in this country is £1.09, while in France the duty on a bigger one-litre bottle is just 3p. This is why we already have outline planning permission for a hypermarket in Lalais, and if duty-free is abolished we will switch our on-board sales from small-quantity/high-margin sales, which are determined by duty-free allowances, to highquantity/low-margin tax-paid sales, because the amount of tax-paid goods that can be brought in from abroad is much higher."
P&O Stena denies that it has already put up crossing prices in anticipation of the end of duty-free—an accusation made by many haulage companies. "We imposed a flat ,E25 increase on 1 January this year because this was what was needed to get back to a realistic pricing policy," says its spokesman. "The introduction of Eurotunnel in 1994 meant there was too much capacity in the market, which led to discounting. It is only now that we can get prices back to what they should be."
This does not wash with some hauliers. Henk Buzink, managing director of Kidderminster-based Fransen Transport, says: "Price rises have already happened and I am sure this has a lot to do with the threat to duty-free. If the number of crossings are reduced even further it is more likely prices will go up again. However, price rises are the same for everyone so they should not affect our business. The abolition of duty-free will affect our drivers though, because the ability to buy tax-free goods is a perk of the job."
David Fisher, owner of Harrogate-based Fishers Transport, is worried that price rises will hammer small hauliers. He says: "It's get ting very tough to negotiate deals with the ferry companies. We did a lot of work on the Continent last summer but now we are not doing so much. However, the big firms which regularly use the crossings can negotiate deals two or three years ahead at very competitive prices. These prices will gradually force small firms out of business because they cannot take on the unfair advantage the big boys have."
And ferry costs do go a long way to determining the costs of international operations. Andrew Frampton, managing director of Framptons International, explains: "Una journey to Paris, the cost of the ferry will account for around 50% of the total bill, but obviously the further you go on the Continent the less significant the ferry fare becomes.
"It's also difficult to pass on increased ferry costs to the customer," he adds. "I estimate that of the last increase we have managed to pass on the extra casts to about 45% of our customers, but most of our regular customers in Spain just laugh at us when we say that ferry costs have gone up."
The whole question of what will happen to duty-free is still in the melting pot. The meeting of EU ministers in March will be crucial, but it is almost certain that duty-free concessions will be abolished, probably later rather than sooner, and that this will impose yet another burden on the hard-pressed international haulage industry which is already having to cope with the strong pound.
This has hit exports and means that while it is quite easy to get loads coming into this country, it is very difficult to get outloads.