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Seaborne Freight

Volume 795: debated on Monday 11 February 2019


My Lords, with the leave of the House, I will repeat in the form of a Statement the Answer given by my right honourable friend the Secretary of State for Transport to an Urgent Question in the other place. The Statement is as follows:

“In December, following a collective government decision and a procurement process involving my department and the Treasury, we contracted three shipping companies to provide additional ferry capacity as part of contingency planning for a potential no-deal EU exit. Let me start by being absolutely clear that, in the event of a no-deal Brexit, the Government’s priority is to ensure the smooth operation of both the Port of Dover and the Channel Tunnel, and we are putting in place measures at the UK end to contribute to this.

However, any sensible Government plan for all eventualities. That is why we agreed contracts worth around £100 million, with the bulk of the award, £89 million, going to DFDS and Brittany Ferries to provide services across seven separate routes. Built into those agreements are options to add capacity on two other routes from those companies should they be required. This capacity could be required to guarantee the smooth flow of some key goods into the UK, particularly for the NHS. It is worth reminding the House that, in the event of no deal and constriction on the short straits, this capacity would be sold on to hauliers carrying priority goods.

In addition to the £89 million-worth of contracts with DFDS and Brittany Ferries, the Department for Transport entered into a £13.8 million contract with Seaborne Freight to provide ferry services from the Port of Ramsgate to Ostend. At the time of the award, we were fully aware of Seaborne’s status as a start-up business and the need for Seaborne to secure vessels and port user agreements to deliver a service. However, the shorter distance between the two ports meant that the route could provide us with shorter journey times and lower cost, making it a potentially attractive part of the package.

Seaborne’s proposition to the department was backed by Arklow Shipping, Ireland’s biggest and one of Europe’s largest shipping companies. For commercial reasons I have not been able to name Arklow Shipping or mention its involvement to date. But its support for the proposition from the outset, and the assurances the department received, provided confidence in the viability of this deal. Arklow confirmed to me that it intended to finance the purchase of ships and would be major shareholders in Seaborne. It also confirmed to me its view that the Seaborne plans were, ‘both viable and deliverable’. These assurances included clear evidence about the availability of suitable vessels from the continent and about the formal steps which Seaborne, via Arklow, had taken to secure these vessels.

However, releasing this information into the public domain could have significantly driven up the cost of the vessels and might even have resulted in them being removed from the market, where supply is extremely scarce. I have therefore had to refrain from saying anything publicly to date about this.

My department monitored closely the progress of Seaborne towards meeting its contractual commitments. By last week, the company had secured firm options on ships to operate on the route, and had reached provisional agreement with Ostend and was close to doing so with Ramsgate. However, late last week, despite previous assurances, Arklow Shipping suddenly and unexpectedly withdrew its backing from Seaborne. In the light of this, and after very careful assessment, I took the decision to terminate this contract. My department concluded that there were now too many major commercial issues to be resolved to enable Seaborne to establish alternative arrangements and finance in the time needed to bring ferries and ports into operation.

As I have repeatedly made clear, not a penny of taxpayers’ money has gone or will go to Seaborne. The contracts we agreed with the three ferry companies are essentially a commitment to block book tickets on additional sailings after the UK leaves the European Union, so actually we have taken a responsible decision to make sure that taxpayers’ money is properly protected.

I can confirm that the contracts with DFDS and Brittany Ferries remain on track and will provide us with valuable additional freight capacity into the UK in the event of disruption following EU exit. We also have contractual options to replace the Seaborne capacity with additional capacity on routes in the North Sea, and this is an option we will be discussing across government in the coming days.

While the focus of this Government is to secure a deal with the European Union, as a responsible Government we will continue to make proportionate contingency plans for a range of scenarios. That is the right thing to do”.

I thank the Minister for repeating the Statement. On 8 January, my noble friend Lord Tunnicliffe was told by the Government:

“With Seaborne, the proposal was subject to technical, financial and commercial assurance”.—[Official Report, 8/1/19; col. 2127.]

What were the financial assurances received and from whom? Were the financial assurances given specific, firm, unqualified and in writing, or were they only in the form of an intention or a consideration of giving financial support, as the Statement suggests?

Why was no reference made in the Statement of 8 January to the extensive involvement on the financial side of the Irish company Arklow Shipping? The Government said it was for commercial reasons. What commercial reasons were so important that they overruled the public interest and transparency on a Brexit issue? Perhaps instead it was because the Secretary of State was so determined to have the involvement at all costs of a British shipping company, to avoid the embarrassment of having to rely exclusively on European companies to help us out of a no-deal mess, that he reached this questionable agreement with Seaborne Freight without competitive tendering and then knowingly did not disclose in the Statement that even British Seaborne Freight was dependent on financial backing materialising from an EU-based Irish company? If that is not the case, why was the agreement not reached directly with Arklow Shipping, one of Europe’s largest shipping companies and clearly the intended real power behind Seaborne Freight?

My Lords, we have listed the checks carried out as due diligence on the operational suitability of all the bids submitted as part of the department’s procurement of additional freight capacity. They were director searches and basic counterparty financial solvency checks, with technical support provided by Mott MacDonald. Two high-level technical reviews were completed. The first related to the ferry tender and submission compliance within the DfT evaluation process and the second to the technical feasibility of the tendered ferry intervention. Financial analysis was carried out by Deloitte to assess the financial robustness of operators, and price benchmarking by Deloitte to examine the prices offered to DfT in comparison with market rates to enable the assessment of value for money as part of the procurement process.

I explained earlier in the Statement the reasoning behind not mentioning Arklow before. It was for commercial reasons. It would have adversely affected the cost of ships in order to procure the contract. We contracted directly with Seaborne because it was the company that had been working for over a year to provide the service between Ramsgate and Ostend.

My Lords, we now know that the Government’s own estimate is of an 87% reduction in cross-channel trade for three to six months if there is no deal. Given that the whole point of Brexit no-deal preparations is to minimise risk, why did the Department for Transport approve the contract with Seaborne when it was known that there was a high risk that the company would not be able to fulfil the contract? When we spoke about this on 8 January, the Minister gave me solemn assurances that the financial backing for Seaborne was good. How did that situation change so dramatically overnight?

What the Minister did not tell me on 8 January was who will pay for the dredging of Ramsgate harbour. The Minister told us today that no public money will be put forward to Seaborne, but who will pay for the dredging of the harbour, given that we now know that no company could provide ships in time for a no-deal Brexit to use that harbour?

My Lords, we went ahead with the contract with Seaborne on the understanding that it was a start-up company and did not currently provide the service. As I explained, this was a shorter and therefore cheaper route, which was why we were keen to make use of it. But we have enough capacity in the remaining contracts for prioritised goods.

The DfT is not party to the dredging work at Ramsgate, but of course we will continue conversations with a number of stakeholders, including Thanet Council, over any plans to re-establish ferry services at the Port of Ramsgate.

My Lords, the dredging started five weeks ago on 3 January, so accounts must have been submitted or Thanet Council will be aware of what the bill is. Have the Government been told how much that bill is? Will the Government pay that bill at the end of the day? How much is the bill to Slaughter and May, Deloitte and Mott MacDonald, to which the Minister referred, for the assessment of Seaborne’s business plans? Finally, in the Statement on 8 January, the Minister told us:

“We are concerned that in the event of no deal, there will be disruption at the Port of Dover … which is why we are making these contingency plans”.—[Official Report, 8/1/19; col. 2128.]

What replacement contingency plans are now being considered to deal with the disruption at Dover, which the Minister herself predicted?

My Lords, as I said, the DfT is not party to the dredging work. I am not able to comment on the value of contracts held by entities other than my department. Dredging of the port is the responsibility of the relevant port authority and continues to form part of the ongoing discussions. As I said, the DfT will continue conversations with a number of stakeholders, including Thanet Council, over plans to re-establish the ferry service.

On the money paid around the Seaborne contract, the contract awarded to Seaborne was part of a broader procurement exercise to secure additional freight capacity after Brexit, and as part of that the three contracts were awarded. Extensive third-party due diligence was carried out on these so a cost would have been attached to the process even if we had never entered into an agreement with Seaborne.

My Lords, the Minister has told us that substantial commercial due diligence was done on this deal, yet the Secretary of State’s Statement says clearly says that Seaborne,

“was backed by Arklow shipping”.

It goes on to say that Arklow offered support for the proposition, and finally that Arklow,

“provided confidence in the viability of this deal”.

Will the Minister explain more clearly than she has so far what the backing was, what the support was and what the assurances were?

My Lords, I take this opportunity to remind the House that no taxpayer money has been transferred to the company and the Government stand by their robust due diligence carried out on Seaborne Freight. Perhaps it would be helpful if I read out some specific reassurances that Arklow provided to us. It said:

“Arklow Shipping has been working with Seaborne for twelve months in connection with Seaborne’s proposals to develop new freight services between the UK and continental Europe. Arklow Shipping is therefore familiar with Seaborne’s agreement with Her Majesty’s Government to provide additional freight capacity … In support of the current proposals to develop the shipping route … Arklow Shipping intends to provide equity finance for the purchase of both vessels and an equity stake within Seaborne which will be the operating entity of this project … Seaborne is a firm that brings together experienced and capable shipping professionals … I consider that Seaborne’s plans to deliver a new service to facilitate trade following from the UK’s departure from the EU are both viable and deliverable”.

That is from Arklow Shipping, which, as I said, is Ireland’s largest shipping provider and one of Europe’s biggest. That letter has now been published on the GOV.UK website.

My Lords, I should like to say a word on behalf of the trade union of ex-Secretaries of State for Transport, of whom there are several in your Lordships’ House. This case really confirms that the portfolio is a no-win situation because everybody is a critic and nobody is your friend. But in this particular case, are we to understand therefore that when the contract was first made, although it could not be revealed for commercial reasons, it was in fact being made to a combine that had dozens of ferries and enormous ferry experience? I know it had to be cancelled later when Arklow pulled out, but I am waiting to hear a flicker of recognition from those shoot-from-the-hip critics who rushed forward to criticise at the original time when they did not know the full facts. Would it not have been wiser to become a little more informed before the usual crowd gathered to criticise the Secretary of State?

I thank my noble friend for those comments. The contract with Seaborne was specifically designed in recognition of the risk posed by contracting with a new operator and it protected the taxpayer, as it was always designed to do. As I said, no taxpayers’ money has been paid to Seaborne. My noble friend is quite right to point out the assurances that we received from Arklow Shipping. Noble Lords would expect a responsible Government to ensure that we are able to deliver capacity for critical goods in the event of no deal and that is what we are doing.

The Minister seeks to blame Arklow for this withdrawal, but the Irish Times says something rather different. It states that Arklow was never “a backer”, did not have “any formal agreement” with Seaborne and was not “a contract partner”. Who is telling the truth?

My Lords, the contract was with Seaborne Freight. I have read out extensively the reassurances provided by Arklow, which are set out in the letter published on GOV.UK. The contract, however, was with Seaborne and we entered into that given the reassurances that we had.