Competition in the Norwegian domestic
highway ferry market
Ferjekonferansen 2014
Karl Rikard Løvhaug, manager Oslo Economics
Molde 13 November
Oslo Economics
Our consultancy provides economic analysis and strategic advice to businesses, policymakers, and
organisations
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Competition in the Norwegian domestic car ferry market
Public Investment
Economic Analysis
Commercial Litigation and Damages
Competition Analysis
Evaluation
In 2012 we evaluated Statens
vegvesen’s tendering process
• Statens vegvesen put nearly 100 ferry routes on
competitive tendering from 2004 to 2009
• Effects on competition were one of the evaluation
questions
• Data showed
– Limited number of ferry operators
– High market concentration
– Many auctions with only two bids
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Competition in the Norwegian domestic car ferry market
The relevant market seems to be a
Norwegian tendering market
• Supply side: Ferry companies
• Demand side: Statens vegvesen and local
road authorities are the customers, who
choose the ferry operator
• The passengers uses, and partly finances, the
services, but are faced with a monopolist on
each route
• Statens vegvesen and the local authorities
put the tendering to all European operators,
but so far they have only received bids from
Norwegian ferry companies
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Competition in the Norwegian domestic car ferry market
Four ferry companies dominate the
market
Est. marked shares 2011
Boreal
7%
Torghattenkonsernet
24 %
Norled
23 %
Fjord1
46 %
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Competition in the Norwegian domestic car ferry market
Reduced competition – why worry?
Price level
High cost high profit market
Change of regime from negotiation
to competitive tendering
Consolidation
Price collapse
Negotiations
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Tendering
Competition in the Norwegian domestic car ferry market
Time
Tenders since 2012 – the norm is 2 bids per competition
Region
North
Middle
West
East
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Route
Bidders
Companies
Tjøtta-Forvik
BT
B=Boreal
Melbu-Fiskebøl
BT
T=Torghatten-konsernet
Nesna-Levang
BT
F=Fjord1
Volda – Folkestad / Volda – Lauvstad
FN
N=Norled
Hokstad – Levanger
BTFN
Nordøyane
FN
Sølsnes – Åfarnes
FN
Ytre Sunnmøre
FN
Four routes in Sogn og Fjordane
BFN
Lavik-Opedal
BTFN
Horten-Moss
T
Competition in the Norwegian domestic car ferry market
Will we see regional
duopolies?
• In duopolies it is often easier for the
companies to coordinate their prices
(legally or illegally)
• Such outcome will give less cost efficiency
and higher profit levels
Boreal og
Torghatten
Fjord1 og
Norled
Torghatten
(Bastø Fosen)
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Competition in the Norwegian domestic car ferry market
How the ferry operators can rise prices through coordination
• Competitive tendering in the Norwegian ferry market can be interpreted as repeated
auctions/games where the same companies meet time after time
• Tit for tat price rise
• Barriers of entry prevents outside companies from entering the market
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Competition in the Norwegian domestic car ferry market
Have the company
manage to rise their
profits so far?
Forvalt.no credit rating assessment
Boreal Transport Nord AS
Fjord1 AS
Norled AS
Torghatten ASA
Profitability
Weak
Weak
Weak
Sufficient
Ferry companies’ profits
Highest value
Lowest value
14%
12%
10%
8%
6%
4%
2%
0%
2009
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2010
2011
2012
Competition in the Norwegian domestic car ferry market
2013
Boreal Transport Nord
Return on assets
Return on revenue
Fjord1 AS
Return on assets
Return on revenue
Norled AS
Return on assets
Return on revenue
Torghatten ASA
Return on assets
Return on revenue
2009
2010
2011
2012
2013
11,4 %
6,7 %
7,6 %
4,1 %
6,5 %
3,4 %
5,1 %
3,1 %
3,8 %
2,8 %
4,8 % 9,2 %
6,0 % 11,3 %
4,9 %
7,0 %
1,2 %
1,7 %
4,1 %
6,5 %
5,5 %
6,0 %
3,6 %
5,5 %
3,4 %
4,3 %
3,1 %
3,9 %
2,7 %
4,8 %
13,2 %
7,8 %
8,9 %
7,5 %
8,2 %
8,2 %
6,6 %
7,7 %
5,8 %
5,8 %
Source: Forvalt.no/Brønnøysundregistrene
Entry of new car ferry companies is practically non existent –
are there high barriers to entry?
Potential barriers
Assessment
Capital and risk
Investment in costly
ferries, net contract, fuel
and wages
Risk willing capital is available in Norway
Knowledge
Industry specific
competence
1200 years as a leading ship transport nation
Economies of
scale
Administration,
knowledge base, extra
ferries
Some gains from scale
Weak industry
prospects
Ferry routes replaced by
bridges and tunnels
We expect ferries in Norway at least 30 years from now
Costly for Statens
vegvesen to use change
supplier
Competition in the Norwegian domestic car ferry market
Switching cost
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Statens vegvesen has buyer’s power and is willing to use it
To conclude
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Few suppliers – but we can’t conclude with reduced competition
One bidder per route is enough – if the bidder expects and fears competition
Two bidders per route need time to coordinate higher prices
Low profit levels indicates healthy competition
Can’t expect new entrants before profit levels rises
Competition in the Norwegian domestic car ferry market
Statens vegvesen and the local authorities should focus on low
hanging fruits to increase competition
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Competition in the Norwegian domestic car ferry market
Some remarks
• Increased competition is not a goal in itself
• Measures to increase competition can be costly
• Important to consider what the public authorities can do themselves, and what the ferry
companies can do more efficiently – use the tenders to share risk and responsibility the right
way
• As long as Statens vegvesen and the local authorities dictates the fares and service level, the
ferry market will have challenges meeting users’ (passengers’) needs
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Competition in the Norwegian domestic car ferry market
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