Tough times at P&O Ferries

This week we exclusively revealed the financial difficulties facing P&O Ferries, the market leader on the English Channel and one of the area’s biggest employers.

We obtained an internal staff notice, circulated to employees of the Dover-based company on July 27, in which chief executive Helen Deeble outlined in frank terms the very immediate challenges facing the business.

A combination of “strong recessionary pressures” and the effects of a price war launched by its competitors, both on the Channel and underneath it, have left the company with no choice but to find ways of cutting costs.

Admitting it could be some time until the industry recovers from the effects of the recession, Ms Deeble confessed the company’s short sea route between Dover and Calais is under particularly fierce attack from its rivals. She said:

This attack, in the form of a price war, emanates primarily from Eurotunnel which has slashed its freight rates to win back the market share it lost to us after the tunnel fire in the autumn of 2008.

This has cost us a loss of freight volume and a significant downturn in revenues due to the lower prices we are having to charge our customers.

At the same time, Eurotunnel and ferry competitors are piling on more pressure with weekend promotions that have further depressed freight rates and we have been forced to fight back with special freight deals of our own.

This makes for grim reading. Freight is of course the lifeblood of the cross-Channel carriers, the health of that market for any player goes a long way to determining the strength of its business.

The Channel Tunnel fire of 2008 saw a significant amount of business shift to the ferry companies operating out of the Port of Dover, offsetting to a certain extent the loss of traffic caused by the economic downturn which struck around the same time.

I remember at one meeting of the Dover Harbour Board consultative committee in the aftermath of the fire DHB chief executive Bob Goldfield expressed regret over the incident – but the smile on his face betrayed his true feelings, it was a welcome boost for the shipping industry in Dover.

P&O Ferries also benefited from the troubles engulfing Dover-Calais rival SeaFrance, which has been on the brink of bankruptcy for some time and is in need of a bail-out and severe restructuring if it is to survive.

Now Eurotunnel, which operates shuttles carrying freight and tourist vehicles through the Channel Tunnel, is fighting back aggressively in a bid to reclaim its lost market share. This, along with competition from SeaFrance, DFDS Seaways and LD Lines, is putting the squeeze on P&O – and it’s starting to hurt.

Although the memo of July 27 does not outline any concrete plans for cost-cutting, the chief executive’s words will have sent a chill through the workforce:

This all means we are being forced to reduce costs throughout the business in order to be able to compete. It is therefore important I highlight to you at the earliest opportunity that our current performance is of serious concern and that it is going to require urgent attention.

Undoubtedly the language of a company struggling financially, but how will the savings be made? Ms Deeble simply said:

The board is currently considering all of its options.

Although no explicit mention is made of job cuts, the officers’ union Nautilus International told me it is “deeply concerned” by the situation at P&O, warning darkly that a price war is a direct threat to jobs. I believe that threat is very real indeed.

Earlier this year I travelled to Finland to witness P&O proudly float out the first of two new ships destined for the Dover-Calais route. One of the points made again and again during this visit was that these new ferries will be the biggest ever to sail the route, delivering highly-beneficial economies of scale.

Spirit of Britain and Spirit of France will be capable of carrying twice as much traffic as the vessels they are set to replace, but will use the same amount of fuel and – importantly – require almost exactly the same level of crewing.

This is why I believe we will see jobs go at P&O within the next twelve months.

(UPDATE: Little more than a month after this blog post was published, the Express revealed plans for job cuts at P&O’s base in Dover.)

If your market share is under sustained attack from rivals engaged in a bitter price war at a time when the economy is stagnating, it is unlikely your traffic volumes are going to grow to fill this extra capacity created by new tonnage. And if the crew-to-traffic ratio is reduced by economies of scale then it is plausible jobs losses could be on the horizon.

Of course this remains purely speculation at this stage. Things will become clearer in the coming weeks and months as P&O prepares next year’s budget this autumn. But for many it will be a nervous time as the company is forced to slash its outgoings in an effort to remain competitive in this most cut-throat of markets.

UPDATE: As if to demonstrate the parlous state of the industry at this moment in time, today I spoke to LD Lines managing director Christophe Santoni and he admitted his company, which operates between Dover and Boulogne, could be facing the prospect of job cuts.

He confirmed to me that “staff reduction may unfortunately be on the agenda” because of the “seriousness of the situation” facing the business, which goes to show it’s not just P&O and SeaFrance who are struggling to balance the books on the English Channel.

This story, as reported this afternoon at www.thisiskent.co.uk, can be found here.

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