In Norway, domestic ferry services are regarded as integrated parts of the national road system. The ferries are owned and operated by individual ferry companies on a concession basis. The companies receive subsidies from the national road authorities as the regulated fares provide insufficient revenue to cover operating costs.
So far, subsidies have been determined through annual negotiations between each company and the road authorities. The current system runs on block grant contracts. Each company neither competes 'on the water' (i.e. with other ferry companies) nor for its concessions. This lack of competition is assumed to give rise to X-inefficiency, and the subsidies have grown steadily in recent years.
In order to enhance efficiency and limit the subsidies, tender competition has been introduced on a sample of ferry links. Based on these experiences, the Norwegian parliament has sanctioned that the remaining ferry links should be subjected to competitive tendering as well.
This project assesses both the experiences from the trial tenders in the sample of ferry links, and whether tendering on all ferry links may prove to be successful.
The trial tenders are analysed by means of DEA and SFA analysis to see whether there are differences with respect to the efficiency in tendered and non-tendered ferry services.
In terms of efficiency in the Norwegian national roadmap, we can draw two conclusions: (1) Tenders do not in themselves give any effect on efficiency when we compare costs per Produced unit with the situation in comparable ferry connection. There are other factors that better explain the differences in efficiency. (2) There is a potential of 16-18% improvement in efficiency for an average ferry connection, compared with "best practice" efficiency.
Our conclusion in relation to tenders as a regulatory regime is that it is important to have the tender opportunities in order to develop good incentive schemes in an overall system with combinations of different types of contracts. This combination can also be sequential: it may be advisable to draw a relationship that has been on offer in a negotiated contract solution again. The dimensioning and execution of such tenders should then be carefully designed in relation to what is necessary at any time to ensure good information on the cost picture. Relationships where relatively robust information about a high cost level (eg per shipping PBE) is available, compared to comparable links, where the contribution per shipping PBE is high and / or where new capacity is needed are examples of connection as May be suitable for competition.
In large scale bids, one should critically assess the market power on the supply side, among other things, because relatively few shipping companies operate in the market. The market structure may mean that learning through repeated bidding does not reveal the actual costs. This may in particular be a problem in which the consequences of such disclosure will be large, which will easily be the situation with wide-range tenders. Small scale tenders that are ongoing regularly combined with framework grants, where more incentive schemes are built, can be a least equally good form of regulation.