The fuel surcharge has been reviewed in line with the current arrangement with the Department of Transport.

With effect from 1st March, the surcharge on freight reduces by 37% from £8 per metre to £5 per metre. The passenger rate remains at £5.

The surcharge on freight has been reduced as freight and passenger rates are subject to different sliding scales for marine fuel prices. The reduction in the price of marine fuel over the last six months has been sufficient to trigger a reduction in the surcharge applied to freight, which increased by more than the passenger rate in the last fuel surcharge review in September 2008.

The fuel surcharge is calculated in strict accordance with the terms of the agreement with the Department of Transport.

Understanding How it Works

The first point to note is that under the current arrangement, the Company does not recover the full extent of the increase in fuel costs as the following table shows:

Year Fuel Costs Amount recovered by Fuel Surcharge Amount absorbed by Steam Packet Proportion absorbed by Steam Packet
2006 £3.4m £1.8m £1.6m 47%
2007 £4.8m £2.1m £2.7m 56%
2008 £9.4m £3.3m £6.1m 65%

The Review Process

The fuel surcharge is reviewed twice a year in March and September. To stabilise fares it is applied in arrears on the basis of the marine fuel costs in the previous 6 months. Therefore, there is a time lag before surcharges are raised or reduced.

The calculation also applies a weighting to take into account periods of high or low usage. For example, the fuel surcharge being applied with effect from 1st March is based on fuel prices between August 2008 and January 2009. It therefore includes periods of high consumption such August, September and October 2008, when fast craft were in operation and the price of marine fuel was still at record levels. The following tables show how the price of marine fuel has moved in relation to Manx RPI and typical foot passenger and vehicle fares.

Marine Fuel Jan 1995 Aug 2005 Sept 2008 Feb 2009
Average weighted cost of Marine Fuel (per tonne) £100 £315 £597 £518
£100 inflated by Manx RPI £100 £133 £150 146*

Foot passenger fare Jan 1995 Aug 2005 Sept 2008 Feb 2009
Foot passenger fare (excluding fuel surcharge) £25 £15 £15 £15
Foot passenger fare (including fuel surcharge) £25 £17 £20 £20
Foot passenger fare if inflated by Manx RPI £25 £33.25 £37.50 £36.50*
Car plus 2 Peak Summer fare Jan 1995 Aug 2005 Sept 2008 Feb 2009
Car plus 2 fare (excluding fuel surcharge) £108 £79 £79 £79
Car plus 2 fare (including fuel surcharge) £108 £83 £89 £89
Car plus 2 fare if inflated by Manx RPI £108 £143 £162 £157*

*Latest RPI data available is to January 2009

It is apparent that marine fuel costs have increased by considerably more than Manx RPI and that, even with the fuel surcharge, fares are considerably lower than they would be if they had grown at Manx RPI over the same period.

An additional factor is that while fuel is priced in the global market in dollars, the Company is buying in sterling, which introduces a currency exchange rate issue. As has been widely reported, sterling has weakened in recent months, offsetting some of the decline in the dollar price of fuel.

It is accepted that the time lag and method of application of the surcharge mean that passengers purchasing tickets now are paying a surcharge in respect of fuel consumed in the past. It also means that some passengers did not pay a surcharge, or as much of a surcharge, when fuel prices were rising. For example, the fuel surcharge was at the lower level of £2.50 at a time when the price of fuel was at record levels.

We could review fuel surcharges on a weekly basis and apply a price increase, or reduction, in line with the real-time movement in the fuel price. However, this would result in fluctuating fares and could mean charging or refunding the surcharge at the time of travel. Passengers would not know the final cost of their fare until the day of travel. If we had chosen to do this, fuel surcharges would have increased steadily throughout last summer. As it is of course, they did not rise until the scheduled surcharge review in September.

The current surcharge agreement is in place until 1st June. The Isle of Man Steam Packet Company is currently discussing with the Department of Transport an alternative fuel surcharge agreement.