An Evaluation Of Competitive Tendering In The Ferry Sector In Norway

Abstract

Fjord crossings by car ferries constitute a vital part of the Norwegian trunk road system. The current subsidy scheme is considered to provide insufficient incentives for cost efficiency however. As a consequence, tender competitions have recently been introduced, so far on a few selected ferry links in order to gain experience with tendering on this area. Although subsidies have increased somewhat, there have been major improvements in the quality of services such as increased capacity, new ferries, increased frequencies and extended opening hours. A rough estimate of the additional production costs associated with these major improvements in the quality of services indicates that the tender competitions have produced significant cost savings. In addition, such improvements add benefits to the users, albeit not being estimated. Further, it has been a "winners curse" game providing a yardstick for the remaining ferry sector not being exposed to tender competition so far. In addition to an in-depth studies of the ferry links having been exposed to tender competition, Data Envelopment Analysis (DEA) has been applied in order to measure the relative improvements in efficiency for tendered and non-tendered ferry links. The results from the DEA study resembles the findings of in-depth study, indicating that tendering has improved efficiency somewhat, although less than reported by the companies ex ante, indicating that the companies have been too optimistic when submitting their bids.