Channel price war will end says P&O

Lord Sterling, chairman of the P&O shipping to property conglomerate, yesterday predicted cross-Channel ferry capacity could be cut by up to one-third over the next year while fares would rise following the Government's decision to allow rival operators to forge closer ties.

He confirmed that the group was in discussion with all the main ferry companies, who were all now open to finding answers to the price war which has broken out in the wake of the start-up of the Channel tunnel. "The fear factor is in place now and I would be surprised if there was not considerable consolidation [over the next six months] if not sooner," Lord Sterling forecast. But he warned that fares were "ridiculously" low. With ships running one-third or a half full, yields at certain times of year "are so low it is potty operating them".

His comments came as P&O yesterday launched what Lord Sterling described as "the very first step" in the rationalisation with a pounds 25.3m deal to buy out the half share in its North Sea Ferries joint venture owned by Royal Nedlloyd, the Dutch group which last week agreed a pounds 2.6bn merger of its container interests with the British group.

P&O said it would merge NSF, which operates 10 ships on four routes between the UK, Holland and Belgium, with its wholly-owned Felixstowe operation, cutting 100 jobs and generating savings of pounds 5m a year. But that is dwarfed by the potential savings on the main Dover-Calais Channel crossing, where around 15 ships belonging to five companies currently ply the route.

Lord Sterling said the withdrawal of just one ship could cut between pounds 15m and pounds 20m of costs, quite apart from duplicated shore costs, advertising and marketing.

He said the rivals, which included the Swedish Stena group and SeaFrance, part of the French SNCF state-owned railway company which operates Channel tunnel services, could "carry on and kill themselves", but more likely they would choose a pooling or joint venture arrangement. "Nobody wants to be the wallflower left on the wall of the Hammersmith Palais," he said.

Investment column, page 21