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The Isle of Man Steam Packet Company has announced that its fuel surcharge on freight will be reduced by 37 percent following a review of the current arrangement with the Department of Transport.

With effect from 1st March 2009, the surcharge on freight will be cut from £8 per metre to £5 per metre. The passenger rate will remain at £5.

The fuel surcharge is calculated in accordance with the terms of the agreement with the Department of Transport and is based on the weighted average marine fuel cost incurred over the six months prior to the review date.

Commenting on the news, Isle of Man Steam Packet Company said "The surcharge being applied from 1st March is based on marine fuel prices between August 2008 and January 2009. It therefore includes periods of high consumption such as August, September and October 2008 when fast craft were in operation and the price of marine fuel was still at record levels."

Under the agreement, the fuel surcharge is referenced to a sliding scale of marine fuel prices. Freight and passenger rates are subject to different sliding scales.

"The reduction in the price of 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 company said.

The company said that it has discussed the surcharge with the Department of Transport and has advised the Office of Fair Trading of the changes. The fuel surcharge will continue to be monitored by the Department of Transport.

Isle of Man Steam Packet Company Chief Executive, Mark Woodward, said: “The latest review of the fuel surcharge has been carried out in strict accordance with the agreement with the Department of Transport. This has resulted in a substantial fall in the surcharge for freight. However, because of the way in which the agreement is constructed, the movement in marine fuel prices over the six month review period has not been sufficient to trigger a reduction in the passenger rate."

The company said that an additional factor is that while fuel is priced in the global market in dollars, the company purchases in sterling, which introduces a currency exchange rate issue. As sterling has weakened in recent months, this has offset some of the declines in the dollar price of fuel.

Commenting on the time it has taken the shipping firm to reduce its fuel surcharge, Isle of Man Steam Packet Company said "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.