One last thing must be done to make the trading routes safe. Esgaroth-of-old, the ruins of the previous Lake-town, must be cleared of brigands.
'Esgaroth-of-old, the charred ruins of Lake-town that was, has been invaded by smugglers. They have been known to mix their ill-gotten goods in with honest shipments as they pass by. As if that were not enough, one of my raft-elves has been kidnapped! Please, you must intervene before something terrible befalls him!'
Esgaroth-of-old can be found east of Loeglond, on the Long Lake.
You should travel to Esgaroth-of-old.
Mervárth is standing guard outside Esgaroth-of-old.
You should talk to Mervárth.