Dear SIPOA members,

 

SIPOA will be making a short presentation to the BC Ferry Commissioner in respect of his review of the Coastal Ferry Act on October 1, 2011. Our intent is to provide feedback that looks to finding prospective solutions for the BC Ferry Commissioner to pursue as opposed to rehashing a complaint list.

Core themes will be: renewal of provincial funding; an end to artificial cross-subsidization prohibitions; some thoughts on revised service delivery (introduction of competition); and some thoughts on cost containment. Some of the thoughts to date are appended.

We would very much appreciate any additional thoughts or comments our members have in providing some prospective solutions for the BC Ferry Commissioner to pursue in resolving the dilemma of rising fares and declining ridership (and service) on our ferry routes.

Thank you,

SIPOA Board

 

Thoughts re. Revision to Coastal Ferry Act Renewal of Provincial Funding: The Province (by way of the Coastal Ferry Act) froze ferries subsidy (except to Northern routes) in 2003. By contrast:

    • Since 2003 BC Transit's Provincial funding has risen by 84.4% (an increase of $38.4 million).

    • Since 2004, Translink's (Lower Mainland transit service provider) funding has increased by 65.6%

    • Since 2003 the province has spent over $626 million upgrading the highway to Whistler.

    • Since 2003 the province has spent more than $250 million replacing the Pitt River Bridge.

    • Since 2003 the province has spent, or plans to spend, over a billion dollars on the South Fraser Perimeter Road, another $400 million on the Evergreen Line, another billion (shared with the Feds) on the Kicking Horse Canyon upgrade and the list goes on. There is no tolling on these roads, and the transit projects won't cover operating costs, much less capital invested.

    • As to user pay (which is the ferry model), the only toll road to date in BC had the tolls removed in 2006 - and the province now gets no revenue with which to recover the balance of capital or ongoing maintenance and rehabilitation.

So insofar as funding is concerned, the Coastal Ferry Act appears to discriminate against ferry served communities (but not inland ferry-served communities where the ferries are free). Whereas the rest of BC receives basic transportation, BC's coastal communities must follow a user pay model.

SIPOA recommends the province increase its subsidy to BC Ferries, and provides capital for vessel replacement (in particular for the minor routes whose fares have risen exponentially), consistent with the treatment provided other communities in BC in respect of their basic transportation requirements.

 

Cross-subsidization: The Province (by way of the Coastal Ferry Act) eliminated cross subsidization from the major profitable routes to the minor routes in 2003. By contrast:

    • BC Transit and Translink have some routes that generate higher revenues than other routes, yet cross-subsidization occurs, is allowed and is a fundamental condition of functioning service.

    • Ministry of Transport and Infrastructure funds roads and structures around the province with different returns, different operating costs and different densities. There is no requirement on rural and low-density routes to be tolled to recover the same percentage of operating costs.

    • Almost all businesses with multiple product or service lines have variable margins. The necessity for products or services never to cross-subsidize is a recipe for failure, and anathema to economic theory in effectively competitive environments.

So insofar as cross-subsidization is concerned, the Coastal Ferry Act appears to hobble ferry-served communities, and in particular low-density ferry routes, with an artificial construct aimed at setting prices for low-density ferry routes to the point where passenger volumes decline to levels that justify abandonment of the route.

SIPOA recommends the Coastal Ferry Act be amended to allow cross-subsidization, which is a standard practice for successful integrated operations.

 

Competition: The Province (by way of the Coastal Ferry Act) aimed to introduce competition for major and minor routes in 2003 as effective competition fosters superior services delivered at lower cost. What happened:

    • Not much. One small passenger-only route (a water taxi service) was awarded a private operator over the last 8 years. Why?

    • The incumbent, BC Ferries, was the party responsible for seeking out its competitors, responsible for preparing the Requests for Proposals, and responsible for evaluating proposals. Meanwhile, BC Ferries submitted their own proposal - which, not surprisingly, always won.

    • However, BC Ferries did use its subsidized position to enter into other markets. BC Ferries entered the drop-trailer market, which was being handled by private sector operators and was found to be using its subsidized position to attract customers. The BC Ferry Commissioner ruled this anti-competitive.

    • More recently, BC Ferries have created its own travel agency, known as BC Ferries Vacation, entering a market with which it has limited expertise and investing large sums of capital and expense in developing this business, funds that could have been employed in providing basic, reliable and cost effective ferry services.

SIPOA recommends the Commissioner investigate two options. The first being that the introduction of competition, and the process of bidding, evaluating and awarding routes be run by a third party (MoT?). Or alternately, that the structure of BC Ferries be altered to separate the terminal's infrastructure from the vessel operation, allowing a level playing field for third party operators to bid on vessel routes

 

Cost containment: The Province (by way of the Coastal Ferry Act) provided a mechanism for BC Ferries to fully recover cost increases through fare increases (subject to a narrow defined review) in 2003. By contrast:

    • Translink has its fare pricing limited to the rate of inflation.

    • Roads and inland ferries in BC have had no fare increase, as there is no fare required to travel to almost every community in BC.

SIPOA recommends that in the absence of competition in routes, that ferry rates be tied to inflation. Further, that ferry employee compensation packages (both management & union) where possible be tied to achieving cost containment and service performance targets. (For example, bonuses would be paid only when costs fall below inflation).

Further, SIPOA recommends the BC Ferry Commissioner to look at other models for service delivery than the current route 5 and 9 configuration. "Home-porting" the Queen of Nanaimo at Long Harbour on Saltspring (an island already served by two other ferry routes & terminals) is an unsustainable model. Smaller inter-island ferries "home-ported" at a hub (likely) Mayne or Pender, could perhaps serve the smaller islands more cost effectively. This (or these) hubs could be served by Tsawwassen to Swartz intermediate sized vessels (smaller than the Queen of Nanaimo, larger than the Mayne Queen) making one stop enroute at the hub(s). This provides base capacity to feed the hubs and incremental capacity for the Swartz Bay to Tsawwassen corridor, while reducing unnecessary terminal costs. SIPOA notes this might be a perfect opportunity for an RFP to design, build, finance & operate (DBFO) which may be of interest to private sector partners (yes, a P3, but with clear guidelines, limits on rates, service guarantees & a stream of government funding).