Post by Low Light Mike on Dec 29, 2010 20:33:01 GMT -8
The BC Ferry Commission's website now has the BCFS response to the various concerns from other stakeholders and the public. It is mainly addressing the Seaspan concerns.
it is here:
www.bcferrycommission.com/2010_12_09_CLtr_to_MCrillywSubmissionsFINAL_copy.pdf
Excerpts that I found interesting are as follows:
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- this excerpt includes some stuff about the currently underutilized fleet
- Here's some BCFS words that they should remember when they set overheight fares for their core-customers on the Northern Expedition. I hope that BCFS's own words here come back to bite BCFS. (PS over-height fares were also regular practice on Routes 1 & 30, up until April 2010).
it is here:
www.bcferrycommission.com/2010_12_09_CLtr_to_MCrillywSubmissionsFINAL_copy.pdf
Excerpts that I found interesting are as follows:
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It is evident that Seaspan’s operating assumption in presenting its argument is that BCF has, to date, priced its drop trailer service at the absolute minimum it can get away with. This assumption fuels Seaspan’s belief that BCF’s drop trailer prices would have to be increased in order to meet a floor price established by the Commissioner under section 45.1(2) (b) based on an appropriate cost allocation.
In reality, BCF has, since the inception of the drop trailer service, priced the service to maximize revenue by charging rates that
the market will reasonably allow. Revenues generated from drop trailer service serve to reduce rates for the core customers. Even after factoring in BCF’s customer-specific discounting of drop trailer service, BCF’s prices are higher than the floor that would be established under section 45.1(2). Put another way, if BCF were to price its drop trailer service, and even its live service, based on marginal costs (as EES recommends) or average costs (as Mr. Linxwiler advocates), its prices for these services would go down, not up. Passenger and passenger vehicle rates, which are currently subsidized by commercial service, would go up considerably.
This is the exact opposite result from what Seaspan is presumably expecting. Even though the floor price yielded by the EES and Linxwiler approaches is much lower than BCF’s current
rates for drop trailer service, BCF has every intention of continuing to price its drop trailer services as it had done prior to the introduction of section 45.1. That is, BCF will set prices for drop trailer service that will maximize revenue generation for the benefit of core customers to the extent permitted by competitive market conditions. Aggressive price discounting, which is of concern to Seaspan, runs counter to BCF’s objective of maximizing revenue generation from drop trailer service and BCF has no interest in pursuing that strategy.
In reality, BCF has, since the inception of the drop trailer service, priced the service to maximize revenue by charging rates that
the market will reasonably allow. Revenues generated from drop trailer service serve to reduce rates for the core customers. Even after factoring in BCF’s customer-specific discounting of drop trailer service, BCF’s prices are higher than the floor that would be established under section 45.1(2). Put another way, if BCF were to price its drop trailer service, and even its live service, based on marginal costs (as EES recommends) or average costs (as Mr. Linxwiler advocates), its prices for these services would go down, not up. Passenger and passenger vehicle rates, which are currently subsidized by commercial service, would go up considerably.
This is the exact opposite result from what Seaspan is presumably expecting. Even though the floor price yielded by the EES and Linxwiler approaches is much lower than BCF’s current
rates for drop trailer service, BCF has every intention of continuing to price its drop trailer services as it had done prior to the introduction of section 45.1. That is, BCF will set prices for drop trailer service that will maximize revenue generation for the benefit of core customers to the extent permitted by competitive market conditions. Aggressive price discounting, which is of concern to Seaspan, runs counter to BCF’s objective of maximizing revenue generation from drop trailer service and BCF has no interest in pursuing that strategy.
Seaspan implicitly warns that a determination by the Commissioner that BCF is pricing drop trailer service appropriately will likely result in Seaspan leaving the business. Whether or not that threat is real, Seapan obviously has an interest in requiring BCF to increase its prices.
BCF, for its part, believes that there are public and customer
benefits associated with BCF introducing fair competition into the drop trailer market after Seaspan and Van Isle Barge Services (“VIBS”) had long enjoyed an unregulated monopoly on their routes.
While BCF is firmly of the view that it should be engaged in drop trailer service, and that the result is beneficial to core customers and users of drop trailer service, Arguments both for and against BCF’s participation in the drop trailer market are really useful only as context. It follows from the Commissioner’s legislative mandate to examine cost allocation and “unfair competitive advantages” that this inquiry is not about the role
of regulated monopolies in society, whether or not BCF should have entered the drop trailer business, or whether continued competition is good or bad for Seaspan and VIBS.
BCF, for its part, believes that there are public and customer
benefits associated with BCF introducing fair competition into the drop trailer market after Seaspan and Van Isle Barge Services (“VIBS”) had long enjoyed an unregulated monopoly on their routes.
While BCF is firmly of the view that it should be engaged in drop trailer service, and that the result is beneficial to core customers and users of drop trailer service, Arguments both for and against BCF’s participation in the drop trailer market are really useful only as context. It follows from the Commissioner’s legislative mandate to examine cost allocation and “unfair competitive advantages” that this inquiry is not about the role
of regulated monopolies in society, whether or not BCF should have entered the drop trailer business, or whether continued competition is good or bad for Seaspan and VIBS.
- this excerpt includes some stuff about the currently underutilized fleet
The evidence supports BCF’s conclusions that the core customers drive capacity requirements and that drop trailer service is an off-peak service.
The most telling statistic that supports BCF’s characterization of the drop trailer service as an off-peak service – a statistic that Seaspan did not acknowledge - is that only 0.2% of BCF’s overall traffic has been delayed where there is space on a sailing being occupied by drop trailers. This demonstrates that drop trailer service has a negligible impact on the capacity available for core customers.
Seaspan’s first rationale for not accepting BCF’s evidence that drop trailer traffic is carried using excess capacity12 is based on anecdotes of core customer displacement by drop trailers and a misleading interpretation of statistics regarding the drop trailer load profile. In light of the non-material impact cited above, Seaspan’s anecdotes about drop trailers being carried while core traffic is left behind are misleading. The same is true with Seaspan’s reliance only on statistics relating to the number of sailings where one or more vehicles were left in the terminal, without accounting for the number of vehicles impacted. Seaspan has incorrectly equated statistics where drop trailers were carried on a sailing when one or more vehicles were left in the terminal with those vehicles being left behind because a drop trailer took its place. BCF identified a number of operational causes of this that have nothing to do with drop trailers. To that end, the 0.2% figure addressed above demonstrates that many of these sailings relied upon by Seaspan involve a minimal number of vehicles that could very easily have been impacted by operational considerations.
Seaspan’s other rationale for portraying drop trailer service as driving capacity requirements is that BCF added Super C Class vessels to Routes 1 and 30. Seaspan suggests this was done to meet drop trailer demand. The fundamental problem with Seaspan’s argument is that BCF entered into contracts to have these vessels built in 2004, long before any consideration was being given to providing drop trailer service. They were built to address core peak demand. Moreover, the decision to put larger vessels on Route 30 was part of a plan to:
• divert traffic from the overcrowded Horseshoe Bay terminal by
providing the same amenities on Route 30 as Route 2 (Horseshoe Bay – Departure Bay), i.e. making Route 30 a flagship route; and
• anticipate the completion of the South Fraser Perimeter Road.
It is untenable to suggest, as Seaspan does, that BCF had failed to anticipate the drop in demand associated with economic circumstances when it ordered these vessels, and is now compensating for this supposed error by expanding drop trailer service. It would have been imprudent for BCF – as it would be for any operator - to undersize vessels, which are long-term capital investments, based on short-term declines in demand. Further, BCF builds to meet peak capacity, not because it is required to do so, but because it is only by having the capacity to meet peak season demand that BCF can generate sufficient revenue to maintain the same low fares in the off-season. Under-sizing vessels means not meeting the summer demand, or having to operate more frequently in the summer if the demand is to be met, resulting in an increase in core customer fares throughout the year.
The most telling statistic that supports BCF’s characterization of the drop trailer service as an off-peak service – a statistic that Seaspan did not acknowledge - is that only 0.2% of BCF’s overall traffic has been delayed where there is space on a sailing being occupied by drop trailers. This demonstrates that drop trailer service has a negligible impact on the capacity available for core customers.
Seaspan’s first rationale for not accepting BCF’s evidence that drop trailer traffic is carried using excess capacity12 is based on anecdotes of core customer displacement by drop trailers and a misleading interpretation of statistics regarding the drop trailer load profile. In light of the non-material impact cited above, Seaspan’s anecdotes about drop trailers being carried while core traffic is left behind are misleading. The same is true with Seaspan’s reliance only on statistics relating to the number of sailings where one or more vehicles were left in the terminal, without accounting for the number of vehicles impacted. Seaspan has incorrectly equated statistics where drop trailers were carried on a sailing when one or more vehicles were left in the terminal with those vehicles being left behind because a drop trailer took its place. BCF identified a number of operational causes of this that have nothing to do with drop trailers. To that end, the 0.2% figure addressed above demonstrates that many of these sailings relied upon by Seaspan involve a minimal number of vehicles that could very easily have been impacted by operational considerations.
Seaspan’s other rationale for portraying drop trailer service as driving capacity requirements is that BCF added Super C Class vessels to Routes 1 and 30. Seaspan suggests this was done to meet drop trailer demand. The fundamental problem with Seaspan’s argument is that BCF entered into contracts to have these vessels built in 2004, long before any consideration was being given to providing drop trailer service. They were built to address core peak demand. Moreover, the decision to put larger vessels on Route 30 was part of a plan to:
• divert traffic from the overcrowded Horseshoe Bay terminal by
providing the same amenities on Route 30 as Route 2 (Horseshoe Bay – Departure Bay), i.e. making Route 30 a flagship route; and
• anticipate the completion of the South Fraser Perimeter Road.
It is untenable to suggest, as Seaspan does, that BCF had failed to anticipate the drop in demand associated with economic circumstances when it ordered these vessels, and is now compensating for this supposed error by expanding drop trailer service. It would have been imprudent for BCF – as it would be for any operator - to undersize vessels, which are long-term capital investments, based on short-term declines in demand. Further, BCF builds to meet peak capacity, not because it is required to do so, but because it is only by having the capacity to meet peak season demand that BCF can generate sufficient revenue to maintain the same low fares in the off-season. Under-sizing vessels means not meeting the summer demand, or having to operate more frequently in the summer if the demand is to be met, resulting in an increase in core customer fares throughout the year.
- Here's some BCFS words that they should remember when they set overheight fares for their core-customers on the Northern Expedition. I hope that BCFS's own words here come back to bite BCFS. (PS over-height fares were also regular practice on Routes 1 & 30, up until April 2010).
The ferries employed on Routes 1 and 30 do not accommodate stacking of passenger vehicles on top of each other, and thus the height of vehicles should be irrelevant. Performing calculations based on a fiction that vehicles can be stacked on top of each other is inappropriate.
The weight of vehicles is also irrelevant because the vessels are designed to operate most efficiently at a weight that exceeds even the typical weight at full capacity and the vessels take on water as ballast as required when the ferry is under the optimal weight to ensure they always operate at maximum efficiency.
Specifically, for the Super C's, when traffic is light the ship cannot achieve optimum draught, and more importantly trim, with light loads. The result is an increase in vibration and a decrease in fuel efficiency. To combat that issue, on Friday nights the ship loads 30 to 50 tons of ballast water at each end due to anticipated reduced commercial loads over the weekend.
Therefore, heavier vehicles do not cost more to transport.
Specifically, for the Super C's, when traffic is light the ship cannot achieve optimum draught, and more importantly trim, with light loads. The result is an increase in vibration and a decrease in fuel efficiency. To combat that issue, on Friday nights the ship loads 30 to 50 tons of ballast water at each end due to anticipated reduced commercial loads over the weekend.
Therefore, heavier vehicles do not cost more to transport.
BCF has previously offered the minor routes to Seaspan for $1, including transferring the right to receive the Service Fees. Seaspan could obtain a CFSC for these routes. Seaspan’s silence in response to this offer is telling, and is a tacit acknowledgement that operating the minor routes does not promise a significant benefit in terms of creating economies of scale for the benefit of a drop trailer business.
Seaspan states that “it appears from BC Ferries’ financial statement that it receives millions of dollars in government interest rate support for refurbishment of its vessels”. The referenced interest rate support is actually the Structured Financing Facility (“SFF”) program sponsored by Industry Canada that, according to the Industry Canada website has been in place since 2001. The fact that the SFF program
is made available to BCF cannot be a “competitive advantage”
conferred upon BCF when it is open to other private companies as well and does not arise from BCF’s relationship with government. Even if it were to be considered a “competitive advantage” that BCF qualified for the SFF program, it cannot be “unfair” for BCF to avail itself of interest relief that is available to other private companies as well.
The federal government website states, “The objective of the
Structured Financing Facility (SFF) is to help ensure that shipyard
capability exists for federal marine procurement and maintenance requirements in keeping with the Buy Canada procurement policy.” BCF is not the only company eligible to participate in this program. Industry Canada has outlined eligibility criteria, which include “new vessels or offshore marine structures and existing vessel and offshore marine structures undergoing major refurbishment, conversion or other major modification and constructed in Canada.” According to the publicly available information provided by Industry Canada,
approximately 40 other (non-BCF) projects have been supported by SFF. Seaspan could participate in this program. The only logical explanation for why Seaspan has not accessed SFF funding is that, unlike BCF, Seaspan has not been making investments in its fleet for the several years that the SFF has been available.
If BCF’s eligibility for SFF program benefits is a “competitive
advantage”, then it is a fair “competitive advantage” as SFF is a
broadly available program and BCF’s eligibility arises only because it is investing in its assets.
is made available to BCF cannot be a “competitive advantage”
conferred upon BCF when it is open to other private companies as well and does not arise from BCF’s relationship with government. Even if it were to be considered a “competitive advantage” that BCF qualified for the SFF program, it cannot be “unfair” for BCF to avail itself of interest relief that is available to other private companies as well.
The federal government website states, “The objective of the
Structured Financing Facility (SFF) is to help ensure that shipyard
capability exists for federal marine procurement and maintenance requirements in keeping with the Buy Canada procurement policy.” BCF is not the only company eligible to participate in this program. Industry Canada has outlined eligibility criteria, which include “new vessels or offshore marine structures and existing vessel and offshore marine structures undergoing major refurbishment, conversion or other major modification and constructed in Canada.” According to the publicly available information provided by Industry Canada,
approximately 40 other (non-BCF) projects have been supported by SFF. Seaspan could participate in this program. The only logical explanation for why Seaspan has not accessed SFF funding is that, unlike BCF, Seaspan has not been making investments in its fleet for the several years that the SFF has been available.
If BCF’s eligibility for SFF program benefits is a “competitive
advantage”, then it is a fair “competitive advantage” as SFF is a
broadly available program and BCF’s eligibility arises only because it is investing in its assets.
Seaspan has raised the matter of whether a company affiliated with BCF is acting as a freight forwarder, although Seaspan admits that the nature and purpose of the relationship between BCF and this company is not clear to Seaspan. A similar point was referenced by VIBS, in point 3 on their list where it mentions a company called Four Square Solutions. Although BCF does not believe that this is at all relevant to the matter at hand, BCF can confirm that no such affiliation or service as described exists. There is no merit to the point raised by Seaspan and VIBS.