New Fuel-Surcharge Application

[Retrovision]

Although I couldn't yet find any info about it on the BCF website, it was on CBC Radio News today that the application had been (or was going to shortly be) made to the commish.

P.S. Don't shoot the messenger!

[Quinsam]

Well, after rising fares they add another surcharge! How stupid can Hahn get?

[Retrovision]

lol, pretty smart considering the wide mandate he was given by Campbell

[Ferryman]

Hmm, that's odd. From what I've noticed in the last few weeks, fuel prices have been going down, and are lower than they were when they initiated the first surcharge. Oh well, it doesn't really bother me that much anyway, prices on everything are going up, so they must naturally move with the times. We all have to live with it.

[Doug]

MDO is not gasoline...even vehicle diesel is going up (or is higher than it ever used to be).

[bfyyj]

When I heard about this on the 12noon news, I nearly flipped. Then I thought, it's only the prices that I flip out at instead of the fuel charge.

[Retrovision]

Have a problem with it? Live in BC?

Tell you local MLA!!

[Dane]

BCF has a large bill for fuel they haven't paid. Perhaps they intend to pay it, now.

[Scott]

Between June and September they made 63 million. I guess I don't mind BC Ferries making a profit to pay for new ships/improvements etc.. Could someone clarify the "status" of BC Ferries as a corporation though? Are they like a privately owned company that is owned by shareholders who basically want more, more, more, in terms of profit? I'm just unclear of how the company is organized, who they're ultimately responsible to in terms of profit... are they still technically owned by the people of BC? If someone could explain it to me who barely made it through Economics 101, I'd appreciate it!

Just for the fun of it, I did a bit of comparison of fares over the history of the company.

From Tsawwassen to Swartz Bay for passenger and then car:

1960: $2.00 for a passenger, $5.00 for a car
1964: $2.00 for a passenger, $5.00 for a car
1974: $2.00 for a passenger, $5.00 for a car
1987: $4.50 for a passenger, $16.00 for a car
Today: $10.30 for a passenger, $32.15 for a car.

Was there no inflation between 1960-1974 or what? Wasn't the oil crisis sometime in there? Kinda sick that in 14 years, fares never went up... now in one year they go up 2-3 times.

[Dane]

I think I understand about 75% of it.

- Assets are owned by us but are leased and operated by BCFS (the private entity)
- The private entity exists to make money, essentially. The justification has more to do with free enterprise and being able to get a better bang for their buck.
- The terminals are solely government property (and not leased), but with things like Tsawwassen Quay it makes me wonder who really controls them. Any of us could apply to use the terminals if we had a ferry of our own.
- I don't think the company is owned by the people?

I was just flipping through their last annual general report and finacial statements but couldn't find the deffered fuel account, I'll look in a more detailed fashion later. What I do recall is thinking that their immediate debt (Fuel Account) was close to their earnings for a year.

[cascade]

Dane,

They dropped the fuel account in March 2005 - which is part of the problem I have with the management of BCFS right now. In the past - they made up until 2004 - around $5M - which was sitting in the account.

Now you all know I have been going on about the fuel hedge program, why was it stopped in April 2005? The price was about $35 per barrel - so why did they not continue on with the hedge program?

They can only as per the Act increase the fares once in the 5 year period - which came about in Nov - 2005 - so you are now safe until April 2008 - no more fare increases.

BUT - they can add or increase things like a surcharge which is not covered by the ACT - parking, food retail, separate lounges ect...

Again - sorry for repeating myself - but there is a second fuel surcharge coming - even with the small drop in world prices - BUT there is no Legal means for a time limit been applied to this surcharge - so it goes on - but when if at all will it come off or be dropped?

My guess is that when April 2008 rolls around - and new fare increases are talked about - these fuel increase will come off and be replaced by fare increase for the same amount. The general public - customers - will be use to the increase fares and will not put up more protest about the new fares.

[BrianWilliams]

To Cascade and others:

Fuel surcharges are a poor way to increase revenue to match costs.

In a purely competitive environment, surcharges are impossible. Today's price of service is set by the lowest-price bidder (who may be bankrupt tomorrow). That's the theory.

In reality, in our capital-intensive ferry service, the cost of entry is prohibitive. Canadian Pacific, Union Steamships, Black Ball and Coast Ferries had all invested huge sums in BC service.

The private operators had seaworthy ships, efficient terminals, and year-round, all weather service.

They flourished for 80 years (in CP's case) but succumbed to depopulation of the coast, road access and aircraft.

BC Ferries was built on the remains of our coastal boat service, and just in time. Truly, WAC Bennett's 1960 BCF fare scale was a death knell to the private companies.

See John's earlier fare post for a chilling reminder of how private coastal ferries were devastated by BC Ferries' new service.

Bennett was right, though. He correctly understood reliable marine connections to be an engine of prosperity for British Columbia.

BC Ferries is not competitive, even in its thinly-disguised corporate name. It is is a public service, exactly as envisioned by Bennett.

Any political move to make BCF a truly private company, answerable only to a few shareholders, would be a horrible mistake.

BC Ferries is a service that continues to improve lives on our coast. BCF is the mainliners to/from Vancouver-Victoria ... but it's also the happy Q of Chilliwack, the pretty Tenaka, and sober Quinsam.

[cascade]

Hi Brian, nice to see you back and on form.

John - The company - "BCFS" is a stand alone company, which has shareholders - like any other company. In this case the shareholders are the BC Government - which in a long winded way is the tax payers of BC.

They have passed an ACT in the House of Parliament - which put in place a way of dealing with "companies" who wanted to offer a service on and around the coastal waters of BC. They also passed a law - that all the "current" routes would be regulated and fares held for a five year period from April 2003 until April 2008, BUT they allowed only one fare increase - 1/2 way between the two dates - which we have just had.

The company - BCFS - they are a company with shareholders - BUT they also have a few very nice bits added at a later date - like they don't have to pay any income tax on the "profit" they make.
That they are the "agent" for a range of subsidies from the BC Government, like travel for Seniors. The actual subsidies that the senior receives for living and paying tax in BC is a discount travel on BC Ferries, but BC Ferries will get the full ticket price back from the government - each month. Hence you see a lot of travel deals for Seniors.
There is the same for medical travel and students.
Now these "subsidies" actually belong to the person - NOT BC Ferries, but by a law - they are the only "body" who can act on them and receive the benefit.

So if a senior wants to travel to Vancouver and could take say the Harbourlynx, then why can't the Harbourlynx people offer the same cut price deal on there tickets as BC Ferries do - reason the legal tie in with BC Ferries.

I disagree with some of Brian's comments - yes I do believe that BC in the late 1950's need to sort out the ferry service between the Island and other out lining communities. We have had 45 years for them to get it right in return for all the funds put into them they have wasted it.
BC Ferries & Ferry Commission site has shown that in 10 years - BCFS had in $1 Billion dollars of investments put into them, and what have we seen as the result of this huge investment - nothing. At the end of the day the people of BC could not keep on writing a blank cheque for very poor management and political interference. Someone had to call it a day..

[cascade]

Dane & John.

The company - BCFS - is held (Shares) in trust by the government for the people of BC.

Why show Profits? BC Ferries - in going to the public market - to raise funds for the new vessels - has to be able to show to the outside world (Banks) that they are not part of the government - but a commercial business and it is run like a commercial business - hence the need to show a profit.

All the assets - a part from 3 vessels which are leased from the BC Government, are actually owned by BCFS.

BUT Dane - there is a "charge" on them from the Banks - who have "loaned" BCFS - via the BONDS ($450M). There is also a second charge placed on the terminals which BC Ferries operate from. How these terminals are OWNED by you the tax payer in BC via the BCFTA - which in turn has leased them back to BC Ferries for 60 years from April 2003 at a rental fee of $100,000 per year. In return BC Ferries has sub-contracted the running and maintenance of these terminals out to SNC Levin.

An interesting side note - one terminal has been sub-contracted out further - for a fee of $13M per year - plus they have taken on all the employees. I asked the question a while back - as this appeared to be a short cut way of getting rid of staff. Like what happens if the operator doesn't fulfill there part of the contract - and BC Ferries sack them - so what would happen to the employees?

It appears to me as a Back door way of cutting Head count. No out cry from the Unions so far.

[Mac Write]

My understanding they are allowed an annual fare increase (as I have heard repeatedly). it's around 4% I think.

[Dane]

They didn't drop the fuel account in March, they still had it at their AGM, and that was in September? (+/- a month)

[cascade]

Dane,

The fuel account is still there and has the $5M still in it - due to the rules that apply to the way it worked in the past. They can apply this sum against the fare increase in April 2008.

But they took off the hedge program - which was run by the Ministry until 2005. So no more profit is going into this account - if they were successful in the hedging program.

Fare increase - only once in the 5 year period was it allowed and again at a predetermine rate.

There is no law or time period in the ACT - regarding surcharges for things like fuel, parking, retail food sales, usage of private lounges on the vessels, pre-booking of tickets ect....

[BrianWilliams]

Cascade:

Quoting myself: "BC Ferries is not competitive, even in its thinly-disguised corporate name."

Eech. I had better decide which side I am on. The public-service model echoes Bennett's concept of BCF as a utility created to enhance British Columbia's growth.

That is subject to abuse, like the Fast Cat program. The concept was right -I believe, but its mismanagement and astoundingly poor service introduction was a disaster.

As we have argued before, however, I can't accept a European style free market in BC ferry service. When I suggested - tongue in cheek- BCF should double the fares, that was a nod to European prices for similar service.

For better or worse, BCF is still a pioneer service. The mainline routes are profitable, but few of the inter-island services even pay their fuel costs.

*sigh* That is life on our coast. BC is not France or UK.

Bella Coola, Sointula, Whaletown, Kuper Island, Klemtu, Blubber Bay, Vesuvius, Heriot Bay and Shearwater all deserve access to BC's mainland. BCF can't do that without the mainline revenues.

So, I do decide that Bennett's model was correct. BCF is a public utility.

[BrianWilliams]

Whoops, substitute "Bella Bella" for "Bella Coola" in the previous post. Bella Coola is on the mainland.

[cascade]

Brian,

Nice to see you back and on form.

Parts of the "European" Ferry business are great - BUT there are many parts which don't work.

I believe that after 45 years and massive costs to the tax payers of BC - that something had to happen. The BC Government and tax payers just could not go on writing blank cheques for the running of a very aging fleet.

I wish back in the 1960's and "Bennett's Dream" of a BC Ferries - coastal ferry service for the people of BC - had a commercial mandate issue to them - not a blank cheque with political interference.

I was very upset in seeing an American been brought in to run the Ferry service - as I was sure that somewhere in Canada there would a Canadian running this business.

In the 1980's they talked - but did nothing - when they should have started a replacement program for the vessels. As we have seen with P&O and there ferry fleet, they replaced them, and now have a new - modern fleet. There turn over is £984M and is showing a loss of £15M for 2004 - but is now on course to show a small profit in 2005 of £10M. They have dropped from 33 vessels to 21 - and given up only 3 routes. Given that there turn over is around the same as BCFS - it is worth while looking at this operation to see where they made the savings.

Guess what - it is the actual operating of newer vessels - they are cheaper to run and use less fuel. Just think that if BCFS in the mid 80's and embarked on a replacement program with newer vessels - then they would most likely be in a net even profit position and fare increase would not be needed - nor would there be things like a booking fee for tickets - increase parking fees, food sale / cost increase and if the Government still run the fuel hedge program - then none of this fuel surcharge problem we now have....

[BrianWilliams]

" ...if BCFS in the mid 80's [had] embarked on a replacement program with newer vessels..."

I can't argue with that point. BCF did continue the strategy of stretching and raising existing hulls; and the two Spirits were commissioned in the late 1980's.

Re-powering and good maintenance has kept the aging fleet in pretty good shape, but we do have a lot of 40-yr old steel carrying the bulk of today's traffic.

My sole argument against non-BCF competition is that it can only drain revenue from the profitable mainline routes, making the rest of BCF even more of a burden on taxpayers -- or pricing small communities out of access altogether, if the minor routes have to meet their costs alone.

BC Ferries should never be a sacred cow. It must run only because it is valuable today, returning more to the BC economy than it takes out in subsidies.

This is hard to quantify. Perhaps this is a good time to hire an independent board of experts to review all our options.

[cascade]

Brian,

I agree with you - that by adding a private competitor to the BC Coastal ferry business - can take away revenue which is needed to fund the smaller routes, - BUT it can also act as a stimulate to BCFS - so they raise there game and offer a better service. They are in for the long haul and again have the backing of the government who do have deep pockets compared to a private enterprise.

I also think "what if" - that in the mid 80's they did replace a number of vessels and kept up with the replacement program - so that now we would have the newest/modern fleet in the World - but no.

I have seen that by taking very drastic action - cut out the old vessels and invest in brand new vessels - yes you load up the company with debt - BUT your costs on maintaining an aging fleet drops off completely. plus factor in the fuel saving and any Ferry business you look at - the two main costs are labour and fuel.

The old accounts before 2003 - did show a bit of the maintenance cost - but these new version of accounts are just full of pictures and spin. You can not tell how much it cost to run - maintain the fleet - (Not upgrades)

[BrianWilliams]

" ... have the backing of the government who do have deep pockets compared to a private enterprise ..."

Those deep pockets are MY pockets, as much as I love BC Ferries.

We've been down this road before, when Glen Clark assured us that the FastCats would be financed by the people, but pay back quickly. Only 100 million -then 200, and eventually reaching for 400 million. Eech! my pockets are shallower today.

Government (ie: the people) do have some deep, non-monetary pockets, though; and that is the existing terminals, and ownership of nearly all the foreshore lands on which future ferry slips may be built.

As you know from previous comments, I am wholly in favour of private services hauling truck/rail cargo to Vancouver Island.

The more we encourage private carriers for heavy freight, our need is less for overheight space on mainline ferries.

We won't have to pave more acres for big rigs in BCF marshalling yards ... the smartest strategy may be to encourage haulers to use road-rail docks like Tilbury. E&N Rail might be revived with quick overnight trailer/container service, if they are entrepreneurial.

[cascade]

Brian,

That is an interesting comment with regards to commercial traffic. Here in Europe I am sure you know P&O - well they are been sold, but everyone though that the Port company would spin off the "Ferry" business. They are not going to do that - because P&O Ferries is now mostly ROPAX - Truck - traffic - which is required and there is true lack of outlets for this within the UK, hence why they will be back in profit.

Moving this idea forward to the West Coast of BC - I can see no problem with BCFS handling the car / passenger business and allow other "private" operators to look after the "Commercial" traffic.

Yes - foreshore land is very expensive - for terminals - so a clear new rethink is required with regards to Commercial traffic. Like you don't need to be in Victoria or Sidney - but maybe further away - or the shipyards which are now becoming a little to small and not very profitable for the re-fit Cruise liner business - that these yards could be turned over / into a Commercial Port for truckers and "oversize" vehicles.

I still can not get my head around the figures, which show that from 1993 to 2003 - BC Ferries used / wasted $1Billion dollars in Government monies. According to the report these figures do not include the revenue earned from ticket sales ect.. So, I was thinking where did it all go....well $450M was loss on the Fast Cats, that therefore leaves around $550M over 10 years which works out at about $50M per year. During that time BCFS got in about $24M each year from Federal funding, plus there was the petrol tax you paid via your cars.

I know that for example that route 4 & 5 have loss each year on an average of $10M - so over the same 10 years that is $100M dollars. Remember route 4 has a new or semi new vessel on this route - so why have they lost this amount of money ? Salt Spring is one of the bigger island and they leave a lot of cars behind during peak periods and Xmas time ect...still can't work that one out...

Price of Oil is now around $60 per barrel - still a new surcharge is on the cards... Do they have a hedge program in place - NO - at least not shown from the latest accounts filed on line with www.sedar.com
Anyone challenging Mr. David Hahn as to why not - hedge program?? Press - TV - Radio - no I don't think so.... shame

[Doug]

Well just to finish the topic of this thread off, the Commission has granted the fuel surcharge on Wednesday, however, it is in two steps this time. The first step is an increase of 1.5% for the major routes and 3% for the other route. This will be happening in February. The second step is conditional. It may happen in June, depending on fuel prices at that time

From the BC Ferry Commissioner