BC Ferries, a critical transportation link, celebrated its 50th anniversary in 2011. The service connects dozens of B.C. coastal and island communities, and is one of the largest ferry operators in the world, providing 185,000 annual sailings through year-round vehicle and passenger service, carrying over 20 million passengers and more than eight million vehicles with a fleet of 35 vessels on 25 routes to 47 terminals. This all originated from two vessels and one route in 1960.
Prior to 1958, ferry services between southern and mid-Vancouver Island and the B.C. mainland were provided by a handful of private operators. Chief among them, Black Ball Ferries and Canadian Pacific Steamships offered passenger and vehicle service from downtown Vancouver to Victoria and Nanaimo. A strike in 1958 by Black Ball workers convinced then-Premier W.A.C Bennett that coastal ferry service in B.C. needed to be government-owned. Accordingly, he created BC Ferries, a division of the British Columbia Toll Highways and Bridges Authority.
In 1961, BC Ferries purchased the Gulf Island Navigation Company and Black Ball Ferries, and took over service between West Vancouver at Horseshoe Bay and mid-Vancouver Island at Nanaimo. By late 1962, Canadian Pacific ended its Victoria and Nanaimo runs leaving BC Ferries as the sole provider of passenger and vehicle service between Vancouver Island and the mainland of B.C.
This new, consolidated service required construction of a new mainland terminus, and after considerable public debate, a new site, away from downtown Vancouver and providing easier access to B.C.’s vast interior was selected. Construction of the Tsawwassen terminal in 1959 involved construction of a man-made island offshore, connected to the mainland by a two-mile causeway pushed into Georgia Strait. The location of the Tsawwassen terminal is less than 500 metres north of the U.S. – Canada border on the 49th parallel. Today, the terminal consists of five ferry berths serving routes between Swartz Bay north of Victoria, the southern Gulf Islands, and in 1990 BC Ferries added a new route to mid-Vancouver Island at Nanaimo.
Always a Crown Corporation, the operation went through successive reorganizations, becoming British Columbia Ferry Authority and British Columbia Ferry Corporation. In 2003, following the election of a new government, the corporation was transformed into British Columbia Ferry Services Inc. (BC Ferries), a company governed by a board appointed by B.C. Ferry Authority.
The service has always been highly subsidized, and the various reorganizations were attempts to reduce or reassign costs. B.C. Ferry Authority is a corporation with no share capital, established and governed under the Coastal Ferry Act. It holds the single issued voting share of British Columbia Ferry Services Inc. (BC Ferries). The composition of the Board of Directors of the B.C. Ferry Authority is set out in the Coastal Ferry Act, and includes regional and stakeholder representation. Its board of nine includes four directors from nominees of four coastal regional districts, one nominee of the BC Ferry & Marine Workers’ Union, two members appointed by the province, and two are appointed by the board from members of the community at large. The two seats available to appointees of the province are vacant. The B.C. Ferry Authority appoints BC Ferries’ Board of Directors, which presently consists of nine members.
Members of some of the regional districts on southern Vancouver Island are calling for a restructuring so as to have more of an influence on the ferries’ governing board in order to have a greater say in the policies and operations of the ferry service. They have also advanced the notion that the ferries should be treated as part of the B.C. highway system and be paid for by all B.C. residents.
While it is clear that the B.C. Ferry Authority was established to act as a “firewall” between the province and the operations of BC Ferries, it is equally clear that as the sole shareholder of BC Ferries, the province is ultimately responsible for the services provided by BC Ferries.
BC Ferries presents its vision as one of providing a continuously-improved West Coast travel experience and consistently exceeding customer expectations that reflect the innovation and pride of the corporation’s employees. Its mission is to provide safe, reliable and efficient marine transportation services that in addition to consistently exceeding customer expectations, also create enterprise value.
Its vision to provide a continuously-improving West Coast travel experience and to ensure the availability of sufficient capital and retained earnings appear to be consistent with its objective of creating enterprise value. However, BC Ferries appears to be inconsistent with what many believe the true mandate of BC Ferries is: the safe, reliable and efficient carriage of citizens and vehicles from point A to point B at the lowest possible cost.
In support of the contention that BC Ferries is in effect a public utility and nothing more, one must note that the corporation depends heavily on ferry service fees and other provincial-federal subsidies to conduct its operations. In fact, if these government-provided fees and subsidies were to be abolished, fares would need to be raised by around 40 per cent for the corporation to be able to provide the same level of service.
Further confusing the clarity of the mandate of BC Ferries is the creation in 2003 of British Columbia Ferry Commission, which is responsible for regulating service levels provided by BC Ferries on 25 saltwater routes, pricing and other matters. The commissioner is required to regulate in accordance with several principles, including placing priority on the financial sustainability of the ferry operator, encouraging the ferry operator to adopt a commercial approach to ferry service delivery, encouraging the ferry operator to minimize expenses, and moving over time to a greater reliance on a user pay system.
Some of these guiding principles appear to counter the popularly-held belief that BC Ferries is merely a utility that must provide reliable and efficient service at minimal cost. Other guiding principles appear to justify the initiatives of the previous management, namely to go well beyond the vision of being merely a public utility by introducing new and improved services in an attempt to attract new clients.
In the 2011 fiscal year, major routes (three routes connecting Greater Vancouver to mid and southern Vancouver Island) contributed 58 per cent of the BC Ferries’ revenues. Northern routes (three routes north of Port Hardy on Vancouver Island) contributed 10 per cent, and other routes contributed 31 per cent. On major routes, 97 per cent of revenues were derived from paying customers, while the province contributed 3 per cent through “social program fees”. On these routes, neither the province nor the federal government contributed any operating fees or subsidies. By contrast, on northern routes, revenues from paying customers contributed only 26 per cent of total revenues, with the remainder of 74 per cent ($54.7 million) contributed by the province and federal government. Revenues from other routes consisted of 51 per cent from paying customers and 49 per cent ($111.4 million) from various government fees and subsidies.
Put in a different perspective, passengers on major routes were subsidized (on average) to the extent of $1.09 per trip, passengers on northern routes were subsidized by $636.95 per trip, and BC Ferries received subsidies of $11.23 per passenger trip on other routes.
Anniversary highlighted by rising fares and discontent
Marking its 50th anniversary in 2011, BC Ferries was forced to confront financial losses (after accounting for annual fees and subsidies received primarily from the province as “earned revenues”), and an increasingly angry public. Rising fares, declining passengers and a loss of more than $20 million by the end of this fiscal year brought the early retirement of a CEO, immediate cost-cutting, a government-ordered review of operations (due late in January 2012) and the appointment of a new chief executive officer, Michael J. Corrigan. Just before Mr. Corrigan officially assumed his new duties on January 1, 2012, he was faced with the December 21, 2011 crash at one of the busiest terminals during one of the highest travel times of the year.
The Coastal Inspiration, a 154-metre-long ship delivered in 2007, rammed a dock at the Duke Point terminal near Nanaimo, travelling at an estimated 5 knots. Carrying 350 passengers and 100 vehicles, the 10,034 ton ship severely damaged the dock and destroyed the ferry’s bow door hinge. Eight passengers and four crew suffered minor injuries, and the dock is expected to remain closed for at least three months.
Corrigan was proud that only two round-trip sailings were cancelled while employees, marine services, many extra passengers and vehicles were moved to the downtown Nanaimo terminal at Departure Bay, currently the region’s only ferry terminal. The Transportation Safety Board of Canada is conducting an investigation of the cause of the crash. Preliminary reports suggest an electronics failure in a control system.
2012 was shaping up to be a difficult year long before the Duke Point crash. Passenger traffic had dropped to a 20-year low, down 3.7 per cent, with vehicles down 4.2 per cent from 2010. The public had become increasingly discontented with yearly fare increases and frequent fuel surcharges. The latest fuel surcharge was five per cent effective on December 12, 2011, having been implemented on major routes between Vancouver Island and the Lower Mainland. More fare increases are underway with annual increases of between 4.15 per cent and 8.23 per cent authorized by the B.C. Ferry Commissioner for implementation between April of 2012 and April of 2016.
Early retirement for CEO
CEO David L. Hahn became the target of popular and editorial anger. He appeared unaware of B.C. job losses and pay cuts sweeping the province or, as some suggested, deliberately ignored the tens of thousands of seniors, students and families that were negatively affected by ferry rates which had escalated between 45 and 80 per cent in just eight years. Hahn’s numerous, vocal critics saw his million-dollar compensation, lavish executive bonus system and expensive marketing plans as corporate excesses.
Hahn’s detractors charged that his decisions to continue implementing yearly fare increases in a market witnessing annual declines further encouraged the loss of traffic and contributed the corporation’s current financial trouble. Further, his marketing of the ferry routes as local and international tourist attractions drew fire since the number of tourists visiting B.C. had declined as a result of economic hardship south of the border.
Hahn announced his early retirement in September 2011, saying he was stepping down voluntarily as part of a major cost containment program. At the same time, the board announced that it had phased out the long-term bonus program for senior executives, saving approximately $700,000 annually.
In spite of financial pressure, the company went ahead with its plans during 2011 and implemented customer programs to improve service, including offering fuel surcharge rebates on many routes for most of the year, wireless service on the Tsawwassen to Swartz Bay route and expanded self-ticketing at the Horseshoe Bay terminal. Numerous technical improvements moved ahead, including the completion of a multi-year replacement and refurbishment on one of the key berths at the busy Tsawwassen terminal as well as completing a refit and upgrade of an inter-island ferry giving the 28-year old ship another 17 operating years.
New CEO BC Ferries veteran
At the same time as announcing Mr. Hahn’s early retirement in September, the BC Ferry Services Board brought in other cost-cutting measures, effective immediately. The most significant proposal that will impact the public, if approved, is the cancellation of up to 400 round trips per year on major routes. (Reportedly, the commissioner has recently rejected these proposed reductions in service).
Hiring freezes, wage freezes and early retirements were part of the package of reforms, which also included reductions in executive compensation. Charitable and community donations were eliminated, the marketing partnership with the Vancouver Canucks NHL hockey team was cancelled, and selected capital expenditures were postponed by up to 18 months. No impacts to on-going capital improvements at terminals were announced.
On December 6, 2011, the BC Ferries Services Board appointed Michael J. Corrigan to replace Hahn as President and CEO, effective January 1, 2012. The Board was eager to point out that Corrigan’s overall compensation package meets recent provincial government legislative requirements and will be approximately 60 per cent of the outgoing president’s package. Further reducing costs, Corrigan announced the elimination of his previous position as chief operating officer, saving $600,000 per year.
The new CEO has logged nine years with the corporation, holding separate roles as chief operating officer and vice president of business development. Corrigan created and led the company’s SailSafe program, a joint initiative with the BC Ferry & Marine Workers’ Union, establishing a comprehensive safety culture at BC Ferries. As vice president of business development, he oversaw the construction and introduction of seven new and numerous upgraded vessels and also was responsible for a host of terminal upgrades and improvements.
Passengers liked the improvements, not the fares
BC Ferry Services Board Chairman Donald Hayes praised Hahn’s eight years as head of the province’s ferry services. “Under Mr. Hahn’s leadership, BC Ferries has been fundamentally transformed, resulting in improvements in all areas of the company’s business.”
Innovations and service improvements implemented and praised during Mr. Hahn’s tenure include the introduction of a Commercial Travel Card providing commercial customers with a more streamlined method of receiving weekly invoicing, payment of accounts or automatic payment withdrawals.
Improvements in passenger services incorporated an Assured Loading Card, a reloadable electronic swipe card allowing priority travel on three major routes between Vancouver Island and the Mainland and for the first time in the service’s history, the establishment of a reservation system for private vehicles, groups and a handful of specific classifications of commercial reservations.
The dramatically-overhauled food services replaced the 1960’s-style institutional canteens with a wide variety of private concession outlets and dining experiences. In an appeal to both domestic and foreign travelers, the company created a wide range of mini-vacation getaways and holiday packages encompassing B.C. coastal destinations as well as city experiences in Vancouver, Victoria and Nanaimo. A new BC Ferries Vacation Centre opened across from the new Vancouver Convention Centre in the spring of 2011.
While plans announced in September 2011 for cost-cutting and the reorganization at the executive level may offer short-term solutions, a large question remains as to what future direction the ferry service should take. Privatizations of these types of services in B.C. are a highly unpopular concept, but with increasing pressures on government for intensified health and education spending, this could be an unhappy outcome to maintain a vital transportation link.
To alleviate some of the conflicting objectives, and to reduce the current levels of its financial support, the provincial government might want to consider reorganizing BC Ferries under two separate umbrellas, with one operating as an essential service with a “not-for-profit objective, and one as non-regulated “non-essential” service with a “for profit” objective.
The latter operation should be sold to private industry, while the former will be government-owned and operated. The “for profit”, privately-owned organization would be awarded the right to operate most of the capacity on heavily-travelled routes, and would be granted the non-exclusive right to develop and/or operate any other existing or new route. The privately-owned company must not be subject to regulations concerning service levels or pricing, but must be well capitalized, and would not be eligible to receive operating subsidies from the government of B.C. Subsidies to be received by the “not-for-profit” entity would be capped so as not to permit it to compete unfairly with the “for-profit” entity.