Tuesday, March 29, 2016

Questions About The Yarmouth Ferry

This weekend everyone seemed to be talking about the Yarmouth Ferry announcement (at least in the places I was). There is always a topic du jour in Nova Scotia. It surprised me because we’ve known for some time Bay Ferries was coming back. Rumours were all but confirmed that they would be bringing the former USNS Puerto Rico (officially the Alakai) into service for the route, and I think most people expected the fact costs would be well into the millions. But talk people did.

People should ask questions. I‘m not going to wade into the debate about whether the ferry should or should not exist. I don’t believe there is any right or wrong answer to that. Having a ferry was a Liberal election promise (and ultimately a PC and NDP one too). Political fortunes in that region depend on it, perhaps above anything else. Those that feel it should exist no matter what, will probably always insist it should, and those that don’t, will always see it as a waste. MLAs Zach Churchill, Chris d’Entrement, and Richard Hurlburt spoke out loudly and made compelling arguments in favour of the ferry when the NDP ended the arrangement with Bay Ferries for the original CAT ferry. Their arguments were not wrong. 

The demise of the CAT clearly had significant negative impacts in Southwest Nova Scotia in particular.   But there are questions about the new service. From the fare, to the silence on how much is estimated to be spent in years three through ten of the deal, to the fact the deal can end suddenly if no boat is available (the lease for the Alakai is for two years, with options that only take it to four of the ten years in the contract, the ferry itself has long been tapped by the US Navy for Latin American operations), to why Portland doesn't want trucks on the ferry.

I found it surprising that media reports generally reported the announced government contribution a total amount (like the film cap). As reported it sounded like a total contribution in the range of $33 million over a couple of years. The announcement was structured as a cap on how much would be spent in year one and two (it isn't) with no amounts stated for the final eight years of the ten year contract. These are costs for outfitting the ship ($9 million), wharf upgrades in Yarmouth ($4.1 million), and an annual subsidy ($10.2 million in year one, $9.4 million in year two).

In fact, the deal is structured such that it appears any losses incurred by Bay Ferries are the responsibility of taxpayers. The provincial contribution is not around $33 million, but rather is unlimited (it could also be less). The contract states:
"...the Province agrees to provide payments to BFL in respect to the operation of the Ferry Service equivalent to the total of:
(a) the Cash Deficiency for the Year; and
(b) the Management Fee..."
Halifax Examiner publisher Tim Bousquet has published the contract online, so you can read it for yourself. The $10.2 million and $9.4 million amounts don't appear in the agreement anywhere and in such the government press releasing is somewhat misleading. They are estimates by government. 

As to the amount related to the management fee, this is redacted. It's not clear why. The way this service is being funded makes the ferry essentially a government contracted service rather than a subsidy to a company (though it hasn’t been advertised that way). There doesn't seem to be an obvious reason why the management fee paid to Bay Ferries would be confidential.

The government has stated their projections are based on ridership of 60,000 people. This is also not in the agreement as far as I can see, and I haven't heard the projections for things like fuel and other operating costs which would also impact the subsidy amount. Nova Star never reached 60,000, though it did come close. The original CAT and the Nova Star benefited from a high US dollar which added to the number of Nova Scotians using the ferry to go to the US. 

While the point of funding the ferry is to bring people to Nova Scotia, the ridership numbers include those leaving Nova Scotia (Yarmouth MLA Zach Churchill previously talked about taking it himself to go to the US in order to support the service). Whether enough Americans will come to Canada to offset Nova Scotians who don’t travel (and take the CAT) based on the low dollar for ridership to reach 60,000 remains to be seen, but willingness of Americans to drive to Portland to take the ferry has always been an issue. 

As a result of this issue, some have speculated that the solution is a Halifax to Boston ferry. A website for that idea is still online. Proposals have been formally pushed by investors to government at various times, including recently, but it would not solve Yarmouth’s desire for a ferry, and would likely have the same ridership and financial challenges after the novelty wore off.

There are other issues facing the new service. None are insurmountable, but they should be considered. Michael Gorman outlined the very real issue of whether Yarmouth businesses will work to accommodate the ferry schedule. Mayor Mood is already wisely planning a meeting to discuss this.

Two other issues facing the new service are the price and ban on trucks. The cost of both the CAT and Nova Star were a challenge for many people. It was cheaper for many to drive. With the cost of gasoline significantly lower now than in has been over the past five years price, sensitivity in the market will be even stronger as the cost of driving, even with a hotel stay added, will be more competitive than it has been historically.

As for trucks, it shouldn’t surprise anyone that Portland said no. Some Nova Scotia businesses have already pointed out this is not good news for them and will add extra costs. It may also reduce Nova Scotia’s export capacity, but that remains to be seen. It may also decrease revenue and ridership for the CAT.  I don’t believe this has anything to do with Portland not wanting trucks in the street. That may be what the government was told, but this is about competition. Maine does not like Nova Scotian seafood entering New England as competition. A few years ago the heiress of LL Bean launched a well publicized campaign against Nova Scotia lobster in favour of Maine lobster. She still promotes the virtues of Maine lobster on her website. Now faced with a very competitive dollar, it is no surprise that Portland, and the State of Maine, would not want to make it any easier or less expensive for trucks of Nova Scotia seafood to reach the US market. This is not Maine’s ferry, they put no money into it (perhaps in part for that reason as Bean was also a former Republican candidate) and they certainly don’t plan to make it easier for Nova Scotians to get their seafood products to the US.

Some have questioned why the ship is being crewed by Americans and outfitted in a US shipyard. This should not be a surprise. I understand this is frustrating to many who see it as lost opportunity, and it's not to say this doesn't go to the bigger issue of whether this was the right charter (it does), but the reality is there was likely no way the US Navy would lease one of their ships and allow it to be crewed or fitted out by anyone other than Americans. It's still their ship, it's simply being leased.That being said, the contract between the province and Bay Ferries says that both parties fully understand the lease agreement for the ship. This is a critical piece in understanding the deal that has not been released and should be.

There are many questions I think Nova Scotians should be asking about the ferry deal. Questions don't necessarily mean the deal is bad. In fact, we need to recognize this is as much a philosophical decision on whether there should be a ferry or not as much as anything else.  Whether the CAT will end up being viable cannot be predicted. Whether or not it is a success (as I hope it will be) or not, it's certainly well past time we also address how we diversify the economics of rural Nova Scotia. The future of communities in this province can’t continue to be so heavily based on reliance on one business or industry.