Marine highway affects bottom lines.
Ferries are critical to British Columbia businesses.
The public marine highway system is one of the most significant passenger ferry lines in the world. A fleet of 35 vessels and a total passenger and crew capacity of more than 27,000 serve 48 communities on the British Columbia coast.
Over the next 15 years, BC Ferries must replace 18 vessels at an estimated cost of $1.1 billion and spend a further $165 million upgrading terminals and information systems to sustain the current level of service.
Given the marine highway’s importance and its ability to affect directly the bottom line of almost all businesses in British Columbia, our political and business leaders must remain focused on the current strategic moves of BC Ferries’ management.
Let me “peel back the onion.” Although Premier Gordon Campbell and former minister of transportation Judith Reid announced that the new “ferry entity” is part of the private sector, “the string” is still attached below the surface.
No longer a Crown corporation, we would expect this new entity to be separated from government and political interference.
The problem with that assumption is that the BC Ferry Authority holds the only voting share. Therefore, this new ferry entity is, in fact, under the control of the Campbell government. Accordingly, the strategies being crafted and implemented must be seen as responding to the needs of the sole shareholder, the B.C. government.
Clearly, following the previous government’s $450-million Fast Cat fiasco, a new strategy was needed. The current legal entity, British Columbia Ferry Services Inc., was created to find a better business model for this critical service. The contract is a binding, 60-year agreement. The first service review is scheduled for 2008, and subsequent studies will occur every four years.”
To lead the change, David Hahn was hired as chief executive officer. Hahn’s business track record with companies such as Covanta Energy Corp. displays his acumen in restructuring and transforming ailing corporations.
Therein lies the challenge.
BC Ferries is a corporation whose financial backbone is comprised of three routes connecting Vancouver to Vancouver Island. These three routes generate annual revenues in the order of $249 million (74 percent of total revenue) and move 11.1 million passengers (52 percent of total passengers), 241,000 commercial vehicles (63 percent of total commercial vehicles) and 3.3 million private vehicles (44 percent of total private vehicles).
BC Ferries is also a corporation with a “directing mind” focused on restructuring at whatever cost. Yet, the firm is constrained and tempered by the government shareholder’s “string.” It is further inhibited by powerful union representation.
Hahn, like a fish flopping on a dock, finds himself in an uncomfortable situation. He knows that he must flip and flop to find a more comfortable position, but he is unclear about the final position. He must craft and implement the right transformational strategy if the marine highway service is to survive in its current form.
In a formal review of BC Ferries in 2001, independent financial consultant Fred Wright identified changes that must be implemented to provide an efficient, customer-focused ferry service at a cost acceptable to taxpayers. These changes offer some clues.
Included in Wright’s recommendations was the requirement that the marine highway restructures its services to optimize its commercial value. To accomplish this, the organization must do four things.
First, the assets and operations of those viable commercial routes should be sold to the public sector. Secondly, the non-commercial routes should be tendered to private operators to provide subsidized vessels and terminal services.
Thirdly, access to the ferry terminals by other users should be permitted to encourage competition. And finally, fixed links should be built to reduce or eliminate some of the existing routes.
Under some form of public partnership, I sense that the private sector would be ready to purchase selected routes immediately. The provincial government does not have the funds to provide the infrastructure.
In his report, Wright observes, “significant cost savings are realized by commercial operations worldwide, as a result of an arms-length relationship with government, derived from the clearer operational focus, reduced overhead, improved operating efficiencies and increased labour productivity.”
No doubt, many readers will take issue with Wright’s observation. I, for one, do not.
For our productivity to compete globally, the business community depends on intermodal transportation and this major marine highway specifically. We must closely watch the transformation of BC Ferries that Hahn is leading because his success or failure will directly affect our bottom line.
If he fails, I sense that the balkanization of the fleet will be the outcome of this saga.
Note: This article was originally published in 2005.
