Ferry Tales – Chapter Three
Posted August 15, 2014
The starting point for the renewed ferry service from Portland, Maine to Yarmouth was a well-considered analysis of the prospects for success. The report did not make a recommendation as to whether a new service should be initiated, but did advise about how to proceed if that was the political choice.
A key recommendation was that the province contract with a suitably experienced operator. After a failed first round of seeking bids, the province tried again with more accommodating conditions. Two experienced operators (Baleria of Spain and P&O of the UK) submitted business plans. So did STM Quest, a partnership of Quest Navigation of Maine and ST Marine, a ship builder in Singapore. Neither STM nor Quest has any prior experience running a ferry business.
Nevertheless, the previous government chose to work with STM Quest. An important contribution to their success was reported to be a guarantee of a $5 million line of credit by the State of Maine. In fact, what Governor LePage said was rather less: “We will also assist Quest Navigation in securing an operating line of credit for the amount of $5 million.” That has not happened, and there is no indication that it will, though STM Quest CEO Mark Amundsen says he is continuing efforts.
Although the ship builder is a substantial corporation, the operator that the province deals with is really just an inexperienced shell without much in the way of assets. The new government was faced with a difficult decision—to go with that choice, or lose the 2014 season. They chose to proceed and signed the final contract on November 12. It has not gone well.
The operator seems to have been surprised by the need to post a $2 million bond with the US government before they could sell tickets. It is clearly one of their responsibilities in the contract, but Nova Scotia ended up providing the funds. The contract called for provisioning to be done in Nova Scotia, but in fact, much of it is happening in Portland. None of the crew is Nova Scotian.
STM Quest’s commitment of start-up money seems to have been spent finishing the ship, so there was not enough left to buy linens or casino equipment. These are rented, further hurting profitability. The government has provided far more subsidy than planned to STM Quest.
The start was two weeks late and passenger loads until the end of June were tiny. July was hurt by hurricane Arthur, but sales have improved since then and STM Quest is optimistic that August will represent further improvement. On the other hand, the delayed start meant that most bus tour companies had already committed to other routes, which may make September and October difficult. At the moment, there is no off-season charter for the boat. Amundsen and the province both acknowledge that there may be more requests to the province for cash this year.
If 2014 was a good predictor of the future, the government should say no to any further asks. The Liberals can argue that the NDP chose the company and the ship, but it was the Liberals who decided to proceed rather than losing a year, and every additional dollar that is spent is their choice. STM Quest is unwilling or unable to invest any more of its own money. As things stand, all of the downside risk belongs to Nova Scotian taxpayers.
A good argument can be made that next year will be much better, with all the start-up bugs ironed out, some word of mouth advertising, and cooperative marketing with tour companies for events like the Tattoo and Celtic Colours.
But it is important to be clear about what constitutes success. If the ferry quickly becomes self-sustaining, that would do it. If not, passenger numbers is not the right measure. Some of those passengers are people who would have come to Nova Scotia anyway by a different route. Some passengers just stay on the boat for the return trip. Some are Nova Scotians for whom the ferry has made it easier to vacation out-of-province.
A better measure of success for Nova Scotian tourism operators will be room-nights. Unsurprisingly, these were not impacted through to the end of May. If Amundsen’s optimism about ferry traffic in August is correct, and assuming normal numbers for other points of entry to the province, we should see a significant bump over 2013 in room nights for this month, particularly in south-west Nova Scotia.
As recommended by the 2012 report, the Southwest Nova Tourism Task Team has been busy developing and promoting innovative tourism experiences. Passengers seem to be satisfied with the experince on board. So the ferry is being given a fair test.
The decision to go with an inexperienced and financially weak operator was initiated by the previous government, but has been confirmed and continued under the Liberals. It may be a fatally flawed choice, but switching operators at this stage will bring a host of different problems.
ERDT minister Michel Samson argues that all other ferries lose money. That is hardly an argument for having more of them. The government needs to have a threshold beyond which it is unwilling to continue.
Taxpayers should be concerned that it does not, joining a growing list of other expensive failures to make needed choices—for example, the inadequate response on teachers’ pensions, or the lack of spending restraint initiatives in the 2014 budget.
The very substantial deficit revealed in the past fiscal year will not be cured by studious indecision.