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Analysis of British Columbia Ferries and its commercial vehicle policy Crilly, Martin Laurence 1973

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ANALYSIS OF BRITISH COLUMBIA FERRIES and ITS COMMERCIAL VEHICLE POLICY by MARTIN LAURENCE CRILLY B.A., U n i v e r s i t y of Cambridge, 1971 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the F a c u l t y of Commerce and Business A d m i n i s t r a t i o n We accept t h i s t h e s i s as conforming t o the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA September, 1973 In presenting this thesis in pai'Mal fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. FACULTY of COMMERCE AND BUSINESS ADMINISTRATION The University of British Columbia Vancouver 8, Canada Date SEPTEMBER 9, 1973 ANALYSIS OF BRITISH COLUMBIA FERRIES -and-ITS COMMERCIAL VEHICLE POLICY  A B S T R A C T I n t r o d u c t i o n This t h e s i s deals w i t h the t r a n s p o r t a t i o n of com-m e r c i a l v e h i c l e s by B r i t i s h Columbia F e r r i e s between Vancouver I s l a n d and the mainland of B r i t i s h Columbia. B. C. F e r r i e s i s a p u b l i c e n t e r p r i s e operated under the Department of Transport and Communications of the Government of the Province of B r i t i s h Columbia. Background There are s u b s t a n t i a l changes o c c u r r i n g i n f e r r y operations i n B r i t i s h Columbia, p a r t i c u l a r l y i n f e r r y i n g com-m e r c i a l v e h i c l e s . F r e i g h t t r a f f i c a s s o c i a t e d w i t h Vancouver I s l a n d i s expanding r a p i d l y . There i s a growing emphasis on highway t r u c k s and l e s s on r a i l cars f o r f r e i g h t . This i s r e l a t e d t o the i n c r e a s i n g use of Vancouver as an assembly and d i s t r i b u t i o n p o i n t f o r I s l a n d goods. Non-commercial t r a f f i c i s a l s o expanding. P r i v a t e l y operated f e r r i e s have upgraded t h e i r s e r v i c e s as a consequence of the growing peak-season - i i -pressure of nori-commercial v e h i c l e s on B. C. F e r r i e s . In 1973 a new v e s s e l increased the c a p a c i t y of a Canadian P a c i f i c R a i l f e r r y s e r v i c e by some 60% and at the same time a new company, T i l b u r y I s l a n d Terminals L t d . , began op e r a t i o n s . These changes c a l l f o r an i n s p e c t i o n of current commercial v e h i c l e p o l i c y on B. C. F e r r i e s . This t h e s i s aims t o i d e n t i f y and analyse the issues a s s o c i a t e d w i t h commercial v e h i o l e p o l i c i e s and t o examine a l t e r n a t i v e p o l i c i e s . A n a l y t i c a l framework The d i s c u s s i o n opens by examining the reasons f o r s p e c i a l government concern i n t r a n s p o r t a t i o n . In B. C , t h i s concern has l e d t o government i n t e r v e n t i o n by p a r t i c i p a t i o n i n the f e r r y system. The present arrangement i s an unregulated, mix p u b l i c / p r i v a t e system. The p o l i c y v a r i a b l e s open t o the p r o v i n c i a l government f o r i n f l u e n c i n g the f e r r y system are l i m i t e d t o the p r i c e s charged and the s e r v i c e l e v e l s provided by the p u b l i c c a r r i e r , B. C. F e r r i e s . An o v e r a l l r e g u l a t o r y body i s not p o s s i b l e because of j u r i s d i c t i o n a l c o n s i d e r a t i o n s . The t h e s i s discusses the e f f e c t s of these two v a r i a b l e s on the e n t i r e system and proposes o b j e c t i v e s and c r i t e r i a f o r s e t t i n g them. A p r i c i n g model suggests t h a t the optimal economic p r i c i n g p o l i c y of a p u b l i c e n t e r p r i s e i n competition w i t h p r i v a t e e n t e r p r i s e i s achieved when the p u b l i c e n t e r p r i s e s e t s i t s r a t e s t o cover both f i x e d and v a r i a b l e c o s t s , j u s t as would • • * - 1 1 1 -a p r i v a t e e n t e r p r i s e . Data base L i t e r a t u r e about f e r r y operations i n the province, or i n g e n e r a l , i s sparse. This i s p a r t i a l l y remedied by a d i s c u s s i o n of some general c h a r a c t e r i s t i c s of f e r r y t r a n s p o r -t a t i o n , f o l l o w e d by an h i s t o r i c a l account of f e r r y operations i n B r i t i s h Columbia. C e r t a i n themes emerge, n o t a b l y the economic importance and p o l i t i c a l s e n s i t i v i t y o f f e r r y s e r v i c e s and the i n h i b i t i o n of p r i v a t e f e r r y investment a s s o c i a t e d w i t h the p a r t i c i p a t i o n of the government i n the t r a n s p o r t a t i o n market. A body of data, mostly from o r i g i n a l sources, g i v e s an account of current f e r r y operations i n the province and i n c l u d e s i n t e r - c a r r i e r comparisons together w i t h data on t r a f f i c composition, peaking, revenues, costs and p r i c i n g . T r a f f i c trends are i d e n t i f i e d and growth p r o j e c t i o n s are made. The data suggests t h a t there i s an immediate problem i n accommodat-in g peak season demand f o r B. C. F e r r i e s i n the next few years. I t suggests t h a t p r i v a t e l y owned c a p a c i t y can help to r e l i e v e the problem. A n a l y s i s Three a l t e r n a t i v e B.C. F e r r i e s commercial v e h i c l e p o l i c i e s are examined i n d e t a i l ? (A) c o n t i n u a t i o n of present p o l i c i e s , (B) t o t a l withdrawal from the commercial v e h i c l e market - i v -and (C) p a r t i a l withdrawal from the market. Short and long term e f f e c t s are examined. F i n a l l y , the t h e s i s compares the consequences of these a l t e r n a t i v e p o l i c i e s f o r B. C. F e r r i e s c a p a c i t y expansion, the e f f e c t on competitors and f e r r y users and the l o n g term i m p l i c a t i o n s f o r government i n f l u e n c e and p r i v a t e investment i n the f e r r y system. The a n a l y s i s shows th a t while present p o l i c i e s approach economic e f f i c i e n c y i n commercial v e h i c l e f e r r y operations, there are c e r t a i n b e n e f i t s t o other f e r r y users of a ( p a r t i a l ) withdrawal of B. C. F e r r i e s from c a r r y i n g commercial v e h i c l e s . These can be weighed, t o -gether w i t h s t r a t e g i c and other p o l i c y c o n s i d e r a t i o n s , i n a f i n a l choice of p o l i c y . Signature of s u p e r v i s o r : -V-ANALYSIS OF BRITISH COLUMBIA FERRIES -and-ITS COMMERCIAL VEHICLE POLICY C O N T E N T S p a g e CHAPTER 1 INTRODUCTIONi OBJECTIVES AND ORGANISATION l i l Area of i n t e r e s t * 2 1«2 Relevance and s i g n i f i c a n c e of t h e s i s . . . . 6 It3 The o b j e c t i v e s of t h e s i s 7 1)4 The l i m i t a t i o n s of t h e s i s . . . . . . . . . . . . 7 1»5 -Organisation of t h e s i s 9 CHAPTER 2 A POLICY ANALYSIS FRAMEWORK 2«1 I n t r o d u c t i o n ! o b j e c t i v e s • . . . . 11 2:2 The p o l i c y v a r i a b l e s • 14 2:2il I d e n t i f y i n g the p o l i c y v a r i a b l e s . . . 14 2i2»2 E f f e c t s of p r i c e and s e r v i c e l e v e l v a r i a b l e s 17 213 Economic theory and i t s a p p l i c a t i o n .....22 2t3»l I n t r o d u c t i o n ! marginal cost p r i c i n g . . . . . 22 2i3«2 A p r i c i n g model f o r government s e r v i c e s . 26 2x3*3 Problems of i n t e r p r e t a t i o n and implemen-t a t i o n 33 214 Some p o l i c y c o n s i d e r a t i o n s and o p e r a t i o n a l  l i m i t a t i o n s 40 Appendix A note on the equivalence of p r i c e and s e r v i c e l e v e l s • 44 - v i -CHAPTER 3 A BACKGROUND TO PRESENT FERRY OPERATIONS 3*1 F e r r y T r a n s p o r t a t i o n . * * .......48 3»1:1 The fea t u r e s of f e r r y t r a n s p o r t a t i o n . . . . 48 3»1«2 F e r r i e s as an ext e n s i o n of highways or r a i l w a y s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3»1«3 F e r r i e s as a c o n s t i t u t i o n a l requirement. 51 3»2 An H i s t o r i c a l P e r s p e c t i v e 54 3 * 2 i l Pre-1958} before the government i n i t i a t i v e 54 3 i 2 i 2 Post-1958» a f t e r the government i n i t i a t i v e 58 3 t 2 « 3 Observations on past developments.......69 ' CHAPTER 4 A CURRENT PICTURE OF FERRY OPERATIONS IN  BRITISH COLUMBIA 4«1 I n t r o d u c t i o n and data l i m i t a t i o n s 78 412 C h a r a c t e r i s t i c s of t r a f f i c 81 4 s 2 i l Routes of i n t e r e s t 81 41212 C h a r a c t e r i s t i c s of commercial vehicles..86 41213 T r a f f i c composition and peaking 88 41214 Capacity u t i l i s a t i o n .9^ 413 I d e n t i f i c a t i o n and p r o j e c t i o n of t r a f f i c trends 96 4 i 3 t l Growth i n B. C. F e r r i e s t r a f f i c 96 4 i 3 « 2 Commercial t r a f f i c trends io4 41313 Growth i n C.P.R. t r a f f i c ........108 4»4 F i n a n c i a l , revenue, cost and p r i c i n g data...... 113 4 t 4 t l Finance • 113 4 t 4 i 2 Revenues and c o s t s . . . . . . . . . . . • ...115 4 t 4 i 3 P r i c i n g . . 119 - v i i -CHAPTER 5 ANALYSIS OF POLICIES Page 5»1 I n t r o d u c t i o n ! o b j e c t i v e s 126 5 i 2 Three commercial v e h i c l e p o l i c i e s . 130 5 * 2 » 1 P o l i c y A« Co n t i n u a t i o n of present p o l i c i e s . . . 130 5 * 2 : 2 P o l i c y B« T o t a l ban of commercial v e h i c l e s 13/j. 5*213 P o l i c y C» Accepting only a few commer-c i a l v e h i c l e s . . . . . l 4 l 5*3 ' Comparison of a l t e r n a t i v e p o l i c i e s . . 146 CHAPTER 6 CONCLUSION 6 : 1 Review of t h e s i s . 150 6 i 2 Suggestions f o r f u t u r e research..... 154 BIBLIOGRAPHY , T_57 - v i i i -LIST OF EXHIBITS AND FIGURES Number T i t l e 1 B.C. F e r r i e s s a l t w a t e r routes 3 2 P r i n c i p a l f e r r y routes between Vancouver 5 I s l a n d and the Lower Mainland 3 B.C. Government F e r r i e s - Routes of i n t e r e s t 82 k P u b l i c vs p r i v a t e f e r r y c a p a c i t y 83 5 Commercial v e h i c l e s p l i t between c a r r i e r s 85 6 B.C. Government F e r r i e s - T r a f f i c Composition 89 7 S e a s o n a l i t y of t r a f f i c by type 91 8 R e l a t i v e seasonal peaking by t r a f f i c types 92 9 Seasonal t r a f f i c composition 93 10 B. C. Government F e r r i e s - Capacity u t i l i s a t i o n 95 11 B. C. Government F e r r i e s - T r a f f i c growth 97 12 B. C. Government F e r r i e s - T r a f f i c growth by type 98 by year 13 Method of t r a f f i c p r o j e c t i o n ^ lk P r o j e c t e d demand vs c a p a c i t y 1 0 l 15 B. C. F e r r i e s p r o j e c t e d peak t r a f f i c , showing maximum e f f e c t of C a r r i e r P r i n c e s s . 102 16 T r ucking backhaul imbalance 106 17 P r o j e c t e d f r e i g h t s a t u r a t i o n of C.P.R. c a p a c i t y 109 18 B. C. Government spending on highways and f e r r i e s 116 19 B. C F e r r i e s statements of income and expenditures 117 20 B.C. F e r r i e s routes 1 and 2 revenue and cost data 1 1 8 21 F r e i g h t r a t e s t r u c t u r e s , B.C. and C P . F e r r i e s 120 F i g u r e s A Market r e l a t i o n s h i p s as used i n p r i c i n g model 28a B Equivalence of p r i c e and s e r v i c e l e v e l as p o l i c y k^a. v a r i a b l e s - i x -Acknowledgements I thank my s u p e r v i s o r , W.G. Waters I I of the Department of Economics, and Trevor D. Heaver of the T r a n s p o r t a t i o n D i v i s i o n , F a c u l t y of Commerce and Business A d m i n i s t r a t i o n , f o r t h e i r advice i n the p r e p a r a t i o n of t h i s t h e s i s . I thank a l s o my f r i e n d s , D o r i s Fong, who typed s e v e r a l d r a f t s of the man u s c r i f t , and C h r i s Mattock, who p a i n s t a k i n g l y prepared the e x h i b i t s and f i g u r e s f o r the f i n a l v e r s i o n . CHAPTER 1 INTRODUCTIONt OBJECTIVES AND ORGANISATION -2-1:1 The area of i n t e r e s t The main area of i n t e r e s t of t h i s t h e s i s i s the s e r v i c e provided and p r i c e s charged f o r the t r a n s p o r t a t i o n of commercial v e h i c l e s by B r i t i s h Columbia F e r r i e s between Vancouver I s l a n d and the B. C. mainland. B. C. F e r r i e s i s wholly owned and operated by the government of B r i t i s h Columbia. This area of i n t e r e s t i s c l o s e l y a s s o c i a t e d w i t h other t r a n s p o r t a t i o n a c t i v i t i e s and markets.- In a d d i t i o n t o the f e r r y s e r v i c e provided t o commercial v e h i c l e s , a s e r v i c e e x i s t s f o r I s l a n d r e s i d e n t s , mainland v i s i t o r s , f o r e i g n v i s i -t o r s and other groups. Because these groups use the same deck space (and a l l are p a r t of the p r o v i n c i a l economy), the p o l i -c i e s towards each group are i n t e r r e l a t e d . The p r i v a t e f e r r y operators s e r v i n g s i m i l a r t r a n s p o r t a t i o n markets are d i r e c t l y a f f e c t e d by government a c t i o n and they too must be considered i n government p o l i c i e s . Therefore the d i s c u s s i o n i n t h i s t h e s i s n e c e s s a r i l y embraces a l l types of t r a f f i c and both pub-l i c and p r i v a t e f e r r y operations. The B. C. government f e r r y routes of i n t e r e s t are known as Route 1 (Tsawwassen-Swartz Bay) and Route 2 (Horseshoe Bay-Departure Bay). These are the p r i n c i p a l s e r v i c e s connecting Vancouver I s l a n d t o the mainland. E x h i b i t 1 g i v e s a compre-hensive p i c t u r e of government s a l t w a t e r f e r r y routes and h i g h -l i g h t s Routes 1 and 2. The route of the confirmed new major -3-to Prince Rupert Kelsey Ba^1 MILES MAINLAND ver 60 —I E X H I B I T 1 B . C . F E R R I E S S A L T W A T E R R O U T E S B. C. Ferry Route * Major Route Minor Route Proposed Route H ^ Source: B. C. Ferries Route Map 1973 -4-s e r v i c e between Steveston and G a b r i o l a I s l a n d i s a l s o shown ( c o n s t r u c t i o n of t e r m i n a l s has yet t o begin ) . P r i v a t e l y operated f e r r y routes i n the area of i n t e r e s t are shown i n the map of E x h i b i t 2. The Canadian P a c i f i c R a i l -way's B. C Coast Steamship s e r v i c e (B.C.CS.) provides a downtown t o downtown s e r v i c e between Vancouver and Nanaimo which c a r r i e s a l l types of v e h i c l e s . S e r v i c e s f o r commercial v e h i c l e s o n l y are provided from Vancouver t o Nanaimo and Swartz Bay ( f o r V i c t o r i a ) . The summer of 1973 saw the i n a u g u r a t i o n of a B.C.C.S. s e r v i c e from Vancouver t o Swartz Bay aboard the newly b u i l t C a r r i e r P r i n c e s s . This v e s s e l c a r r i e s p r i m a r i l y commercial v e h i c l e s but accommodates non-commercial t r a f f i c as space permits. A comparatively recent a r r i v a l on the scene i s T i l b u r y I s l a n d Terminals L t d . (T.I.T.L.) which has operated a s e r v i c e from the est u a r y of the F r a s e r R i v e r t o lower Van-couver I s l a n d since A p r i l , 1973* The company operates a barge c a r r y i n g g e n e r a l f r e i g h t , r a i l cars and drop t r a i l e r s . This i s a l s o shown i n E x h i b i t 2. Other g e n e r a l f r e i g h t s e r v i c e s e x i s t . These include the marine arm of MacMillan B l o e d e l (Kingcome Navigation) which t r a n s p o r t s g e n e r a l f r e i g h t and r a i l cars and accommodates highway v e h i c l e s o n l y i f space a l l o w s . Seaspan I n t e r n a t i o n a l provides northern and western Vancouver I s l a n d w i t h a gen e r a l f r e i g h t s e r v i c e but the c a r r i a g e of v e h i c l e s i s r a r e . N e i t h e r E X H I B I T 2 P R I N C I P A L F E R R Y R O U T E S B E T W E E N V A N C O U V E R I S L A N D A N D T H E L O W E R M A I N L A N D B.C. F e r r i e s routes , — Canadian P a c i f i c Railway routes •.«.•-•-• Proposed new B.C. Fe r r i e s route • Ferry terminal -6-of these companies (nor the s e v e r a l bulk-towing companies) i s of i n t e r e s t i n t h i s t h e s i s by v i r t u e of the s m a l l overlap i n the commercial v e h i c l e market. 1:2 Relevance and s i g n i f i c a n c e of t h e s i s The immediate r a t i o n a l e f o r t h i s t h e s i s l i e s i n the s t a t e of f l u x which e x i s t s i n the t r a n s p o r t a t i o n of f r e i g h t i n the s o u t h e r l y waters of B r i t i s h Columbia. This s t a t e of f l u x o r i g i n a t e s i n the f o l l o w i n g f a c t o r s : ( i ) The o v e r a l l growth of t r a f f i c , both commercial and non-commercial, which i s c u r r e n t l y i n excess of 10$ per year. ( i i ) The o u s t i n g of commercial v e h i c l e s from government f e r r y s e r v i c e s onto p r i v a t e l y operated s e r v i c e s , concomitant w i t h the s w e l l i n g demands of l e i s u r e t r a f f i c on the government s e r v i c e s . ( i i i ) The tre n d away from the use of r a i l cars as f r e i g h t v e h i c l e s towards the use of highway t r u c k s and p a r t i c u -l a r l y towards the use of t r a c t o r - t r a i l e r combinations. When these circumstances of change are recognised, c e r t a i n questions n a t u r a l l y a r i s e f o r government f e r r y operations: (a) What would be the consequences i f cur r e n t p r a c t i c e s and plans were f o l l o w e d and no f u r t h e r a c t i o n taken? -7-(b) I n what other ways might a c t i o n be taken? (c) What would be the consequences of these a c t i o n s ? (d) What are the c r i t e r i a by which the a l t e r n a t i v e courses of a c t i o n or i n a c t i o n might be judged? (e) On the ba s i s of.these c r i t e r i a , what should be done? It 3 O b j e c t i v e s of t h e s i s The p r i n c i p a l o b j e c t i v e of the t h e s i s i s t o examine and compare a l t e r n a t i v e commercial v e h i c l e p o l i c i e s on B. C. F e r r i e s , i n c l u d i n g the c o n t i n u a t i o n of present p o l i c y . A f u r t h e r o b j e c t i v e i s t o e s t a b l i s h some c r i t e r i a on which t o base the examination and comparison of the p o l i c i e s . The achievement of these o b j e c t i v e s r e q u i r e s h i s t o r i c a l , f i n a n c i a l and o p e r a t i o n a l i n f o r m a t i o n about B. C. F e r r i e s . I t seems t h a t no such body of in f o r m a t i o n e x i s t s . A s u b s i d i a r y o b j e c t i v e i s th e r e f o r e t o develop a coherent body of in f o r m a t i o n about B. C. F e r r i e s which may prove u s e f u l to f u t u r e researchers. Ii4 L i m i t a t i o n s of t h e s i s S e v e r a l l i m i t a t i o n s govern the scope, comprehensiveness, accuracy and s o p h i s t i c a t i o n of t h i s t h e s i s . Some are through choice because of the f i n i t e e f f o r t and time a v a i l a b l e . Others e x i s t by v i r t u e of the u n a v a i l a b i l i t y of i n f o r m a t i o n . Not a l l events and f a c t s of h i s t o r y , o p e r a t i o n and -8-finance of f e r r i e s are recorded and not a l l of those which are recorded are a c c e s s i b l e . The f o l l o w i n g f a c t o r s are l i m i t -i n g : ( i ) The p o l i c y of past p r o v i n c i a l a d m i n i s t r a t i o n s not t o r e l e a s e data. H i s t o r i c a l f i n a n c i a l and t r a f f i c data was e i t h e r i n a c c e s s i b l e or nonexistent f o r the government f e r r y s e r v i c e s . Some in f o r m a t i o n could be e x t r a c t e d from newspaper a r t i c l e s of the time and from personal i n t e r v i e w s w i t h those then i n v o l v e d i n f e r r y o p e r a t i o n . ( i i ) The understandable reluctance of p r i v a t e operators t o d i v u l g e i n f o r m a t i o n which might be t o t h e i r disadvantage. This was the case w i t h Canadian P a c i f i c R a i l , where assistance w i t h t r a f f i c or f i n a n c i a l data was not g i v e n . A notable excep-t i o n was the cooperation of the management of a newly formed company, T i l b u r y I s l a n d Terminals L t d . ( i i i ) The treatment of the p r o v i n c i a l economy i s as an e x t e r n a l environment to the o p e r a t i o n of f e r r y s e r v i c e s . The a n a l y s i s i s l i m i t e d t o the examination of v e h i c u l a r t r a f f i c and does not venture i n t o the commodities and o r i g i n s of the goods t r a n s p o r t e d by the v e h i c l e s which are themselves c a r r i e d by the f e r r y system. That i s , a "systems approach" i s not adopted which might include matters of p r o v i n c i a l budgetting, p r o v i n c i a l p r i o r i t i e s f o r investment, e t c . The f e r r y system i s taken as a w e l l d e f i n e d segment of the t r a n s p o r t a t i o n system and t h a t segment i s analysed. This i s i n e f f e c t an a p r i o r i -9-c o n s t r a i n t on the types of c r i t e r i a which can be e s t a b l i s h e d f o r the comparison of a l t e r n a t i v e p o l i c i e s . 1»5 O r g a n i s a t i o n of t h e s i s The a n a l y s i s of p o l i c y r e q u i r e s t h a t c e r t a i n general questions be answered. Why i s the government concerned w i t h t r a n s p o r t a t i o n ? What are the p o l i c y v a r i a b l e s open to the government? What are government o b j e c t i v e s i n u s i n g these p o l i c y v a r i a b l e s ? What are t h e i r e f f e c t s ? What i s the place of the a n a l y s t i n policymaking? How can theory be a p p l i e d ? Chapter 2, which f o l l o w s , attempts to answer these questions. I t i s h e l p f u l t o analyse p o l i c i e s i n the l i g h t of past developments so t h a t r e c u r r i n g themes and trends r e l e v a n t t o the present can be i d e n t i f i e d . Chapter 3 examines the gene r a l f e a t u r e s of f e r r y t r a n s p o r t a t i o n and looks at the h i s t o r y of f e r r y operations i n the province. Chapter 4 provides the e s s e n t i a l data base of op e r a t i n g and f i n a n c i a l i n f o r m a t i o n about the f e r r y system and the market i t serves. This i n c l u d e s the i d e n t i f i c a t i o n and p r o j e c t i o n of tre n d s . A l l the above matter i s brought together i n Chapter 5» which s y n t h e s i s e s the a n a l y t i c a l , h i s t o r i c a l and contemporary m a t e r i a l f o r the a n a l y s i s of s p e c i f i c commercial v e h i c l e p o l i c i e s on B.C. F e r r i e s . Chapter 6 concludes the t h e s i s and p r o f f e r s l i n e s of f u t u r e research. -10-CHAPTER 2 A POLICY ANALYSIS FRAMEWORK -11-2 ! l I n t r o d u c t i o n Assured t r a n s p o r t a t i o n are e s s e n t i a l f o r the l i f e of s t a b l e communities. The assurance of s e r v i c e s i s a respon-s i b i l i t y which has been assumed by government. The nature of the assurance may vary from a simple i n d i c a t i o n of support of p r i v a t e operators t o f u l l government ownership and oper a t i o n of an e n t i r e t r a n s p o r t a t i o n system. In B. C , the p r o v i n c i a l government has chosen to p a r t i c i p a t e w i t h p r i v a t e operators i n the f e r r y system. Since there i s no o v e r a l l r e g u l a t o r y body i n c o n t r o l , the arrangement can be described as an un-re g u l a t e d , mixed p u b l i c / p r i v a t e system. The purpose of t h i s chapter i s t o develop a general framework f o r the subsequent a n a l y s i s of s p e c i f i c commercial v e h i c l e p o l i c i e s i n t h i s unregulated, mixed p u b l i c / p r i v a t e system. To develop the framework, t h i s chapter attempts t o answer.the f o l l o w i n g questions* (a) What are the policymaker's o b j e c t i v e s i n adopt-in g a p a r t i c u l a r course of a c t i o n and what i s the f u n c t i o n of the a n a l y s t i n a d v i s i n g the policymaker? (b) What are appropriate c r i t e r i a f o r judging a l t e r n a t i v e courses of a c t i o n ? (c) What are the f e a s i b l e courses of a c t i o n which the government may take i n the present s i t u a t i o n ( t h i s l i m i t s the range of p r a c t i c a l p o l i c i e s ) . -12-(d) What are the gene r a l e f f e c t s of these courses o f a c t i o n ? What are t h e i r l i m i t a t i o n s ? P u b l i c p o l i c y has var i o u s o b j e c t i v e s . Economic e f f i c i e n c y i s one of them but i t can be modified by va r i o u s s o c i a l and p o l i t i c a l o b j e c t i v e s ( f o r example, the r e d i s t r i b u -t i o n of wea l t h ) . I f these s o c i a l and p o l i t i c a l goals are s u f f i c i e n t l y m e r i t o r i o u s they may ov e r r i d e pure e f f i c i e n c y con-s i d e r a t i o n s . Unless these v a r i o u s non-economic o b j e c t i v e s are s p e l l e d out i n some d e t a i l , the a n a l y s t cannot determine the optimal p o l i c i e s to pursue. He can, however, develop an optimal p o l i c y p u r e l y i n terms of economic e f f i c i e n c y . This serves as a reference p o i n t f o r examining the i m p l i c a t i o n s of a l t e r i n g the r e s u l t due t o these other s o c i a l and p o l i t i c a l c o n s i d e r a t i o n s . The present chapter examines the p r i c e - s e r v i c e p o l i c y a p p r o p r i a t e to the p u b l i c e n t e r p r i s e competing w i t h p r i v a t e e n t e r p r i s e which r e s u l t s i n the most e f f i c i e n t a l l o c a t i o n of resources. In i t s e l f t h i s i s too narrow a p o l i c y and i t must be a l t e r e d , approximately i f not e x a c t l y , by i n c o r p o r a t i n g p u b l i c o b j e c t i v e s l a t e r i n the t h e s i s . A model i s developed which examines the optimal p r i c i n g p o l i c y f o r commercial v e h i c l e s . I t concludes t h a t economic e f f i c i e n c y i s achieved when the pub-l i c e n t e r p r i s e s e t s i t s p r i c e s t o cover a l l costs and t o make a r e t u r n on in v e s t e d c a p i t a l (with an allowance f o r the equiva-l e n t of income t a x e s ) , i . e . t h a t i t should f o l l o w p r i c i n g p r i n -c i p l e s very s i m i l a r t o those of p r i v a t e e n t e r p r i s e . -13 -F i n a l l y , the chapter g i v e s some examples of the s o c i a l and p o l i t i c a l c o n s i d e r a t i o n s which may modify the o b j e c t i v e of pure economic e f f i c i e n c y . Others are developed subsequently i n the t h e s i s by examining past developments i n f e r r y operations i n the Northwest and from a d e t a i l e d exam-i n a t i o n of present f e r r y o p e rations. This approach conforms w i t h the gene r a l consensus t h a t questions faced by government (broadly, welfare questions) i n v o l v e judgments which l i e outside the province of the a n a l y s t . I t i s customary t o conceive of economic welf a r e being maximised when an economic system f u n c t i o n s w i t h maximum e f f i c i e n c y t o s a t i s f y g i v e n ends w i t h a v a i l a b l e resources. Policymakers modify the economic optimum by e x t e r n a l c o n s i d e r a t i o n s t o some broader welfare optimum.^ Before the chapter deals w i t h the d e t a i l s of econ-omic theory and i t s m o d i f i c a t i o n by other c o n s i d e r a t i o n s , i t i d e n t i f i e s the f e a s i b l e methods by which p u b l i c p o l i c y may be implemented i n the f e r r y system, i . e . the p o l i c y v a r i a b l e s open t o the government. I n the unregulated, mixed p u b l i c / p r i v a t e f e r r y system of B r i t i s h Columbia, p u b l i c p o l i c y f o r the e n t i r e system can be implemented only through the i n f l u e n c e of the p u b l i c c a r r i e r , B. C. F e r r i e s . ^Rima, I n g r i d H. Readings i n the H i s t o r y of Economic Theory. New York, H o l t , Rmehart and Winston, 1970, p. 202. -14-2\2 The P o l i c y V a r i a b l e s 2I2>1 I d e n t i f y i n g the p o l i c y v a r i a b l e s This s e c t i o n i d e n t i f i e s the p o l i c y v a r i a b l e s open t o the p r o v i n c i a l government i n the present s i t u a t i o n . I t disc u s s e s the e f f e c t s of the v i a b l e p o l i c y v a r i a b l e s i n terms of c o n t r o l of the e n t i r e f e r r y system. I t w i l l be seen t h a t p u b l i c ownership of a s u b s t a n t i a l p r o p o r t i o n of the f e r r y sys-tem can be regarded as a form of r e g u l a t i o n of the e n t i r e system. The p o l i c y v a r i a b l e s f a l l i n t o the f o l l o w i n g c l a s s e s : ( i ) L e g a l and r e g u l a t o r y (over both the p a r t s and the e n t i r e system of f e r r i e s ) . ( i i ) P r i c i n g of the p u b l i c c a r r i e r . ( i i i ) S e r vice l e v e l s s u p p l i e d by the p u b l i c c a r r i e r ( i n c l u d i n g o p e r a t i n g p r a c t i c e s , scheduling, r o u t i n g , e t c . ) . L e g a l and r e g u l a t o r y While C.P.R. s e r v i c e s come under F e d e r a l j u r i s d i c -t i o n , the p u b l i c l y owned f e r r i e s are i n the P r o v i n c i a l domain; the boundary between Fe d e r a l and P r o v i n c i a l j u r i s d i c t i o n d i v i d e s the f e r r y system. Therefore, b a r r i n g l e g a l changes of c o n s t i -t u t i o n a l s i g n i f i c a n c e , no r e g u l a t o r y body can e x i s t w i t h 2 For a d e f i n i t i o n of the term " s e r v i c e l e v e l s " see the appendix of t h i s chapter -15-simultaneous j u r i s d i c t i o n over both C.P.R. s e r v i c e s and B.C. F e r r i e s . I t i s c l e a r t h a t the Government of B r i t i s h Columbia would not be able t o re g u l a t e the e n t i r e system of f e r r i e s even i f i t so d e s i r e d . The system cannot be l e g a l l y r e g u l a t e d i n the co n v e n t i o n a l sense by a s i n g l e government a u t h o r i t y . I t i s not suggested t h a t C.P.R. s e r v i c e s cannot be a f f e c t e d i n any way whatsoever by the p r o v i n c i a l l e g i s l a t u r e . The C.P.R. must conform t o p r o v i n c i a l laws i n many matters, i n c l u d i n g l o c a t i o n of t e r m i n a l s , environmental e f f e c t s of operations and other t e c h n i c a l matters. But i t i s suggested t h a t such i n f l u e n c e which the province has should not be used as a s u b s t i t u t e f o r r e g u l a t i o n " i n the determination of routes, schedules or r a t e s of the p r i v a t e c a r r i e r s i n c e ,th i s would amount t o circumvention of f e d e r a l a u t h o r i t y . The use of such i n f l u e n c e i s assumed t o be unacceptable. I t i s concluded t h a t l e g a l means are not open t o the province i n order t o achieve the o b j e c t i v e s of r e g u l a t i o n of the e n t i r e system of f e r r i e s . Though i t i s not f e a s i b l e t o use l e g i s l a t i o n t o a f f e c t the e n t i r e system, i t i s p o s s i b l e t o a f f e c t p a r t s of i t . P r i v a t e i n t r a p r o v i n c i a l water c a r r i e r s l i e under p r o v i n c i a l a u t h o r i t y . At present the powers over p r i v a t e i n t r a p r o v i n c i a l f e r r y operators are not u s e f u l s i n c e ( i ) they form only a s m a l l f r a c t i o n of the f e r r y system and ( i i ) i t could be argued that i t i s i n e q u i t a b l e to a f f e c t m a t e r i a l l y by l e g a l means a p r i v a t e -16-i n t r a p r o v i n c i a l operator who i s i n competition w i t h the (un-regulated) C.P.R. Another use of the law as a p o l i c y instrument i s t o change the l e g a l s t a t u s of the p u b l i c c a r r i e r . At one extreme, the system could be s o l d o f f t o p r i v a t e e n t e r p r i s e which would take the r i s k and re t u r n s of subsequent op e r a t i o n . Or, the system could be leased t o p r i v a t e e n t e r p r i s e which would be r e s p o n s i b l e f o r day-to-day operations. In both cases the terms of co n t r a c t could provide f o r o p e r a t i n g a c a p i t a l subsidy and make c o n d i t i o n s on p r i c e and s e r v i c e l e v e l s . A f u r t h e r p o s s i b i l i t y i s a r e t u r n t o the s t a t u s of crown corpor-a t i o n ( t h i s would a l l o w the system t o r a i s e c a p i t a l f o r expan-s i o n on the bond market r a t h e r than through the budget of the Department of Transport and Communications). But i t i s not c l e a r what advantages these changes i n s t a t u s might a f f o r d i n the present s i t u a t i o n . Though t h i s power i s not p r e s e n t l y u s e f u l , i t i s inc l u d e d f o r completeness. I t i s concluded t h a t the law (used as a r e g u l a t o r or t o change the s t a t u s of the system) can be r u l e d out as a u s e f u l instrument of p o l i c y i n the present s i t u a t i o n . The remaining v a r i a b l e s are the p r i c e and s e r v i c e l e v e l s of the p u b l i c c a r r i e r . The f o l l o w i n g s e c t i o n d e s c r i b e s t h e i r e f f e c t s and l i m i t a t i o n s . -17-2:2:2 E f f e c t s of p r i c e and s e r v i c e l e v e l v a r i a b l e s The g e n e r a l e f f e c t s of the l e v e l s of p r i c e and s e r v i c e l e v e l are co n v e n i e n t l y c l a s s e d as short and long termi ( i ) Short term: both the p r i c e and the s e r v i c e l e v e l of the f e r r y s e r v i c e govern the place and time at which users choose t o u t i l i s e the system (other t h i n g s being h e l d c o n s t a n t ) . In p a r t i c u l a r , they determine whether i n d i v i d u a l s use the sys-tem at a l l and determine the a l l o c a t i o n of t r a f f i c between competing s e r v i c e s ? i . e . , c e t e r i s p a r i b u s , they determine the volume and d i s t r i b u t i o n of o v e r a l l demand i n the short term. ( i i ) Long term: the p r i c e and the s e r v i c e l e v e l a f f e c t long term demand, the l e v e l of c a p i t a l investment i n f a c i l i t i e s and hence the lo n g term development of re g i o n , i . e . the p a t t e r n of s o c i a l and i n d u s t r i a l l o c a t i o n . The i m p l i c a t i o n i s t h a t , i n s e t t i n g r a t e s and s e r v i c e l e v e l s , a t t e n t i o n must be given not o n l y t o the short term e f f e c t s above but a l s o t o the long term consequences (which are p r a c t i c a l l y i r r e v e r s i b l e ) and how they conform w i t h development p o l i c i e s f o r the r e g i o n . The a l l o c a t i o n of demand between c a r r i e r s ( i . e . the issue of p u b l i c / p r i v a t e competition i n s e t t i n g p r i c e and s e r v i c e l e v e l s ) occupies the remainder of t h i s s u b s e c t i o n . Other e f f e c t s are d i s c u s s e d subsequently. -18-P r i c e e f f e c t s on competition P u b l i c and p r i v a t e s e r v i c e s i n B.C. are t o some extent i n competition w i t h each other. I t i s p o s s i b l e , t h e r e -f o r e , f o r the government t o exert i n f l u e n c e on the p r i v a t e c a r r i e r s . What i s the nature of t h i s i n f l u e n c e and what are i t s l i m i t a t i o n s ? Policymakers encounter t h i s q u e s t i o n whether or not i t i s intended p o l i c y t o a f f e c t p r i v a t e o p e r a t i o n s . The e f f e c t s of p u b l i c o p e r a t i o n are f e l t i r r e s p e c t i v e of the i n t e n -t i o n s behind them; p u b l i c ownership of part of the system i s a form of r e g u l a t i o n . To what extent does the presence of a p u b l i c c a r r i e r i n an unregulated system of p r i v a t e c a r r i e r s have e f f e c t s s i m i l a r t o d i r e c t r e g u l a t i o n ? In a d i r e c t l y r e g u l a t e d system, t a r i f f s are commonly r e s t r i c t e d i n some way by a governmental a u t h o r i t y . C a r r i e r i n i t i a t i v e can be accommodated by a system of f i l i n g of t a r i f f s which are subject t o approval. This i s intended t o p r o t e c t the c a r r i e r s from each other and t o e l i m i n a t e r a t e wars, t o p r o t e c t the shipper who has l i t t l e b a r g a i n i n g power agai n s t high r a t e s or u n f a i r d i s c r i m i n a t i o n and t o c o n t r i -bute g e n e r a l l y t o the maintenance of r e l i a b l e s e r v i c e by assur-' i n g reasonable p r o f i t a b l e o p e r a t i o n . In a non-competitive s i t u a t i o n a p r i v a t e monopolist can be prevented from charging the maximum the t r a f f i c w i l l bear or can be gi v e n a subsidy f o r an u n p r o f i t a b l e route (with, s p e c i f i e d s e r v i c e l e v e l r e q u i r e -ments) and be r e s t r i c t e d i n p r i c i n g (there has been much debate -19-about the e f f i c a c y of p r i c e r e g u l a t i o n but i t i s not proposed t o e nter t h a t d i s c u s s i o n h e r e ) . In c o n t r a s t , i n an unregulated system c o n t a i n i n g a p u b l i c c a r r i e r , the t a r i f f charged by p r i v a t e c a r r i e r s can be a f f e c t e d i n d i r e c t l y v i a competition between the p u b l i c and p r i v a t e c a r r i e r s . This e f f e c t can apply only t o the degree t o which the s e r v i c e s are i n competition ( i . e . t o the extent t o which they are s u b s t i t u t e s ) . This competitive mechanism has the fe a t u r e o f being a more e f f e c t i v e p r i c e c o n t r o l on high p r i c e s than on low p r i c e s . I f there were more than one p r i v a t e c a r r i e r i n the system, the presence of a p u b l i c e n t e r p r i s e would not remove the p o s s i b i l i t y of a r a t e war between the p r i v a t e c a r r i e r s whereas a l e g a l r e g u l a t o r y framework could prevent i t . C.P.R. s e r v i c e s are i n p a r t i a l c ompetition on the Mainland-Vancouver I s l a n d B.C. F e r r i e s routes but t h i s does not exclude the p o s s i b i l i t y of a r a t e war between C.P.R. and a t h i r d M a i n l a n d - I s l a n d c a r r i e r . The presence of a p u b l i c c a r r i e r o p e r a t i n g at a low t a r i f f may induce i n t e r n a l c r o s s - s u b s i d i s a t i o n i n a competing c a r r i e r . To ma i n t a i n the competitive s e r v i c e at low t a r i f f the p r i v a t e c a r r i e r may be f o r c e d t o t r a n s f e r funds from h i g h e r t a r i f f s on some ( e f f e c t i v e l y monopolised) s e r v i c e . For example, the passenger s e r v i c e s of C.P.R. (which are competitive w i t h those o f B.C. F e r r i e s ) are c r o s s - s u b s i d i s e d by f r e i g h t -20-s e r v i c e s , an area where C.P.R. has a p a r t i a l monopoly p o s i t i o n . S e rvice l e v e l e f f e c t s on competition One of the o b j e c t i v e s of r e g u l a t i o n i s t o maintain a r e l i a b l e s e r v i c e . This o b j e c t i v e can a l s o be achieved by the presence of a p u b l i c c a r r i e r i n competition w i t h p r i v a t e c a r r i e r s . In case of d e f a u l t by the p r i v a t e c a r r i e r , the p u b l i c c a r r i e r can take a temporary excess l o a d (given some excess c a p a c i t y ) . In the past a common d i r e c t cause of f a i l u r e of f e r r y s e r v i c e s has been labour s t r i f e . The employees of the p u b l i c and p r i v a t e c a r r i e r s i n B.C. belong t o d i f f e r e n t unions. This i s added insurance a g a i n s t the p o s s i b i l i t y of t o t a l d i s r u p t i o n of f e r r y s e r v i c e s between the Mainland and Vancouver I s l a n d . On u n p r o f i t a b l e routes p r i v a t e competition f o r the p u b l i c c a r r i e r w i l l g e n e r a l l y not e x i s t . These routes can be run by the p u b l i c c a r r i e r which accepts the l o s s i n c u r r e d by oper a t i n g as a u t i l i t y . A l t e r n a t i v e l y a p r i v a t e c a r r i e r can be o f f e r e d a subsidy (as w i t h a f u l l y r e g u l a t e d system). Both circumstances occur i n B.C. Some routes ( p a r t i c u l a r l y short 3 •^Personal Interview, Mr. Ron K. Gamey, Manager, A n a l y s i s and Planning, Canadian P a c i f i c Railway L t d . , Vancouver. But i t i s no guarantee. In August 1973 both B.C. F e r r i e s and C.P.R. were simultaneously strikebound i n separate labour d i s p u t e s . - 2 1 -c r o s s - r i v e r or lake runs operated under the Department of Highways s e p a r a t e l y from s a l t w a t e r routes) are served by the p u b l i c c a r r i e r at considerable loss? other runs are operated by s i n g l e - v e s s e l p r i v a t e operators under subsidy.'* There are s e v e r a l ways i n which a p r i v a t e c a r r i e r might be s a i d t o be disadvantaged i n competition w i t h a p u b l i c c a r r i e r . P r i v a t e e n t e r p r i s e s are r e q u i r e d t o earn a f a i r r e t u r n on c a p i t a l , which i s not n e c e s s a r i l y r e q u i r e d of a p u b l i c e n t e r p r i s e . P r i v a t e e n t e r p r i s e must pay corporate taxes, which p u b l i c e n t e r p r i s e s do not (de f a c t o t a x a t i o n on a p u b l i c e n t e r p r i s e would be e f f e c t e d by r e q u i r i n g net cash i n f l o w s t o the exchequer). Whenever revenues or costs are perceived d i f f e r e n t l y by p r i v a t e and p u b l i c operators, some d i s t o r t i o n of competition r e s u l t s ( u s u a l l y t o the detriment of p r i v a t e o p e r a t i o n s ) . I t i s not only i n p r i c e l e v e l s t h a t the advantage of the p u b l i c e n t e r p r i s e may m a t e r i a l i s e . The f a c t o r s mentioned above might appear as improved s e r v i c e l e v e l s f o r the same p r i c e . The p r i v a t e operator, though not undercut i n p r i c e , may be undercut i n s e r v i c e l e v e l because of the d i f f e r e n t ground r u l e s under v/hich the p u b l i c e n t e r p r i s e operates. In B.C., while the • ^ B r i t i s h Columbia. Annual Report of the M i n i s t e r of  Highways f o r the f i s c a l year ending March 3 1 , 1 9 7 2 . - 2 2 -passenger s e r v i c e s of the C.P.R. and B.C. F e r r i e s are compar-ab l e , the government s e r v i c e s are much more frequent and con-v e n i e n t l y scheduled.^ The government maintains a b e t t e r ' avel 7 o f s e r v i c e t o users. This d i s c u s s i o n has concentrated on the impact of p r i c e and s e r v i c e l e v e l p o l i c i e s of the p u b l i c c a r r i e r on the e n t i r e system. No judgement has been made whether or not t h i s impact i s b e n e f i c i a l t o an o v e r a l l economic context. The f o l l o w i n g s e c t i o n s c o n t a i n the economic theory r e l e v a n t f o r s e t t i n g p r i c e s and s e r v i c e l e v e l s of the p u b l i c c a r r i e r . 2 : 3 Economic theory and a p p l i c a t i o n 2t3«l I n t r o d u c t i o n : marginal cost p r i c i n g T h i s s e c t i o n presents the r e l e v a n t economic theory f o r developing economically e f f i c i e n t p o l i c i e s f o r commercial v e h i c l e s on B.C. F e r r i e s . The s o c i a l and p o l i t i c a l o b j e c t i v e s o f p u b l i c p o l i c y are set aside at t h i s p o i n t but w i l l be r e -introduced l a t e r i n the t h e s i s . This can a l s o be regarded as a sc a l e e f f e c t , i . e . dominance of p u b l i c c a r r i e r by v i r t u e of s i z e . But again, the p r i v a t e operator was disadvantaged by heavy c a p i t a l subsidy f o r expansion of the government f l e e t t o i t s present s i z e . (See chapter 4 ) . The appendix t o t h i s chapter discusses the equivalence of the e f f e c t s of p r i c e and s e r v i c e l e v e l v a r i a b l e s . -23 -The general r u l e f o r economic e f f i c i e n c y (which i s a s t a t e d o b j e c t i v e ) i s t o set the p r i c e charged per u n i t of s e r v i c e equal t o the cost of p r o v i d i n g the marginal u n i t . This formula or " f i r s t best" s o l u t i o n i s u n s a t i s f a c t o r y f o r two reasons t ( i ) I t i s not c l e a r what i s meant by the marginal c o s t . Should the costs be long term or short term and what happens when j o i n t , common and i n d i v i s i b l e costs occur? ( i i ) The formula i s i n v a l i d a t e d by d e v i a t i o n s from marginal cost i n the p r i c e s of f a c t o r inputs and and competing s e r v i c e s , which are found i n the r e a l n on-marginalist world. A "second best" s o l u t i o n to the problem i s r e q u i r e d . These two shortcomings are discussed i n t u r n . ( i ) D e f i n i n g marginal cost The marginal cost of an output u n i t i s the escapable cost i f one l e s s u n i t i s produced. This escapable cost i s the opp o r t u n i t y forgone of the most valued a l t e r n a t i v e use of the re l e a s e d resources (and i s sometimes termed the op p o r t u n i t y c o s t ) . When c o n s i d e r a t i o n s normally valued by governments are i n c l u d e d as part of the cost , the a d j e c t i v e " s o c i a l " i s added. The marginal cost p r i c i n g r u l e becomes: p r i c e t o be charged _ marginal s o c i a l oppor-per u n i t of s e r v i c e ~ t u n i t y cost -24-D e f i n i t i o n a l problems a r i s e because the meaning of "escapable" i s not c l e a r . Some costs are escapable i n the long term but not i n the sho r t term. Many i n d u s t r i e s have output costs which are j o i n t or common wit h other outputs and there o f t e n e x i s t i n d i v i s i b l e costs of pr o d u c t i o n which confuse the meaning-o of escapable. Short and long term costs Some commitments t o use resources cannot be a l t e r e d r a p i d l y even i f output c o n t r a c t s t o a lower l e v e l . F or example, the c o n s t r u c t i o n of a f e r r y t e r m i n a l i s a long term commitment of resources ( p r a c t i c a l l y i n f i n i t e f o r durable earthworks and docks). In c o n t r a s t , the cost of f u e l and v e s s e l wear and t e a r are immediately escaped i f a s a i l i n g i s c a n c e l l e d . Some commitments are intermediate term (e.g. h i r i n g c o n t r a c t s f o r labour which have an e x p i r y date ( t y p i c a l l y 24 months)). Investment i n assets such as v e s s e l s may be escap-able i n the intermediate term through s a l e or a l t e r n a t i v e use. Therefore the marginal cost of output i s seen to vary w i t h the time s c a l e considered. J o i n t and i n d i v i s i b l e costs There are s e v e r a l examples of j o i n t and i n d i v i s i b l e Heggie, Ian G. Transport E n g i n e e r i n g Economics McGraw-Hill Book Company, Maihdenhead, England, i y / 2 . Chapter 4. -25-c o s t s i n f e r r y o p e r a t i o n s . Using the present f l e e t , the p r o p o r t i o n of passenger and v e h i c l e accommodation i s f i x e d and t h e i r costs are j o i n t . Passenger s e r v i c e cannot be escaped without e l i m i n a t i n g v e h i c l e s e r v i c e and v i c e versa. L i k e w i s e , the costs of ea s t - and west-bound s e r v i c e s are j o i n t . The costs of a s i n g l e s a i l i n g are l a r g e l y i n d i v i s i b l e (except perhaps f o r personnel a s s o c i a t e d d i r e c t l y w i t h on-board passenger s e r v i c e ) and are common t o a l l the v e h i c l e s and people u s i n g the v e s s e l . The costs of ope r a t i n g a t e r m i n a l s e r v i n g more than one f e r r y route are common between the routes (as at Horseshoe Bay). ( i i i ) Second best s o l u t i o n s In i n d u s t r i e s where marginal cost i s l e s s than average cost a d e f i c i t r e s u l t s from the a p p l i c a t i o n of the marginal cost p r i c i n g r u l e . D e v i a t i o n s from marginal cost p r i c i n g a r i s e from the need f o r revenues i n such an enter-p r i s e and as w e l l as from the d i s t o r t i n g e f f e c t s of t a x a t i o n . The marginal cost p r i c i n g of a s i n g l e output i n the presence of non-marginally p r i c e d inputs.and s u b s t i t u t e s does not neces-s a r i l y l e a d t o optimal resource a l l o c a t i o n . Even i f i t i s decided t o make up p r i v a t e e n t e r p r i s e ' s inescapable costs by subsidy from the t r e a s u r y by ex c i s e taxes, t h i s i s o b v i o u s l y a d e c i s i o n t o make some p r i c e s deviate from marginal cost a f t e r a l l . A l t e r n a t i v e l y , an income tax d r i v e s - 2 6 -the p r i c e of labour from i t s marginal c o s t . A n y . l e v e l of t r e a s u r y revenue must produce some d i s t o r t i o n . The search f o r an optimal p r i c e f o r government f e r r y s e r v i c e s can be viewed as the search f o r an optimal revenue from operations, assuming 9 t h a t output i s achieved at minimum c o s t . 2>3:2 A p r i c i n g model f o r government s e r v i c e s A b s t r a c t of p r i c i n g model This s e c t i o n presents a model f o r the .(second best) optimal p r i c i n g of government f e r r y s e r v i c e s . The aim i s t o a r r i v e at a p r i c i n g r u l e f o r economic e f f i c i e n c y . The model i s based on p a r t i a l e q u i l i b r i u m of f e r r y s e r v i c e s and r e l a t e d s e c t o r s . The o b j e c t i v e f u n c t i o n t o be maximised i s the net s o c i a l b e n e f i t of p u b l i c f e r r y operations. The model deals s p e c i f i c a l l y w i t h the t r a n s p o r t a t i o n of commercial v e h i c l e s . The o b j e c t i v e f u n c t i o n i s maximised subject t o the c o n s t r a i n t t h a t t r u c k i n g firms maximise t h e i r p r o f i t s . The model i n d i c a t e s t h a t economically e f f i c i e n t p r i c i n g i s achieved when the p u b l i c e n t e r p r i s e s e t s i t s p r i c e s above marginal cost t o the extent t h a t a competing p r i v a t e e n t e r p r i s e s e t s i t s p r i c e s above marginal cost. Since the costs of the p r i v a t e e n t e r p r i s e are u s u a l l y not known by p u b l i c Q . . . . . ^Baumol, W.J. and Bradford, D.F. "Optimal departures from marginal cost p r i c i n g . " Amer. Econ. Rev, 1970, 60, no. 3 , pp. 2 6 5 - 8 3 . - 2 7 -policymakers, the r u l e reduces to the f o l l o w i n g ( i n i g n o r -ance of p r i v a t e operators' c o s t s ) : set the p u b l i c e n t e r -p r i s e ' s p r i c e at a l e v e l which recovers a l l costs (both v a r i a b l e and f i x e d ) and which makes a reasonable r e t u r n on investment, w i t h an allowance f o r the e q u i v a l e n t of income tax, i . e . adopt p r i c i n g p r i n c i p l e s very s i m i l a r t o those of p r i v a t e e n t e r p r i s e . The m o d e l 1 0 The object of the model i s to derive a r u l e f o r the p r i c i n g behaviour of a p u b l i c e n t e r p r i s e i n the presence of p r i v a t e competition. The c r i t e r i o n which d i s t i n g u i s h e s the (second best) optimal p r i c i n g of the p u b l i c e n t e r p r i s e i s t h a t i t maximises the net s o c i a l b e n e f i t ( s o c i a l b e n e f i t minus s o c i a l cost) of i t s a c t i o n s . This i s what i s meant by economic e f f i c i e n c y and i t i s assumed t o be one of the ob-j e c t i v e s i n the o p e r a t i o n of government f e r r y s e r v i c e s (as i n the policymaker's o b j e c t i v e s s t a t e d i n s e c t i o n 2 : 1 ) . The p r i n c i p a l assumptions i n the model are t h a t the s o c i a l b e n e f i t of an o p e r a t i o n ( i n our case t r u c k i n g s e r v i c e s ) i s measured by the w i l l i n g n e s s t o pay f o r i t on the p a r t of the shippers The s o c i a l costs are measured by the expenditure of the e n t e r -p r i s e (net of t a x e s ) . The model cannot encompass other p o l i c y o b j e c t i v e s (e.g. r e d i s t r i b u t i o n of income, r e g i o n a l develop-ment) un l e s s they can be valued e x p l i c i t l y as a cost or 1 0 T h i s s e c t i o n i s h e a v i l y i n f l u e n c e d by chapter 3 of Turvey, Ralph. Economic A n a l y s i s and P u b l i c E n t e r p r i s e s . London, A l l e n and Unwin L i m i t e d , 1972. -2b-b e n e f i t . Since t h e i r value i s unknown, they are ignored at t h i s p o i n t ; i t i s assumed that the policymaker would weigh them l a t e r together w i t h the p o l i c y o b j e c t i v e of economic e f f i c i e n c y . The model deals w i t h a subsystem of the economy ( i t i s p a r t i a l ) , i n t e r n a l l y at e q u i l i b r i u m and at e q u i l i b r i u m w i t h the e x t e r n a l economy. I t admits the p o s s i b i l i t y t h a t the e x t e r n a l economy and the elements of the subsystem do not base p r i c e s on marginal c o s t . The model contains no e x p l i c i t time element. One of the requirements of the model i s t h a t i t should be u s e f u l and a p p l i c a b l e . I t should use q u a n t i t i e s which are e i t h e r known or e a s i l y guessed a t . The model must take the present operating environment of the f e r r y s e r v i c e as g i v e n . Those things which are not under the d i s c r e t i o n of the p u b l i c e n t e r p r i s e are not considered. Market r e l a t i o n s h i p s i n model F e r r y s e r v i c e s are an input i n t o Island-mainland t r u c k i n g s e r v i c e s . Trucking s e r v i c e s are themselves an input i n t o the t r a n s p o r t e d goods. A diagrammatic summary of market r e l a t i o n s h i p s appears i n Figure A. The d i s t i n c t i o n between the p u b l i c and separate p r i v a t e f e r r i e s has been maintained. The shippers are consumers' r e p r e s e n t a t i v e s and are taken to - 2 8 a -Flgure A MARKET RELATIONSHIPS AS USED IN PRICING MODEL INPUTS -29-behave on t h e i r behalf. Shippers' w i l l i n g n e s s t o pay f o r t r u c k i n g s e r v i c e s i s assumed t o r e f l e c t t h a t of the u l t i m a t e consumers of the shipped commodities. C o n c i s e l y , the t r u c k i n g s e r v i c e i s regarded as a f i n a l good which uses the i n t e r -mediate good of f e r r y s e r v i c e i n i t s production. The model i s constructed by c o n s i d e r i n g , f i r s t , the c o n d i t i o n f o r t r u c k e r s ' maximisation of p r o f i t s and, second, the c o n d i t i o n f o r maximisation of net s o c i a l b e n e f i t . These two c o n d i t i o n s are then r e c o n c i l e d t o give the p r i c i n g r u l e . N o t a t i o n P BQp p r i c e charged by the p u b l i c e n t e r p r i s e , B.C. F e r r i e s , t o t r u c k e r s f o r one u n i t of s e r v i c e . PCPR p r i c e charged by p r i v a t e f e r r y , C.P.R., t o t r u c k e r s f o r one u n i t of s e r v i c e Pk p r i c e of k (non-ferry) input t o t r u c k i n g s e r v i c e , such as labour, f u e l , e t c . Pt p r i c e charged by t r u c k e r s t o shippers f o r one u n i t of s e r v i c e QBCF e q u i l i b r i u m output l e v e l of B.C. F e r r i e s QCPR e q u i l i b r i u m output l e v e l of C.P.R. F e r r i e s e q u i l i b r i u m use of k t h (non-ferry) t r u c k i n g input e q u i l i b r i u m output l e v e l of t r u c k e r s mBCF marginal cost of B.C. F e r r y s e r v i c e (net of taxes) mCPR marginal cost of C.P.R. Fe r r y s e r v i c e (net of taxes) m k • marginal cost of (non-ferry) t r u c k i n g inputs -30-P r o f i t maximisation c o n d i t i o n f o r t r u c k e r s The t r u c k e r s are fre e t o choose how much they use the f e r r y s e r v i c e s . Consider the value t o a t r u c k e r of chang-i n g the q u a n t i t y of p u b l i c f e r r y s e r v i c e he purchases. The value of a u n i t change i s the consequent change i n the p r o f i t s of the t r u c k e r , i . e . , the change i n h i s revenues l e s s the change i n the cost of a l l other inputs which he purchases. Therefore, an increased purchase of one u n i t of p u b l i c f e r r y s e r v i c e i s valued a t : d ( ^ . ^ . | P kQ k) d QBCF k This can be r e - w r i t t e n as BCF d Q B c p dQ f i C p We assume t h a t t r u c k e r s w i e l d no monopsony power over the f e r r y operators and other s u p p l i e r s , and th a t the t r u c k i n g i n d u s t r y i s competitive, ^£CPR = °» ^ B C F = °' d ? k = 0 i . e . , t h a t d Q g c F , d Q B c p d Q B c p The e x p r e s s i o n (A) i s the marginal value t o a t r u c k e r of us i n g a d d i t i o n a l p u b l i c f e r r y s e r v i c e , dQ^ i s the a d d i t i o n a l output he achieves when he uses an a d d i t i o n a l input dQgQp most favo u r a b l y . d Q C p R and dQ k are the input savings r e s u l t i n g from the most favourable use of dQ f i C F ( i . e . dQ Cp R i s i m p l i c i t l y d Q B C F -31-n e g a t i v e ) . P r o f i t maximisation by a t r u c k e r r e q u i r e s t h a t the marginal value of h i s use of the f e r r y s e r v i c e be set equal t o the marginal cost of u s i n g i t . For the p u b l i c e n t e r -p r i s e , he w i l l s e t h i s usage such t h a t n d Q t „ d QCPR T d Q k _ „ t 7377"" "  PCPRHO- " t " P K H ? r " P b c f (B) d%CF d Q B C F k d QBCF This equation now describes the c o n d i t i o n i n which each t r u c k e r i s maximising h i s p r o f i t s . C o n d i t i o n f o r maximising net s o c i a l b e n e f i t S o c i a l b e n e f i t i s here measured by sh i p p e r s ' w i l l i n g -ness t o pay. S o c i a l costs are measured by the expenditure of the producing e n t e r p r i s e s . I f an a d d i t i o n a l u n i t dQ^Qp i s produced at marginal cost raBCF, the consequent increase i n t r u c k e r s * output w i l l be worth an amount P^dQ^ t o shi p p e r s . The s o c i a l cost of a c h i e v i n g t h i s s o c i a l b e n e f i t i s m B Cp together w i t h the change i n other t r u c k i n g i n p u t s , i n c l u d i n g p r i v a t e f e r r i e s . The l a t t e r i s gi v e n by the exp r e s s i o n raCPR d<^CPR + ^~ m k d < ^ k * T h e s o c i a l l v optimum c o n d i t i o n occurs when marginal b e n e f i t i s set equal t o marginal c o s t : P t d&t = mBCF + mCPR ^ CPR + | m k ^ k (C) BCF d Q B C F d QBCF R e c o n c i l i a t i o n of c o n d i t i o n s We r e q u i r e t h a t s o c i a l o p t i m a l i t y (equation (C)) -32-should be c o n s i s t e n t w i t h the most p r o f i t a b l e behaviour of t r u c k e r s . This i s achieved by combining the two expressions (B) and (C). S u b t r a c t i o n leads t o : PBCF = mBCF + ^CPR^CPR) £gcPR + J ^ P r t ^ k , n * d Q B C p * d Q B C p (D) This formula i n d i c a t e s t h a t the s e r v i c e s of the p u b l i c e n t e r -p r i s e should be p r i c e d at something other than marginal c o s t . I t s t a t e s t h a t , g iven the market r e l a t i o n s of f i g u r e A, second best optimal p r i c i n g d i c t a t e s t h a t the p r i c i n g of the good s u p p l i e d by p u b l i c e n t e r p r i s e should be f i x e d w i t h reference t o (a) the divergence between p r i c e and marginal cost of the other s u p p l i e r s t o t r u c k e r s .(the competing f e r r y and other t r u c k i n g inputs k) and (b) the extent t o which the f e r r y s e r v i c e s are s u b s t i t u t e s ( i n the e x p r e s s i o n dQ Cp R, which i s dQ B Cp i m p l i c i t l y negative) and the extent t o which other inputs are used (saved) by us i n g a d d i t i o n a l p u b l i c f e r r y s e r v i c e . / / The centre term on the r i g h t of (D) tends t o increase the excess of p B C F over m B C p when the f o l l o w i n g c o n d i t i o n s h o l d : ( i ) the f e r r y s e r v i c e s are s u b s t i t u t e s , i . e . , i n c r e a s i n g the supply of p u b l i c s e r v i c e decreases the e q u i l i b r i u m demand f o r p r i v a t e f e r r y s e r v i c e s and ( i i ) the competing s e r v i c e s are p r i c e s above t h e i r marginal ( s o c i a l ) c o s t . N e i t h e r of these two seem unreasonable f o r the case i n hand. The r i g h t hand term increases or decreases the excess of P B C F over m BQ F depending on whatever the inputs k are increased or reduced i n q u a n t i t y when more p u b l i c f e r r y s e r v i c e i s s u p p l i e d ( i . e . on whether the inputs k are comple-ments or s u b s t i t u e s t o p u b l i c f e r r y s e r v i c e ) . I f , f o r example, more motor f u e l i s - r e q u i r e d t o use the p u b l i c f e r r y s e r v i c e , t h i s w i l l tend t o increase the suggested excess of VQQJ? over rn^gp provided t h a t f u e l i s i t s e l f p r i c e d above marginal c o s t . In the absence of any knowledge about the costs i n v o l v e d i n the inputs k, we assume th a t p f c = m^ and the r i g h t hand term disappears. 2 * 3 » 3 Problems of i n t e r p r e t a t i o n and implementation of p r i c i n g  model One of the requirements of the model i s that i t should use inputs which are p r a c t i c a l ones i n the sense that they can be estimated u s i n g knowledge which might reasonably be expected t o be a v a i l a b l e t o government f e r r y a d m i n i s t r a t o r s . To what extent has t h i s requirement been f u l f i l l e d ? The d i f f i c u l t i e s f a l l i n t o two c l a s s e s . F i r s t , con-c e p t u a l d i f f i c u l t i e s a r i s e from the i n t e r p r e t a t i o n of the v a r i a b l e s which are t o be found i n the model and second, opera-t i o n a l problems a r i s e because of the omission of some f a c t s of l i f e . - 3 4 -I n t e r p r e t a t i o n of model v a r i a b l e s One of the f i r s t questions t o a r i s e i s : What i s meant by the output of the f e r r y system? S p e c i f i c a l l y , what are the u n i t s of output? The u n i t of output a f f e c t s the c a l c u l a t i o n of marginal costs nigQp and m Cp^« A l s o (depending on how the output u n i t i s defined) the a v a i l a b l e methods of changing the defined output c a p a c i t y of the f e r r y system are a l t e r e d . The d i f f i c u l t i e s a r i s e because of the i n d i v i s i b i l i t i e s of f e r r y operations; i t i s not p o s s i b l e t o send h a l f a s h i p or f o r i t t o t r a v e l h a l f a s a i l i n g . Capacity cannot be a l t e r e d t o s u i t f l u c t u a t i o n s i n demand, since t r a n s p o r t a t i o n cannot be s t o c k p i l e d . Given a s e r v i c e between two t e r m i n a l s i t s c a p a c i t y ( u n i t s as yet undefined) may be increased by making more frequent the s a i l i n g s between them, or by changing the s i z e of the shi p s (e.g. s t r e t c h i n g or jumboizing), or by i n c r e a s i n g the speed of the ships (which a l l o w s an increase i n frequency). Given, say a s e r v i c e between an i s l a n d and a mainland, the p o s s i b i l i t y a r i s e s of i n c r e a s i n g c a p a c i t y by changing t e r m i n a l l o c a t i o n . One u n i t of output which has the d e s i r a b l e p roperty of e x p r e s s i n g c a p a c i t y changes by a l l these methods i s the l i f t -o f f c a p a c i t y ( v e h i c l e - t r i p spaces per u n i t time between i s l a n d and mainland). But the l i f t - o f f c a p a c i t y can be changed only i n l a r g e steps (depending on the time s c a l e considered). The -35-model r e q u i r e s t h a t marginal costs of f e r r y operations be s p e c i f i e d so tha t a l l the conceptual problems of marginal c o s t i n g occur i n the model (see 2 J 3»1) . The model minimises the problem of choosing a re l e v a n t - r u n marginal cost f o r p r i c i n g purposes. I t does not s p e c i f y whether m B C F and m c p R are short or long run marginal c o s t s but merely says t h a t PBQF should exceed MBQF t o the extent t o which p^p^ exceeds mQpR. Given s i m i l a r cost s t r u c -t u r e s i n the two e n t e r p r i s e s , the r e l a t i o n between p B Q F and PCpR w i l l be maintained i r r e s p e c t i v e of the chosen run of m B C F and m c p R. The q u a n t i t y d Q B C F i s an increase i n output of the f e r r y s e r v i c e , but the model does not recognise e x p l i c i t l y t h a t t h i s dQ may be brought about o p e r a t i o n a l l y i n s e v e r a l d i f f e r e n t ways. Again, schedules may be a l t e r e d t o provide more s a i l i n g s , the p h y s i c a l c a p a c i t y of a v e s s e l may be a l t e r e d , route l e n g t h may be shortened, v e s s e l speed may be increased. A l l of these measures change the system's c a p a c i t y . The qu a n t i t y dQ^ i s the increase i n t r u c k e r s ' output ( t y p i c a l l y measured i n v e h i c l e t r i p s per day) r e s u l t i n g from t h i s change d Q B C F of f e r r y s e r v i c e . Yet the magnitude dQ^ v a r i e s w i t h the manner i n which d Q B C F i s provided. The supply of more frequent s a i l i n g s may r e s u l t i n economies i n t r u c k w a i t i n g times and reduce door-to-door t r u c k t r i p times. I t i s not c l e a r - J 5 0 -t h a t the supply of a l a r g e r v e s s e l on the same schedules would have an e q u i v a l e n t e f f e c t (unless i t i s by reducing the proba-b i l i t y t h a t the t r u c k f a i l s t o board a f u l l v e s s e l ) . I t i s conceivable t h a t a change i n schedule alone, which would not appear as an increase i n c a p a c i t y i n the u n i t s chosen f o r dQ B Cp, would f a c i l i t a t e an increase i n output of the t r u c k i n g i n d u s t r y . One example of t h i s might be the r e s c h e d u l i n g of some s e r v i c e s at n i g h t times, when the demand f o r drop t r a i l e r t r a n s p o r t a t i o n i s r e l a t i v e l y h i g h . This problem may be seen as one aspect of the d i f f i c u l t y of choosing a u n i t of output. Remarks i n a s i m i l a r v e i n may be made concerning the term dQ Cp R the q u a n t i t y of p r i v a t e f e r r y s e r v i c e which the t r u c k e r would be able t o save i f he used the newly provided q u a n t i t y dQ of p u b l i c f e r r y s e r v i c e . Again, the dQgp R depends on the "nature" of the d Q B C p as w e l l as on i t s s i z e . Model omission of f a c t s of l i f e A number of r e a l i t i e s which were e i t h e r assumed away or not recognised must be mentioned because they make dangerous inroads i n t o the v a l i d i t y of the model. I t was assumed t h a t the t r u c k i n g i n d u s t r y e x e r t s no monopsony power over the f e r r y operators, p u b l i c and p r i v a t e . This may not be t r u e . The e x i s t e n c e of some form of agreement between a major t r u c k i n g f i r m and B.C.C.S. w i l l be mentioned l a t e r (probably i n v o l v i n g guaranteed numbers of v e h i c l e s i n -37-r e t u r n f o r favourable r a t e s ) . Economic theory cannot accom-modate the terms of such agreements i f they are not known. In a d d i t i o n , the p u b l i c f e r r y system has r e l i n q u i s h e d much drop t r a i l e r t r a f f i c t o B.C.C.S. because of o p e r a t i n g headaches. When the system i s a f f e c t e d by agreements such as these, which a r i s e from the d i f f i c u l t i e s caused by r a p i d expansion of demand or u n c e r t a i n t y of the f u t u r e , e q u i l i b r i u m models are s e v e r e l y disadvantaged and one i s thrown i n t o u n c e r t a i n t y and u n p r e d i c t -a b i l i t y . A f u r t h e r p o i n t i s t h a t the t r u c k e r s may maximise t h e i r p r o f i t s as assumed but under the c o n s t r a i n t s imposed by the P u b l i c U t i l i t i e s Commission (Motor Branch). Only the For - H i r e t r u c k e r s are r e g u l a t e d . The p r i v a t e l y owned f i r m s are of course not p r i c e - r e g u l a t e d when they are used t o t r a n s -p o r t the owner's goods. However, t h e i r behaviour w i l l s t i l l approximate t o what i t would be i n a competitive market as i n the model. One important inadequacy of the model i s t h a t i t does not recognise the f a c t the B. C. F e r r i e s serves more than one t r a n s p o r t a t i o n market. I t assumes, as shown i n Figu r e A, t h a t B. C. F e r r i e s has a s i n g l e output, which i s i t s s e r v i c e t o commercial v e h i c l e s . The model cannot encompass the e f f e c t s of changing B.C. F e r r i e s commerical v e h i c l e s e r v i c e s upon other t r a f f i c types (e.g. commuters or t o u r i s t s ) . I f the e f f e c t s on these other groups are to be in c l u d e d , i t must be -38-as an e x t e r n a l i n f l u e n c e on the p r i c i n g r u l e of the model. A f u r t h e r r e a l - w o r l d problem i s the seeking out of the q u a n t i t i e s m^pR the (marginal) costs of the competing f e r r y o p e r a t i o n s . While i t .is true that a reasonable guess might' be made, d e f i n i t i v e i n f o r m a t i o n may be exceedingly hard t o o b t a i n , s i n c e i t may not be i n the operators' i n t e r e s t s t o r e v e a l i t . Usefulness of model; summary A model, which provides a r u l e f o r the determination of the p r i c e s charged by a p u b l i c e n t e r p r i s e i n c o m p e t i t i o n w i t h p r i v a t e ones, has been presented, together w i t h a d i s c u s -s i o n of i t s l i m i t a t i o n s and d i f f i c u l t i e s . I t may be t h a t these l i m i t a t i o n s and d i f f i c u l t i e s render i n v a l i d s t r i c t a p p l i c a t i o n of the model's p r i c i n g r u l e . But the model does suggest an approach t o the problem of p r i c e determination. This approach may be modified t o accommodate the f a c t o r s not i n c l u d e d i n the model. The model can be_ i n t e r p r e t e d as g i v i n g t h e o r e t i c a l support to the a s s e r t i o n t h a t a p u b l i c e n t e r p r i s e should be operated j u s t as a p r i v a t e e n t e r p r i s e v/hen i n competition. In the s p e c i a l case where ( i ) cost s t r u c t u r e s of the two enter-p r i s e s are s i m i l a r and they are e q u a l l y e f f i c i e n t , ( i i ) t h e i r outputs are p e r f e c t s u b s t i t u t e s , economic welfare i s maximised -39-i f the p u b l i c e n t e r p r i s e operates j u s t as a p r i v a t e e n t e r -p r i s e ( i . e . covering f i x e d and long-term costs i n revenues and earning a s a t i s f a c t o r y ( a f t e r tax) r e t u r n on c a p i t a l ) . This model i s u s e f u l because i t provides a c r i t e r i o n ( a l b e i t r a t h e r broad and i l l - d e f i n e d ) of economic e f f i c i e n c y f o r examining and comparing a l t e r n a t i v e commercial v e h i c l e p o l i c i e s . I t suggests t h a t f o r B.C. F e r r i e s economically e f f i c i e n t p r i c i n g of commercial v a h i c l e s e r v i c e s i s achieved by s e t t i n g p r i c e s equal t o the marginal cost of p r o v i d i n g f e r r y space p l u s an increment t o cover f i x e d costs and t o make a reasonable r e t u r n on c a p i t a l investment. This i s the c l o s e s t approach which can be made t o economically e f f i c i e n t p r i c i n g i n ignorance of the competing p r i v a t e operator's c o s t s . C e r t a i n e f f e c t s of commercial v e h i c l e p o l i c i e s are e x t e r n a l t o the model and must be considered separately? these are n o t a b l y the e f f e c t s of the p o l i c y on other types of B.C. F e r r i e s t r a f f i c and the i m p l i c a t i o n s f o r f u t u r e development (or any of the c o n s i d e r a t i o n s mentioned i n s e c t i o n 2:2:2). These e x t e r n a l c o n s i d e r a t i o n s w i l l t h e r e f o r e be separated when a l t e r -n a t i v e commercial v e h i c l e p o l i c i e s are discussed i n chapter 5« Some general examples of these s o c i a l or p o l i t i c a l c o n s i d e r a t i o n s are mentioned i n the s e c t i o n immediately f o l l o w i n g ; others w i l l emerge from the d i s c u s s i o n of past developments and from the d e t a i l s of present day ope r a t i o n s . -40-2i4 Some p o l i c y c o n s i d e r a t i o n s and o p e r a t i o n a l l i m i t a t i o n s The f o l l o w i n g are examples of p o l i c y c o n s i d e r a t i o n s and o p e r a t i o n a l l i m i t a t i o n s which are not e a s i l y i n c l u d e d i n c r i t e r i a f o r economic e f f i c i e n c y but which may be weighed by policymakers i n choosing a p a r t i c u l a r p o l i c y . 1 1 Development p o l i c i e s The d e s i r a b i l i t y of promoting r e g i o n a l u n i t y or d e c e n t r a l i s a t i o n may a f f e c t the s e l e c t i o n of rat e s t r u c t u r e s and l e v e l s of s e r v i c e . For example, a government p o l i c y t o develop Vancouver I s l a n d as a t o u r i s t a t t r a c t i o n might be implemented by o f f e r i n g t o u r i s t f a r e discounts on B. C. F e r r i e s . A p o l i c y of i n d u s t r i a l development might include the re d u c t i o n of f r e i g h t r a t e s . R e d i s t r i b u t i o n of income The p o s s i b i l i t y of u s i n g the r a t e s t r u c t u r e t o r e d i s t r i b u t e income i n s o c i e t y may lead to i t s m o d i f i c a t i o n . There are arguments on both s i d e s . I t could be argued that t h i s r e d i s t r i b u t i o n i s the f u n c t i o n of general p u b l i c finance Some of these c o n s i d e r a t i o n s are mentioned i n : Vi c k r e y , W i l l i a m . "Some i m p l i c a t i o n s of marginal cost p r i c i n g f o r p u b l i c u t i l i t i e s . " Amer. Scon, Rev., Sup-plement, v o l 4 5 , ( 1 9 5 5 ) , no. 2., pp. 605-20. A l s o i n Munby, Denys (ed.). Transport, Hammondsworth, England, Penguin Books, 1 9 6 8 . -i+l-Cthe t a x a t i o n department) and that i t should not be usurped: the f u n c t i o n can be performed more e f f i c i e n t l y by the t a x a t i o n department and there are already too many co n s i d e r a t i o n s t o be met i n s e t t i n g the r a t e s t r u c t u r e . The opposing argument sug-gests t h a t i f m o d i f i c a t i o n s t o the rate s t r u c t u r e can be shown t o have d e s i r a b l e r e d i s t r i b u t i v e e f f e c t s , i t w i l l be d e s i r a b l e t o modify i t t o some extent. The r e g r e s s i v e nature of p r i c e s increases f o r the n e c e s s i t i e s of l i f e i s w e l l recog-n i s e d . I t could be argued that i f the s e r v i c e which B.C. F e r r i e s provides i s such a n e c e s s i t y of l i f e ( p a r t i c u l a r l y f o r I s l a n d r e s i d e n t s ) then a f a r e increase would be r e g r e s s i v e . Notions of e q u i t y Popular notions of e q u i t y may be considered t o be v a l i d i n t h e i r own r i g h t , i r r e s p e c t i v e of c o n f l i c t w i t h s t r i c t a p p l i c a t i o n of economic e f f i c i e n c y . Though theory may c a l l f o r s u b s t a n t i a l l y higher f a r e s at peak times, t h i s could be considered i n e q u i t a b l e since (through congestion) the l e v e l of s e r v i c e d e t e r i o r a t e s at such times. A f u r t h e r example might be the apparent u n f a i r n e s s of a d i f f e r e n t i a l between the f a r e s t o B.C.-registered v e h i c l e s and out-of-province v e h i c l e s . Though theory might c a l l f o r such d i s c r i m i n a t i o n , the apparent i n e q u i t y of the s i t u a t i o n could l e a d to the m o d i f i c a t i o n of the a p p l i c a t i o n of theory. -42-Complexity l i m i t a t i o n The a b i l i t y of the customer t o respond i n t e l l i -g e n t l y t o the rat e s t r u c t u r e i s a l i m i t a t i o n on i t s complexity. While frequent users (such as t r u c k i n g companies on B.C. F e r r i e s ) can respond t o complex r a t e s t r u c t u r e s and operat i n g p r a c t i c e s , i r r e g u l a r users (such as t o u r i s t s ) cannot be expected t o do so. A case i n p o i n t i s provided by a 1972 B.C. F e r r i e s survey which i n d i c a t e d t h a t 70$ of passengers r e c e i v i n g a mid week 50$ fare r e d u c t i o n were not aware of the f a c t . How much a d v e r t i s i n g and p u b l i c i t y can a f f e c t user awareness of r a t e s i s not c l e a r . A d m i n i s t r a t i v e e f f o r t The cost of determining, a d m i n i s t e r i n g and p u b l i c i s i n g the r a t e s and s e r v i c e s i s a l i m i t a t i o n which d e c l i n e s i n impor-tance as the volume and u n i t of s a l e become l a r g e r . In the case of B.C. F e r r i e s , t h i s l i m i t a t i o n i s l e s s severe than others mentioned here. P r i o r commitments F i n a l l y , the implementation of measures may be i n -flue n c e d b y . p r i o r commitments. In the case of B r i t i s h Columbia, f o r example, the (then) M i n i s t e r of Highways has s t a t e d t h a t 12 there w i l l be no fare increase t h i s year (1973)• In a d d i t i o n , The V i c t o r i a Times, March 7, 1973--43-one e l e c t i o n promise was the t r i a l of ni g h t runs on B.C. 13 F e r r i e s . J I f such commitments are considered b i n d i n g , they are a c o n s t r a i n t on the s e r v i c e s and t a r i f f s which may be chosen. Summary of chapter 2 This chapter provides a gen e r a l framework f o r the a n a l y s i s of s p e c i f i c p o l i c i e s on B.C. F e r r i e s . The present system of f e r r i e s i s an unregulated, mixed p u b l i c / p r i v a t e sys-tem. The chapter showed tha t the p o l i c y v a r i a b l e s open t o the government i n t h i s s i t u a t i o n are the p r i c e s and s e r v i c e l e v e l s of the p u b l i c c a r r i e r . The a n a l y s t ' s task i s l i m i t e d t o d e s c r i b i n g the e f f e c t s of . a l t e r n a t i v e p o l i c i e s and comparing them on grounds of pure economic e f f i c i e n c y . I f other e x t e r n a l s o c i a l and p o l i t i c a l o b j e c t i v e s can be i d e n t i f i e d , the a n a l y s t can u s e f u l l y describe the i m p l i c a t i o n s of a l t e r n a t i v e p o l i c i e s f o r these o b j e c t i v e s . This chapter presents a model f o r econ-o m i c a l l y e f f i c i e n t p r i c i n g of B.C. F e r r i e s commercial v e h i c l e s e r v i c e s which i n d i c a t e s t h a t B.C. F e r r i e s should f o l l o w p r i c i n g p r i n c i p l e s s i m i l a r to those of competitive p r i v a t e commercial-v e h i c l e f e r r y operators. F i n a l l y , the chapter discusses some examples of s o c i a l and p o l i t i c a l c o n s i d e r a t i o n s which may modify the economic optimum. 1 3The V i c t o r i a n ( V i c t o r i a ) , March 28, 1973 -44-Apperidix t o Chapter 2 A note on the equivalence of p r i c e and s e r v i c e l e v e l s In s e v e r a l p a r t s of t h i s t h e s i s , the noti o n s of p r i c e and s e r v i c e l e v e l are given equal s t a t u s . The purpose of t h i s appendix i s t o c l a r i f y the reasons f o r t h i s . The n o t i o n of s e r v i c e l e v e l i s used here as a "cat c h -a l l " term f o r a l l the f a c t o r s (other than d o l l a r p r i c e ) which determine the e q u i l i b r i u m demand and supply p o i n t of the q u a n t i t y of t r a n s p o r t a t i o n and which are sub j e c t t o the d i s -c r e t i o n of s u p p l i e r s . I t can be thought of as the non-monetary p r i c e at which s e r v i c e i s demanded or s u p p l i e d t o an i n d i v i d u a l . G e n e r a l l y , the l e v e l of s e r v i c e s u p p l i e d t o consumers increases as s e r v i c e becomes more convenient or pleasant to use (e.g. by increased frequency, b e t t e r scheduling, more i n - t r a n s i t amenities, e t c . ) . I t i s important t o d i s t i n g u i s h t h i s use of the term " l e v e l of s e r v i c e " from the r a t h e r d i f f e r e n t and s i m p l e r meaning of q u a n t i t y or volume of s e r v i c e s u p p l i e d i n aggregate. At any giv e n d o l l a r p r i c e , an increase i n the q u a n t i t y (e.g. frequency increase or congestion decrease) of t r a n s p o r t a t i o n s u p p l i e d increases the l e v e l of s e r v i c e perceived by each i n d i v i d u a l u s er and encourages, i n general, the marginal user t o u t i l i s e the s e r v i c e . For the s u p p l i e r o p e r a t i n g at a gi v e n volume of -45-supply, i n c r e a s i n g the l e v e l of s e r v i c e i n c r e a s e s h i s costs so t h a t he i s w i l l i n g t o supply the same volume only at a hi g h e r p r i c e . On the demand s i d e , i n d i v i d u a l s are i n ge n e r a l w i l l i n g t o pay more f o r a higher l e v e l of s e r v i c e . These i n t e r r e l a t i o n s are c o n v e n i e n t l y presented i n g r a p h i c a l form as a three-dimen-s i o n a l supply/demand equation (Figure B). The l e v e l of s e r v i c e a x i s p o i n t s i n the d i r e c t i o n of worsening l e v e l of s e r v i c e t o emphasise the s i m i l a r i t y of the e f f e c t of i n c r e a s i n g the p r i c e t o the consumer or decreasing the l e v e l of s e r v i c e he perceives ( i . e . i n c r e a s i n g the non-monetary p r i c e which i s imposed upon him). I t i s t h e r e f o r e convenient t o regard p r i c e and s e r v i c e l e v e l as simultaneous determinants of e q u i l i b r i u m volume of t r a n s p o r t a t i o n . The demand and supply surfaces are seen t o i n t e r s e c t at a l i n e ; i . e . there i s no s i n g l e p o i n t where demand and supply are i n e q u i l i b r i u m ; there are many e q u i l i b r i u m p o i n t s . A s i n g l e s u p p l i e r (such as a government f e r r y operator) may t h e r e f o r e choose t o f i x , say, l e v e l of s e r v i c e as a matter of p o l i c y and adjust p r i c e t o c o n t r o l demand. A l t e r n a t i v e l y , he may choose t o f i x p r i c e as a p o l i c y v a r i a b l e and t o c o n t r o l demand by a d j u s t i n g l e v e l of s e r v i c e . To t r y t o set both may be i n c o n s i s t e n t w i t h the economics of the s i t u a t i o n e.g. t o set high l e v e l of s e r v i c e and low p r i c e ( l y i n g o f f the e q u i l i b r i u m l i n e ) w i l l r e q u i r e a subsidy. F I G U R E B . E Q U I V A L E N C E O F P R I C E A N D S E R V I C E L E V E L A S P O L I C Y V A R I A B L E S price to individual level of service to individual (decreasing) line of equilibrium X, demand and supply solutions (no unique solution exists unless one of price or level of service is fixed) volume of quantity of transportation (e.g. in vehic spaces/day) -46-In summary, i t has been argued t h a t i t i s u s e f u l t o regard p r i c e and s e r v i c e l e v e l as co-determinants of e q u i l i b r i u m demand and supply; t h i s approach h i g h l i g h t s the s i g n i f i c a n c e of both p r i c e and s e r v i c e l e v e l as p a r a l l e l p o l i c y v a r i a b l e s . -47-CHAPTER 3 A BACKGROUND TO PRESENT FERRY OPERATIONS -48-3»1 F e r r y t r a n s p o r t a t i o n 3«'l8l I n t r o d u c t i o n : the fe a t u r e s of f e r r y t r a n s p o r t a t i o n L i t e r a t u r e about f e r r y operations i n the province, or i n . g e n e r a l , i s sparse. This chapter discusses the gene r a l c h a r a c t e r i s t i c s of f e r r y t r a n s p o r t a t i o n and presents an h i s -t o r i c a l account of f e r r y operations i n the pro v i n c e . The purpose i s t o i d e n t i f y themes or trends which are s i g n i f i c a n t t o the present. These are o u t l i n e d i n the f i n a l s e c t i o n of the chapter. Sometimes the term " f e r r y " i s used t o i n d i c a t e o n l y the v e s s e l used i n f e r r y s e r v i c e , e x c l u d i n g t e r m i n a l and a n c i l -l a r y f a c i l i t i e s . In t h i s t h e s i s the term w i l l be used more g e n e r a l l y t o include a l l f a c i l i t i e s of f e r r y s e r v i c e o p e r a t i o n . The term w i l l be used t o r e f e r t o s e r v i c e s by v e s s e l s which are ( i ) r e g u l a r l y scheduled and ( i i ) s h o r t - h a u l ( c r o s s - r i v e r or cr o s s - l a k e ) or medium ( c o a s t a l or i s l a n d ) . Considered t h i s way, f e r r y t r a n s p o r t a t i o n has d i s -t i n c t f e a t u r e s , d i f f e r i n g from other means of t r a n s p o r t a t i o n i n both o p e r a t i n g and cost c h a r a c t e r i s t i c s . The r a t i o of oper a t i n g t o c a p i t a l costs of a f e r r y s e r v i c e i s r e l a t i v e l y l a r g e compared wi t h t h a t of a bridge or t u n n e l f a c i l i t y (a p o s s i b l e s u b s t i t u t e ) . The d i f f e r i n g cost s t r u c t u r e s favour f e r r y t r a n s p o r t a t i o n at lower t r a f f i c volumes, while the -49-bridge/tunnel a l t e r n a t i v e becomes more a t t r a c t i v e at higher throughput. Wages, f u e l , maintenance and depreciation are the p r i n c i p a l components of f e r r y operating expense. For bridges and tunnels these items are generally e i t h e r less ( r e l a t i v e to c a p i t a l cost) or zero. The physical space available f o r accommodating t r a f f i c (rather than weight capacity) is the l i m i t on f e r r y capacity. This i s r e f l e c t e d i n the common practice of charging vehicles by length rather than by weight. Only railways are subject to a space constraint of comparable severity; on other modes i t i s more often complex combination df the physical size and weight of the transported goods. A further difference l i e s i n the recovery of c a p i t a l assets. Highway, r a i l and f e r r y modes a l l carry vehicular t r a f f i c . Highway c a p i t a l investment i s almost e x c l u s i v e l y a sunk cost (since i t cannot be recovered i n removal of the f a c i l i t y ) . For f e r r i e s not a l l c a p i t a l costs are sunk. The only non-recoverable f e r r y c a p i t a l costs are those of the terminal and a n c i l l a r y f a c i l i t i e s ; the depreciated value of vessels can normally be recovered by sale or by use on other routes. F e r r i e s , i n common with other marine and airborne transportation, possess a v e r s a t i l i t y which road, r a i l and pipeline do not. It i s acknowledged that t h i s d i s t i n c t i o n a r i s e s p a r t l y from the physical nature of the modes and p a r t l y from the conventional conception of what i s a mode. When l o c a l -50-demand f a l l s , f e r r i e s can c l a i m a higher p r o p o r t i o n of escap-able t o inescapable costs than can r a i l w a y s or highways. The r i g h t of way i s e s s e n t i a l l y f r e e so tha t c a p i t a l costs are r e l a t i v e l y i n s e n s i t i v e t o dis t a n c e s and routes t r a v e l l e d . Only when l a r g e r d i s t a n c e s or s p e c i a l routes d i c t a t e s t u r d i e r v e s s e l s or a d d i t i o n a l n a v i g a t i o n a l a i d s do c a p i t a l costs i n -crease. This p o i n t i s laboured because i t i s s i g n i f i c a n t when f e r r i e s and highways, or f e r r i e s and r a i l w a y s , are operated and financed under the same a u t h o r i t y . 3:It2 F e r r i e s as an extension of highways or r a i l w a y s Despite the d i f f e r e n c e s i n the c h a r a c t e r i s t i c s of highways or r a i l w a y s and f e r r i e s , i t i s common (both conceptu-a l l y and a d m i n i s t r a t i v e l y ) t o regard f e r r i e s as an extension of highways or r a i l w a y s . Given two centres of p o p u l a t i o n and the requirement t h a t they be l i n k e d , i t i s a common step to assign, r e s p o n s i b i l i t y f o r the li n k a g e t o a s i n g l e a u t h o r i t y , whether over land or land and water. . The Washington State f e r r y system i s c u r r e n t l y run under the T o l l Bridge A u t h o r i t y (an agency of the State Highway Commission). The B.C. Govern-ment-owned f e r r i e s were ( u n t i l r e c e n t l y ) operated under a d i v i s i o n of the Department of Highways. 1 "'"Past a d m i n i s t r a t i o n of B.C. F e r r i e s was under the f o l l o w i n g a u t h o r i t i e s -I960 t o March 1964....B.C. T o l l Highways and Bridges A u t h o r i t y March 1964 - Feb. I968..B.C. F e r r y A u t h o r i t y Feb. 1968 to May 1973...Ferries D i v i s i o n , Dept. of Highways May 1973 t o date........Department of Transport and Com-munications -51-This "extension" a t t i t u d e may be seen elsewhere. In New Brunswick there i s no user charge, d i r e c t l y a p p l i e d , f o r bridges or c r o s s - r i v e r f e r r i e s . For the East Coast Canadian N a t i o n a l Railway f e r r y s e r v i c e s , the net opera t i n g p r o f i t or d e f i c i t i s c a l c u l a t e d by t r e a t i n g the f e r r y as a continuous r a i l l i n k and basing the r e l e v a n t t a r i f f s on the average r a i l r a t e per mile over the whole A t l a n t i c Region. The f e r r y i s deemed t o be p a r t of the Canadian N a t i o n a l Railway so t h a t t a r i f f s and charges f o r the water haul are subject t o p the g e neral r e g u l a t i o n s of the Railway A c t. 3*1:3 F e r r i e s as a c o n s t i t u t i o n a l requirement The importance of f e r r i e s as communication l i n k s i s emphasised by t h e i r place as c o n s t i t u t i o n a l requirements of Canadian c o n f e d e r a t i o n , both i n e a r l y and more recent times. The East Coast f e r r y s e r v i c e s are p a r t l y maintained t o t h i s day by the Government of Canada under these requirements. Upon the Act of Union w i t h Canada i n 1948 the Newfoundland Railway, together w i t h i t s steamship and other s e r v i c e s , became the pr o p e r t y of the Government of Canada and the C.N.R. was made 2 • The Economist I n t e l l i g e n c e U n i t , A t l a n t i c Provinces T r a n s p o r t a t i o n Study, Volume VI, Mainland-Newfoundland s e r v i c e s - 1. Queen's P r i n t e r , Ottawa,J&67. -52-responsible f o r operating and maintaining i t s services. A guaranteed f e r r y service was a condition of the admission of Prince Edward Island into the Union i n 1873: the Dominion Government s h a l l assume and defray a l l the charges f o r the following services e f f i c i e n t Steam Service f o r the conveyance of mails and passengers, to be established and maintained between the Island and the mainland of the Dominion, Winter and Summer, thus placing the Island i n continuous communication with the I n t e r - c o l o n i a l Railway and the railway system of the Dominion. . . . " 3 S i m i l a r l y , upon the admission of B r i t i s h Columbia i n 18?1: ". . . the Dominion w i l l provide an e f f i c i e n t mail service, f o r t n i g h t l y , by steam communication between V i c t o r i a and San Francisco, and twice a week between V i c t o r i a and Olympia, the vessels to be adapted f o r the conveyance of f r e i g h t and passengers. . ."4 Evidently, the importance of f e r r i e s as a part of Canadian infrastructure has long been recognized. While a i r transportation i s now an a d d i t i o n a l means of communication with land-inaccessible communities, i t i s no substitute f o r f e r r y transportation; the p o t e n t i a l volume of air-shipped goods Order of Her Majesty i n Council Admitting Prince Edward Island into the Union, June 2 6 , 1 8 7 3 * Revised Statutes of Canada 1 9 7 0 , Appendix p . 2 9 1 . Order of Her Majesty i n Council Admitting B r i t i s h Columbia into the Union, May 1 6 , I87I. Revised Statutes of Canada 1 9 7 0 , Appendix p.2 7 9 . -53-being those of r e l a t i v e l y high cost of and low bulk/weight, i s small. Technology does not promise any immediate change i n t h i s s i t u a t i o n . For communities which are inaccessible by land, commerce and s u r v i v a l i t s e l f depend upon regular surface transportation services across water, i . e . they depend upon the services of a f e r r y system. - 5 4 -3«2 An H i s t o r i c a l P e r s p e c t i v e 3»2:1 Pre-1958; "before the government i n i t i a t i v e I t i s only comparatively r e c e n t l y t h a t the Govern-ment of B r i t i s h Columbia has p a r t i c i p a t e d i n the oper a t i o n of f e r r i e s ; p r i o r t o 1961, the i n t e r n a l water t r a n s p o r t a t i o n needs of the province had been served e n t i r e l y by p r i v a t e l y operated s e r v i c e s . A review of the h i s t o r y of f e r r y operations i n the province and i n the U.S. North West y i e l d s some i n t e r e s t i n g c o n t r a s t s , p a r a l l e l s and precedents f o r the present B r i t i s h Columbia F e r r i e s . E a r l y h i s t o r y A system of r a i l w a y bridges had been envisaged as a s o l u t i o n t o the t r a n s p o r t a t i o n problems of the of f s h o r e i s l a n d s of B.C. as f a r back as 186?. The Canadian P a c i f i c Railway (the c o n s t r u c t i o n of which was a c o n d i t i o n of B r i t i s h Columbia's e n t r y i n t o the Union i n 1871) was t o terminate on Vancouver I s l a n d at Esquimalt. A water c r o s s i n g had been proposed f o r the north end of Vancouver I s l a n d where bridges 0 could be b u i l t . This p l a n d i d not m a t e r i a l i s e since the roughness of the province's t e r r a i n d i c t a t e d a more s o u t h e r l y r a i l route on the mainland. The I s l a n d became e n t i r e l y depend-ent on f e r r i e s f o r i t s communication w i t h the mainland. •^Cadie.ux,. H. and G r i f f i t h s , G. Dogwood F l e e t ; the s t o r y of  the B r i t i s h Columbia F e r r y A u t h o r i t y from 1953. Nanaimo, Cadieux and G r i f f i t h s L t d . , 196?. -55-Developments i n Washington State An examination of events d i r e c t l y to the south i n the northwest of Washington State reveals developments which were to be followed i n B r i t i s h Columbia. The geography of the state poses problems of transportation s i m i l a r to those found.in B r i t i s h Columbia. For some f i f t y years the transpor-t a t i o n of goods and people on Puget Sound was effected by what i s a f f e c t i o n a t e l y known as the Mosquito Fleet, a varied c o l l e c -t i o n of vessels which maintained regular schedules under con-d i t i o n s of f i e r c e competition. By the 1920's the use of the automobile required changes i n f e r r y operation, f o r most of the Mosquito Fleet steamers could not accommodate trucks and automobiles, and many of the operators went out of business. The market was dominated by a well-established eastern concern, the Black B a l l Line, which operated the Puget Sound Navigation Company and set up a B r i t i s h Columbian subsidiary. Demand f o r transportation grew r a p i d l y . A f t e r the second World War the company's course was stormy; using d e t e r i o r a t i n g vessels, i t was b a t t l i n g against the demands of labour on the one hand, demanding more pay, and those of government, demanding more service, on the other. At one time the owner t r i e d to win a point by shutting down the whole Puget Sound system f o r eight days. An overwhelming demand arose f o r the State to take over, and i n 1951 the l e g i s l a t u r e authorised purchase of the Company's i n t e r e s t s . ^ Wegg, Talbot. "The sweet seagoing buses of Seattle", City, 1971, V .5 , no. 3 (May-June) pp.49-51. -56-The t w e n t i e t h century i n B.C. The Union Steamship Company of B r i t i s h Columbia, L t d . served the coast e x t e n s i v e l y . Union was in c o r p o r a t e d i n 1889 and was a major c a r r i e r i n the province u n t i l the mid-1950's. Union's s t a t e d p o l i c y was " t o extend so as t o take .in a l l B.C. Coast p o r t s . " ' Together w i t h the Black B a l l L i n e and the Canadian P a c i f i c Railway's B r i t i s h Columbia Coast Steamship Service (B.C.C.S.), Union served the needs of the province without major upset u n t i l the a c c e l e r a t i o n of postwar development. The main s e r v i c e s t o Vancouver I s l a n d r e l i e d on miniature ocean l i n e r s , v e s s e l s w i t h o p e r a t i n g and cost c h a r a c t e r i s t i c s which became inadequate under postwar c o n d i t i o n s of s w e l l i n g demand f o r the t r a n s p o r t a t i o n of high-way v e h i c l e s . The e a r l y 1950's saw r a p i d cargo f l e e t expansion f o r the Union Company but s e v e r a l f a c t o r s eroded the passenger t r a f f i c being c a r r i e d , p a r t i c u l a r l y on longer hauls. Expanding a i r " s e r v i c e s , which had secured n e a r l y a l l the Queen C h a r l o t t e I s l a n d s passenger t r a f f i c , became s e r i o u s competition. Passengers were o b l i g e d t o use the a i r l i n e s when the company's e n t i r e coast operations were strike-bound f o r two months a f t e r the breakdown- of n e g o t i a t i o n s w i t h the Seafarer's I n t e r n a t i o n a l 'Union Steamship Company L i m i t e d . Our C o a s t a l T r i p s . Van-couver, B.C., Sun P u b l i s h i n g Co., L t d . 1923, p.32 - 5 7 -Union. In l a t e 1 9 5 6 , Black B a l l r e placed the Union Company on i t s run t o Bowen I s l a n d . At the beginning of 1 9 5 7 the company was s t i l l o p e r a t i n g ten v e s s e l s on r e g u l a r coast s e r v i c e s but was b a r e l y able t o meet i n c r e a s i n g c o s t s . S t i f f e r competition on main cargo routes, d e c l i n i n g passenger revenues and the l a c k of economical f l e e t replacements con-t r i b u t e d t o the company's d o w n f a l l . N e g o t i a t i o n s t o increase f e d e r a l s u b s i d i e s on Union routes broke down and the d e c i s i o n was made t o withdraw from subsidy and d i s c o n t i n u e passenger s e r v i c e s . Cargo s e r v i c e s continued u n t i l January 1 9 5 9 when the a s s e t s of the company were s o l d t o i t s e r s t w h i l e competitor, 8 Northland N a v i g a t i o n . Black B a l l and C.P.R. were a l s o e x p e r i e n c i n g d i f f i -c u l t i e s . A c r i s i s occurred i n 1 9 5 8 , when the employees of B.C.C.S. s t r u c k f o r more pay and were j o i n e d i n sympathy by those of Black B a l l . The B r i t i s h Columbia cabinet invoked the C i v i l Defence Act which allowed the government to take posses-s i o n of, and use the property and undertakings of, the Black B a l l F e r r i e s L t d . , f o r such periods as might appear t o be necessary. Black B a l l employees s t r u c k again i n defiance of Rushton, Gerald. The Union Steamship Company of B r i t i s h  Columbia. A Short H i s t o r y , in Greene, Ruth. P e r s o n a l i t y  Ships of B r i t i s h Columbia, Marine Tapestry P u b l i c a t i o n s L t d . , West Vancouver, B.C., 1 9 6 9 . -58-the a c t and ignored an i n j u n c t i o n t o r e t u r n t o work. Simultaneously, the Premier announced th a t the government would e s t a b l i s h i t s own f e r r y s e r v i c e t o Vancouver I s l a n d and t h a t work would s t a r t f o r t h w i t h . "The Government of B r i t i s h Columbia i s determined t h a t , in-the f u t u r e , f e r r y connections between Vancouver I s l a n d and the Mainland s h a l l not be subject e i t h e r t o the whim of union p o l i c y nor t o the i n d i f f e r e n c e of f e d e r a l agencies."9 3:2;2 Post-1958t a f t e r the government i n i t i a t i v e Reasons and immediate e f f e c t s of e n t r y Government e n t r y i n t o the f e r r y business was scheduled f o r the summer of I960 when a s e r v i c e from Tsawwassen t o Sidney ( f o r V i c t o r i a ) was planned. Two v e s s e l s of the r o l l -on r o l l - o f f type were b u i l t i n p r o v i n c i a l shipyards and t e r m i n a l f a c i l i t i e s were constructed. In an apparent l a s t - d i t c h attempt t o a v o i d d i r e c t competition w i t h the government s e r v i c e Captain Peabody of Black B a l l made a l t e r n a t i v e proposals t o the government i n January I960. He o f f e r e d e i t h e r t o s e l l h i s f l e e t t o the government f o r $18M or t o buy the fu t u r e government s e r v i c e . The government was i n t e r e s t e d i n n e i t h e r 5 ; ~~ 'Cadieux H. and G r i f f i t h s G. op. c i t . , p. 10. The Premier's reference to f e d e r a l agencies presumably arose because C.P.R. was under f e d e r a l j u r i s d i c t i o n . F e d e r a l powers were not used i n the 1958 t r o u b l e s , though the Premier apparently supported f e d e r a l a c t i o n . - 5 9 -p r o p o s a l and commenced i t s own s e r v i c e as planned. Meanwhile Black B a l l continued t o operate the Horseshoe Bay - Nanaimo government e n t r y l a y not i n Black B a l l ' s operations but i n those of the C.P.R. An a u t h o r i t a t i v e government source was quoted t"1"1 The C.P.R. had i n 1 9 5 9 withdrawn i t s n i g h t steamers from the Van c o u v e r - V i c t o r i a run and had reduced i t s w i n t e r s e r v i c e . L a t e r , one year a f t e r the i n c e p t i o n of the f i r s t government-operated run, i t was abandoned a l t o g e t h e r . I n October of 1 9 6 2 , C.P.R. f u r t h e r reduced i t s s e r v i c e s when two out of three ships were removed from the Vancouver-Nanaimo run. I t was reported t h a t t r a f f i c had f a l l e n by one t h i r d . s i n c e the s t a r t of the f i r s t government s e r v i c e and that the/ C.P.R. s e r v i c e was l o s i n g money. Highways M i n i s t e r G a g l a r d i was quoted as and Horseshoe Bay - Langdale s e r v i c e s . 10 The r a t i o n a l e f o r "We are e n t e r i n g the f e r r y business only t o provide a connection between lower Vancouver I s l a n d and the Mainland. We are doing so because of the d e c l i n e i n the C.P.R. s e r v i c e . s a y i n g .12 "The Premier and I begged the C.P.R. t o get i n t o the f e r r y business w i t h both f e e t and when they f a i l e d t o do t h i s we were f o r c e d t o take steps t o improve the I s l a n d s e r v i c e . " 10 The Vancouver Sun, January 2 2 , i 9 6 0 . I b i d . 11 12 The Vancouver Sun, January 1 9 , 1 9 6 2 . -60-Goverriment e n t r y i n t o the f e r r y business m a t e r i a l l y a f f e c t e d a i r s e r v i c e s between Vancouver and V i c t o r i a . The n a t i o n a l i s e d a i r c a r r i e r (nov/ A i r Canada) was then opera t i n g an h o u r l y s e r v i c e aboard DC3 a i r c r a f t . An upgrading of a i r -c r a f t t o Viscounts ( l a r g e r c a p a c i t y reducing the frequency of f l i g h t s and hence the l e v e l of s e r v i c e t o the passenger) and the appearance of the P r o v i n c i a l Government i n Island-Mainland t r a n s p o r t a t i o n occurred almost simultaneously. Passenger demand f o r a i r s e r v i c e f e l l and the s e r v i c e was cut back. 1-^ E a r l y growth by a c q u i s i t i o n and c o n s t r u c t i o n The s i z e of the Government f l e e t was boosted i n September 1961 by the a c q u i s i t i o n of the Gul£ Isl a n d s F e r r y Company. A f a m i l y concern, the Company had served the Islands f o r s e v e r a l years u s i n g f o u r s m a l l v e s s e l s . Reportedly the a c q u i s i t i o n ( at $0.24M) was supported by c e r t a i n G u l f Islands 14 groups seeking improved s e r v i c e l e v e l s t o the I s l a n d s . In the f a l l of 1961 the government bought out Black B a l l F e r r i e s L t d . , paying $4.6M f o r f i v e v e s s e l s . Premier Bennett was quoted •^At present a i r s e r v i c e s s a t i s f y only a s m a l l f r a c t i o n of passenger demand f o r Island-Mainland t r a v e l . Vancouver - V i c t o r i a scheduled a i r l i n e passenger c a p a c i t y i s about 5$ of B.C. F e r r i e s passenger c a p a c i t y . P a c i f i c Western A i r l i n e s operates approximately ten r e t u r n f l i g h t s per day between Vancouver and V i c t o r i a . A i r West maintains a twin-engine seaplane s e r v i c e harbour t o harbour. 14 Cadieux and G r i f f i t h s , op_. c i t . , p. 27 -61-1*5 as sa y i n g J. " I t was a good d e a l . We could not have run a government s e r v i c e economically i n competition w i t h Black B a l l . " The only remaining Black B a i l s e r v i c e i n Canadian waters operated across the i n t e r n a t i o n a l "boundary between Port Angeles, Washington, and downtown V i c t o r i a . In 1964 and 1965 i t was s t a t e d government p o l i c y t o encourage t o u r i s t t r a f f i c onto the s e r v i c e . A team of f i v e s a l e s experts were employed t o promote t o u r i s m on the f e r r y system. The a s s i s t a n t g e n e r a l manager made T.V. tours throughout the U.S. and d i s t r i b u t e d p u b l i c i t y m a t e r i a l . 1 ^ I t i s not c l e a r whether t o u r i s t t r a f f i c was promoted t o u t i l i s e the system or whether the system was expanded t o meet the growth of tourism. Premier Bennett s a i d t h a t the B.C. f e r r y s e r v i c e was an i n t e g r a l p a r t of the province's mushrooming 1? t o u r i s t i n d u s t r y and tha t ' "Tourism i s a l l p r o f i t . T o u r i s t d o l l a r s come i n t o B.C. and we are r e q u i r e d t o give nothing i n r e t u r n . We don't have t o supply jobs or teachers, pay h o s p i t a l b i l l s ( e t c . ) f o r t o u r i s t s . " The Vancouver Sun, January 19, 1962 1 6 The B r i t i s h Columbian, May 12, 1964. The Vancouver Province, August 26, 1965. - 6 2 -In e i t h e r case, plans were announced f o r a r a p i d expansion of the f l e e t by c o n s t r u c t i o n , a t o t a l of 17 ships being planned by 1 9 6 3 . At t h i s time the f e d e r a l government was o p e r a t i n g a s h i p b u i l d i n g subsidy programme (intended t o e l i m i n a t e the d i f f e r e n t i a l between domestic and f o r e i g n p r i c e s ) . The l e v e l of the subsidy was up t o k0% of cost depending on Canadian content. When Premier Bennett was asked how long the government f l e e t would continue t o expand he r e p l i e d t h a t i t would expand as long as Ottawa provided s h i p b u i l d i n g sub-s i d i e s (purchase and c o n s t r u c t i o n of ships and f a c i l i t i e s were financed by bond issues of the B.C. T o l l Highways and Bridges A u t h o r i t y ) . I t appeared axiomatic t h a t the province needed a d d i t i o n a l f l e e t c a p a c i t y . The i m p l i c a t i o n was t h a t the f e d e r a l subsidy was an o p p o r t u n i t y not t o be missed. Premier 19 Bennett s a i d i 7 "Why shouldn't we b u i l d more f e r r i e s ? I t ' s a good d e a l t o get these ships at these p r i c e s . " Growth from 1 9 6 6 In 1 9 6 6 , the a v a i l a b l e f e d e r a l s h i p b u i l d i n g subsidy 20 was cut t o 2 5 $ and would e v e n t u a l l y f a l l t o 1 7 $ . In a d d i t i o n , 1 o The Vancouver Sun, January 1 9 , 1 9 6 2 . 19- I b i d . 20 The Vancouver Sun, November 1 , 1 9 6 6 . -63-the p r i c e of new v e s s e l s was r i s i n g i n r e f l e c t i o n of i n -c r e a s i n g m a t e r i a l and labour c o s t s . The f e d e r a l government imposed f u l l duty on f o r e i g n m a t e r i a l s and equipment f o r 21 s h i p b u i l d i n g . In consequence the p r i c e which the p r o v i n c i a l government would have to pay f o r newly b u i l t v e s s e l s became p r o h i b i t i v e . Between 1964 and 1966, tenders f o r e s s e n t i a l l y 22 i d e n t i c a l v e s s e l s d i f f e r e d by 33$i the p r i c e increase t o the p r o v i n c i a l government was even more s u b s t a n t i a l i n l i g h t of the f a l l i n g f e d e r a l s h i p b u i l d i n g subsidy. Since the construc-t i o n of the l a s t new v e s s e l i n 1966 no new v e s s e l s have been added t o the f l e e t , nor are there any known plans f o r construc-t i o n at the time of w r i t i n g (Summer, 1 9 7 3 ) . Other methods of expansion were sought. The bridge a l t e r n a t i v e t o f e r r y t r a n s p o r t a t i o n has been considered i n recent times. In 1967 , Tame©Engineering L t d . was h i r e d t o do a f e a s i b i l i t y study of an ambitious scheme t o connect many of the G u l f Islands by a system of f l o a t i n g bridges which would permit a s h o r t e r crosswater f e r r y route from Galiano I s l a n d t o Tsawwassen or Steveston. The estimated cost was $90M and i t was estimated t h a t the f e r r y s e r v i c e would continue without a d d i t i o n of f u r t h e r v e s s e l s U n t i l 1 9 8 5 . An a l t e r n a t i v e purchase The Vancouver Province, December 1, 1966 . I b i d . -64-of a dozen new v e s s e l s f o r r a p i d expansion of the f l e e t would cost an estimated $65M.2^ N e i t h e r p l a n was taken up and other methods of i n c r e a s i n g the system's c a p a c i t y were adopted. Head-level ramps were i n s t a l l e d on the car decks of some v e s s e l s adding 15$ t o the v e h i c l e space. This a l t e r a t i o n cost approximately $0.7M per v e s s e l i n the p e r i o d 1 9 6 9 - 7 2 compared w i t h an i n i t i a l c o n s t r u c t i o n cost of $3»5M (unsubsidised) i n the e a r l y s i x t i e s . 24 25 Used v e s s e l s were purchased from Eas t e r n Canada. ' A major s t r u c t u r a l change i n v e s s e l s , c a l l e d " s t r e t c h i n g " or "Jumboizing", was t r i e d i n 1 9 6 9 and has been reporte d t o be h i g h l y s u c c e s s f u l 26 from an engi n e e r i n g p o i n t of view. This i n v o l v e s i n c r e a s i n g the s h i p ' s c a p a c i t y by some 40$ by the i n s e r t i o n of a midships s e c t i o n at a cost of approximately $2.5M per v e s s e l at e a r l y 1 9 7 0 s p r i c e s . A bridge proposal s i m i l a r t o t h a t of Tamco was approved i n March, 1973• The p l a n i s t o connect another G u l f I s l a n d , G a b r i o l a w i t h a bridge t o Vancouver I s l a n d near Nanaimo. A new f e r r y t e r m i n a l i s t o be b u i l t on G a b r i o l a and another on 2 3The Vancouver Province 24 ^The Vancouver Sun, May 2 5The Vancouver Province 2 6The Vancouver Province the mainland at Steveston or Iona I s l a n d . This would u t i l i s e the s h o r t e s t cross-water route between the lower mainland and the lower part of Vancouver I s l a n d . P u b l i s h e d estimates i n d i c a t e t h a t the c a p i t a l cost of the new c o n s t r u c t i o n (at $40M) i s j u s t i f i a b l e by v i r t u e of savings i n f l e e t expansion which would otherwise by necessary. ' E f f e c t s on p r i v a t e investment The P r o v i n c i a l Government's presence i n the f e r r y business was c i t e d as the reason f o r the c a n c e l l a t i o n of p r i v a t e investment i n f e r r y s e r v i c e s . In the summer of 1962, Coast F e r r i e s L t d . (a s m a l l p r i v a t e company) abandoned plans t o b u i l d a Comox-Powell R i v e r f e r r y , even though a t e s t run had i n d i c a t e d t h a t such a s e r v i c e was a commercial p r o p o s i t i o n . Captain O.H. New s a i d t h a t the scheme was withdrawn a f t e r he had f a i l e d t o o b t a i n a f i r m commitment from the Government promising not t o ex p r o p r i a t e the f e r r y s e r v i c e i f i t s t a r t e d , . 28, 29 making money. ' 7 In March, 1964, i t was announced t h a t two companies had c a n c e l l e d plans f o r new ships because of the government's proposed f e r r y between Vancouver I s l a n d and Pr i n c e Rupert. 27 fThe Vancouver Sun. March 2 1 , 1 9 7 3 . Comox D i s t r i c t Free Press. October 3 1 , 1 9 6 2 . 29 7Nanaimo D a i l y Press, November 9 , 1 9 6 2 . - 6 6 -Northland N a v i g a t i o n scrapped plans f o r a new s h i p t o be used between Vancouver and Pr i n c e Rupert f o r which i t was pr e p a r i n g t o c a l l tenders. Captain J.C. Terry was reported as s a y i n g " I f the government i s going i n t o the f e r r y business, we can't compete." In a d d i t i o n , A l a s k a Cruise l i n e s was reported t o have c a n c e l l e d 30 a s h i p b u i l d i n g c o n t r a c t f o r a new northern s h i p . The i m p l i c a -t i o n t h a t government presence was di s c o u r a g i n g p r i v a t e i n v e s t -ment i s discussed i n a subsequent s e c t i o n . F r e i g h t t r a f f i c and C.P.R. The summer peak of t o u r i s t demand began t o exceed c a p a c i t y i n 1 9 6 6 . Premier Bennett announced that i n the f o l -l owing summer ( 1 9 6 7 ) drop t r a i l e r s would be s e v e r e l y r e s t r i c t e d on government f e r r i e s t o make space f o r more cars . This r e s -t r i c t i o n has continued i n every summer to the present. F i n a l l y , as of May 1 5 , 1 9 7 3 , drop t r a i l e r s were t o t a l l y banned on the major Island-mainland routes. L i v e ( i . e . w i t h d r i v e r ) t r u c k s were s t i l l accommodated w i t h no r e s t r i c t i o n except t h a t commercial v e h i c l e s could not occupy more than 30% v e h i c l e deck space f o r a s a i l i n g at f u l l c a p a c i t y . An examination of t r a f f i c data The V i c t o r i a D a i l y C o l o n i s t , March 2 1 , 1 9 6 6 . - 6 7 -r e v e a l s t h a t growth of commercial t r a f f i c over the years p a r a l l e l s t h a t of t o t a l t r a f f i c , roughly the same p r o p o r t i o n of t r u c k s t o t o t a l t r a f f i c being maintained (see s e c t i o n 4 : 3 ) . In 1967 i t became c l e a r t h a t the C.P.R. s e r v i c e s were t o be an important supplement t o government s e r v i c e s . C.P.R. began t o take the drop t r a i l e r s which the government s e r v i c e could no longer accommodate. Truck t r a f f i c was i n -c r e a s i n g l y d i r e c t e d towards the C.P.R. w i t h the consent, approval and even encouragement of the government a u t h o r i t i e s . An agreement was made between Johnston Terminals L t d . (a major p r o v i n c i a l t r u c k i n g company) and the C.P.R., the terms of which have not been pub l i s h e d , which encouraged the C.P.R. t o add a f r e i g h t barge t o i t s s e r v i c e s . - ^ 2 C.P.R.*s f r e i g h t s e r v i c e s were s i g n i f i c a n t l y expanded i n the s p r i n g of 1973 w i t h the a d d i t i o n of the 7 0-vehicle C a r r i e r P r i n c e s s t o the B.C.C.S. f l e e t . Bids had been c a l l e d from B.C. shipyards i n January, 1 9 7 2 - ^ f o r a new v e s s e l which was launched i n February, 1973 C.P.R. intends t o use the v e s s e l p r i n c i p a l l y f o r f r e i g h t v e h i c l e t r a n s p o r t a t i o n , though •^Personal i n t e r v i e w s w i t h Mr. Ken S t r a t f o r d and Mr. Richard H a l l i b u r t o n , T r a f f i c Department, B.C. F e r r i e s . 32 J Personal i n t e r v i e w w i t h Mr. I r v i n Froese, Y.P. T r a n s p o r t a t i o n „ S e r v i c e s , Johnston Terminals L t d . ••^ The Vancouver Sun, January 1 5 , 1972 ^ C h r i s t e n e d (perhaps s i g n i f i c a n t l y ) by the wife of the M i n i s t e r of Highways, the m i n i s t e r then r e s p o n s i b l e f o r B.C. F e r r i e s . -^The V i c t o r i a D a i l y C o l o n i s t , February 2 1 , 1 9 7 3 . - 6 8 -p r i v a t e automobiles and passengers are t o be accommodated on a v a i l a b l e s p a c e . ^ The route and scheduling (between downtown Vancouver and Swartz Bay around the clo c k , three r e t u r n t r i p s per day) r e c a l l the overnight steamship s e r v i c e s of the C.P.R. which were abandoned i n 1959. The op e r a t i o n of the C a r r i e r P r i n c e s s i s the f i r s t overnight s e r v i c e f o r non-commercial t r a f f i c between I s l a n d and Mainland since t h a t date. Plans f o r Night F e r r i e s I t appears t h a t the P r o v i n c i a l Government has experienced some d i f f i c u l t y i n i n s t i t u t i n g a l a t e - n i g h t s e r v i c e of government v e s s e l s although the p r o v i s i o n of such a s e r v i c e has been the s t a t e d p o l i c y of past and present a d m i n i s t r a t i o n s . In May, 1 9 7 2 the g r e a t e r V i c t o r i a Chamber of Commerce completed an i n v e s t i g a t i o n i n t o the heed t o e s t a b l i s h a l a t e - n i g h t f e r r y and prepared a b r i e f t o the Government. Premier Bennett announced t h a t a t r i a l l a t e f e r r y s e r v i c e would be implemented.-^ However a p r o v i n c i a l e l e c t i o n intervened i n August, 1 9 7 2 . The new government announced t h a t a t r i a l o p e r a t i o n of n i g h t f e r r i e s would be undertaken i n the Spring of 1 9 7 3 . The experiment d i d not m a t e r i a l i s e , the s t a t e d reason being a l a c k of manpower at the s e c o n d - o f f i c e r l e v e l . L a c k of union -^Personal i n t e r v i e w , w i t h Mr. Ron K. Gamey, Manager, A n a l y s i s « 7 and Planning, Canadian P a c i f i c R a i l L t d . , Vancouver. •''The V i c t o r i a Times. March 1 6 , 1 9 7 3 . ^ 8The V i c t o r i a n . March 2 8 , 1 9 7 3 . 39 -^The Vancouver Sun. January 31, 1 9 7 3 . -69-cooperation has a l s o been mentioned. The Greater V i c t o r i a Chamber of Commerce has s t a t e d t h a t the n i g h t run of the C.P.R.'s C a r r i e r P r i n c e s s was not what they had i n mind f o r a l a t e n i g h t s e r v i c e : ^ 1 the c r o s s i n g takes three hours, s t a r t i n g at ls30 a.m. from Vancouver, w i t h no s l e e p i n g accom-modation. At the time of w r i t i n g i t i s not c l e a r whether or not the n i g h t s e r v i c e w i l l be i n s t i t u t e d by B.C. F e r r i e s and whether or not i t w i l l accommodate commercial v e h i c l e s . This i s s i g n i f i c a n t because n i g h t f r e i g h t operations are p r e s e n t l y the e x c l u s i v e domain of p r i v a t e c a r r i e r s . 3»213 Observations on past developments This s e c t i o n contains observations on the develop-ments des c r i b e d i n the past two s e c t i o n s . The i n t e n t i o n i s t o h i g h l i g h t trends and important issues r e l e v a n t t o t h i s t h e s i s . H i s t o r y of p r i v a t e o p e r a t i o n P r i v a t e f e r r y operations served the needs of the province and the State of Washington u n t i l the middle of the t w e n t i e t h century. This i s i n c o n t r a s t t o the r e l a t i v e l y e a r l y i n t e r v e n t i o n of governments i n the r a i l and highway modes. Perso n a l Interview w i t h Mr. K. S t r a t f o r d . xThe V i c t o r i a Times. March 24, 1973 -70-One of the reasons f o r t h i s may be the f l e x i b i l i t y of marine operations which lends i t s e l f t o p r i v a t e ownership. In p a r t -i c u l a r i t may r e f l e c t the r e c o v e r a b i l i t y of c a p i t a l costs (by sa l e or other transference of v e s s e l s ) i n times of f a l l i n g demand. Common ailments There are c e r t a i n common ailments which have a f f l i c t e d f e r r y operations down the years. A l l s e r v i c e s must w r e s t l e w i t h the c o n f l i c t i n g demands of r i s i n g c o s t s (both i n labour and equipment) and the demands of the p u b l i c or t h e i r e l e c t e d r e p r e s e n t a t i v e s f o r b e t t e r s e r v i c e at low p r i c e s . These problems are not unique t o f e r r y o p e r a t i o n s . Renewals A p a r t i c u l a r l y common problem faced by f e r r y operators i s the l a c k of economical f l e e t replacements. As v e s s e l s become d i l a p i d a t e d or obsolete, the a c q u i s i t i o n of newer s h i p s r e s u l t s i n severe f i n a n c i a l s t r a i n s (the v e s s e l input i n t o a f e r r y s e r v i c e i s a "lumpy" o r i n d i v i s i b l e one). Past developments provide the evidence f o r t h i s . Black B a l l dominated the Washington State system when i t s com-p e t i t o r s had not the f i n a n c i a l resources t o i n v e s t i n v e s s e l s a p p r o p r i a t e t o the automobile age. The demise of Union Steam-ships has been a t t r i b u t e d t o the l a c k of economical f l e e t -71-replacements. The C.P.R.'s d e c i s i o n not t o commit i t s e l f to the f e r r y business (at about the time of government entry) was made at the c r i t i c a l time when heavy new investment would have been necessary t o replace ageing v e s s e l s . There are s e v e r a l p o s s i b l e e x p l a n a t i o n s of the problem. One e x p l a n a t i o n i s t h a t the p r i c e f o r s e r v i c e has been set too low t o cover the cost of renewals ( i . e . revenues have not covered d e p r e c i a t i o n expense or have covered h i s t o r i c cost d e p r e c i a t i o n but not replacement v a l u e ) . In B r i t i s h Columbia F e r r i e s there i s no p r o v i s i o n f o r d e p r e c i a t i o n i n the accounting system; c a p i t a l indebtedness of $40M was w r i t t e n o f f by the government i n 1967• The i m p l i c a t i o n t h a t renewals are not being provided f o r through p r i c i n g i n B.C. F e r r i e s i s duscussed i n the s e c t i o n on f i n a n c i a l data. P o l i t i c a l and economic importance of s e r v i c e s F e r r y s e r v i c e s are v i t a l t o the economy and are p o l i t i c a l l y d e l i c a t e . Government bodies have shown themselves t o be s e n s i t i v e t o the d i s r u p t i o n of f e r r y s e r v i c e s (the immediate cause of which i s u s u a l l y s t r i k e a c t i o n by l a b o u r ) . This s e n s i t i v i t y has shown i t s e l f i n the sudden changes i n the s t a t u s of f e r r y s e r v i c e s which have occurred during these t r o u b l e s . The State of Washington took over Black B a l l (The Puget Sound Na v i g a t i o n Company) a f t e r the d i s r u p t i o n of 1951; the government of B r i t i s h Columbia entered the f e r r y business -72-c a t a l y s e d by the labour t r o u b l e s of the p r i v a t e operators i n 1958j i n 1968, labour s t r i f e i n the B.C. F e r r i e s appears t o have played some part i n the change of s t a t u s from Crown Corporation t o D i v i s i o n of the Department of Highways. A d m i n i s t r a t i o n of f e r r i e s In the past the a d m i n i s t r a t i o n of f e r r y s e r v i c e s has been given t o a body p r i m a r i l y concerned w i t h the r a i l and highway modes. This was an a d m i n i s t r a t i v e convenience a r i s i n g from (a) the r e l a t i v e l y s m a l l system investment of f e r r i e s compared w i t h highways and r a i l w a y s so t h a t f e r r i e s became appended t o these other modes, and (b) advantages of intermodal c o o r d i n a t i o n a f f o r d e d by a u n i f i e d a d m i n i s t r a t i o n . However, the merging of c o n t r o l occurred despite d i s t i n c t d i f f e r e n c e s i n op e r a t i n g and cost c h a r a c t e r i s t i c s . I n the fu t u r e t h i s t rend may be reversed. B.C. boasts the l a r g e s t f e r r y system of i t s k i n d i n the world. I t i s of i n c r e a s i n g s i g n i f i c a n c e r e l a t i v e t o the highway system (data i n kikil shows t h a t gross p r o v i n c i a l spending on f e r r i e s i s i n c r e a s i n g as a p r o p o r t i o n of highway expenditure). The f e r r y system w i l l cease t o be an appendix t o the highway system and w i l l be regarded more as an equal t r a n s p o r t a t i o n p a r t n e r . The pla n n i n g and budgetting f u n c t i o n s w i l l be separated from those of highways at a higher a d m i n i s t r a t i v e l e v e l than p r e v i o u s l y . h o This change has al r e a d y begun. A May, 1973 cabinet r e s h u f f l e i n B.C.removed f e r r y r e s p o n s i b i l i t y from the Department of Highways and gave i t t o a newly created Department of Transport and Communications. -73-Government f e r r y p o l i c y I t i s d i f f i c u l t t o e x t r a c t any concise statement of government p o l i c y i n the oper a t i o n of B.C. F e r r i e s from past developments. The i m p l i e d p o s i t i o n i s t h a t Island-main-l a n d t r a n s p o r t a t i o n should be provided at low p r i c e s (the o v e r a l l l e v e l of r a t e s has not changed since the i n c e p t i o n of the s e r v i c e ) and t h a t c a p a c i t y should be provided f o r what-ever demand m a t e r i a l i s e s . There i s l i t t l e evidence t h a t long term pla n n i n g has played a r o l e i n shaping the f e r r y system which e x i s t s today. The s e r v i c e t o be s u p p l i e d i n a given year was based on a p r o j e c t i o n of demand from the previous year. The r e c o g n i -t i o n o f long-term e f f e c t s i n f e r r y s e r v i c e s (e.g. t h a t b e t t e r s e r v i c e s i n the short term r e s u l t i n he a v i e r demand i n the lo n g term) i s not apparent. I t i s hard t o r e c o n c i l e the e a r l y promotion of summer tourism f o l l o w e d by the l i m i t a t i o n of commercial t r a f f i c . One p o s s i b l e i n t e r p r e t a t i o n i s t h a t f e d e r a l s h i p b u i l d i n g s u b s i d i e s c o n t r i b u t e d t o overinvestment and excess c a p a c i t y which was co n v e n i e n t l y u t i l i s e d by encouraging tourism. This s i t u a t i o n might not have a r i s e n i f p o l i c y objec-t i v e s had been c l e a r l y d e f i n e d . P u b l i c / p r i v a t e competition Government f e r r y s e r v i c e s can have a s i g n i f i c a n t e f f e c t on the p r o f i t a b i l i t y and the very existence of p r i v a t e -74-s e r v i c e s . In the e a r l y s i x t i e s , when government operations were undergoing r a p i d growth, there i s evidence t h a t p r i v a t e investment i n f a c i l i t i e s was discouraged by the government's presence. P r i v a t e operators s t a t e d t h a t t h i s was the reason f o r withdrawal. The opposite e f f e c t can occur, as witnessed by the purchase of a new v e s s e l by C.P.R. t o serve a market which, i n a sense, i t has been given by the government. I t cannot be assessed how many p r i v a t e operators would have come forward i n the absence of the government. Whether the l o s s o f p r i v a t e investment amounts t o a r e a l cost of government e n t r y depends on s e v e r a l f a c t o r s , n o t a b l y whether the p r i v a t e resources were as p r o f i t a b l y employed elsewhere as they would have been i n a p r i v a t e f e r r y s e r v i c e . I f e x p e r t i s e i s counted as a resource, i t seems d o u b t f u l t h a t a l l of i t i s t r a n s f e r r a b l e t o other investments. Role of Canadian P a c i f i c R a i l The r o l e of the C.P.R. i s one of i n c r e a s i n g import-ance i n the f e r r y system of B.C. A c o n v i n c i n g i n t e r p r e t a t i o n of the C.P.R.'s s t r e t e g y down the years i s provided from the f o l l o w i n g newspaper e d i t o r i a l , e n t i t l e d "C.P.R. comes t o 43 rescue?": J The Kelowna C o u r i e r , March 31, 1973 -75-" I t ' s i r o n i c t h a t the C.P.R. i s going t o provide a l a t e - n i g h t f e r r y s e r v i c e t h a t the government i s so r e l u c t a n t t o put i n t o o p e r a t i o n . This i s the company t h a t seemed unable to keep up w i t h the times which moved the S o c i a l C r e d i t a d m i n i s t r a t i o n of the day i n t o e n t e r i n g business w i t h the B.C. F e r r y A u t h o r i t y . The C.P.R.'s B.C. Coast Steamship Se r v i c e wasn't coping w i t h the needs i n the o p e r a t i o n of i t s handsome f l e e t of " p r i n c e s s " ships c a r r y i n g passengers and cars between Vancouver, V i c t o r i a and S e a t t l e . For • one t h i n g , the ships were o v e r l y elaborate w i t h i n -s u f f i c i e n t c a p a c i t y , and f a c i l i t i e s on board and ashore were l a c k i n g i n the handling of i n c r e a s i n g t r a f f i c -p a r t i c u l a r l y between Vancouver I s l a n d and the mainland. For another, the s m a l l ocean-liner-type " p r i n c e s s e s " were c o s t l y t o b u i l d as w e l l as t o maintain and operate. But no moves were made towards l e s s expensive v e s s e l s and s h o r t e r r o u t e s . I t was almost as though the company was determined t o get out of the passenger s e r v i c e and concentrate on what i s probably the more l u c r a t i v e f r e i g h t business. And t h i s i s what i t was able t o do w i t h the then premier, W.A.C. Bennett, s t a r t i n g a government s e r v i c e . . . which the N.D.P. has i n h e r i t e d . " Summary of Chapter 3 This chapter reviewed the background t o present f e r r y operations i n B r i t i s h Columbia. F i r s t the chapter d i s -cussed some general c h a r a c t e r i s t i c s of f e r r i e s and then presented an h i s t o r i c a l account of operations i n the p r o v i n c e . C e r t a i n general themes emerged from the review. Two of these should be h i g h l i g h t e d f o r f u t u r e reference i n the a n a l y s i s of p o l i c i e s . One i s . t h e p o l i t i c a l and economic importance of continuous f e r r y s e r v i c e s and the r e s u l t i n g pressure f o r government c o n t r o l . This i s shown both by the - 7 6 -c o n s t i t u t i o n a l s i g n i f i c a n c e of f e r r i e s and "by the r a p i d a c t i o n of the a u t h o r i t i e s when f e r r y s e r v i c e s were threatened. The other i s the p o t e n t i a l s e v e r i t y of the e f f e c t s of govern-ment competition on p r i v a t e e n t e r p r i s e . The a d d i t i o n a l r i s k faced by p r i v a t e e n t e r p r i s e accounts f o r some observed i n h i b i -t i o n of investment i n the past. These two issues w i l l r e c u r when s p e c i f i c p o l i c i e s are analysed. - 7 7 -CHAPTER 4 A CURRENT PICTURE OF FERRY OPERATIONS IN BRITISH COLUMBIA - 7 8 -* H 1 I n t r o d u c t i o n and data l i m i t a t i o n s This chapter presents d e t a i l e d contemporary oper-a t i n g and f i n a n c i a l data about B.C. F e r r i e s and p r i v a t e l y operated f e r r i e s . The data, i s analysed i n a form s u i t a b l e f o r the examination of present p o l i c i e s and the a l t e r n a t i v e s i n the f o l l o w i n g chapter. The f o l l o w i n g general l i m i t a t i o n s arose i n o b t a i n -i n g and u t i l i s i n g raw data (most of which i s from unpublished s o u r c e s ) . Won-continuous data A change i n the method of data c o l l e c t i o n by the government f e r r y operators i n 1971 rendered the s e t s of data on each side of t h a t date incompatible. This change was coneommittant w i t h a s h i f t t o charging commercial v e h i c l e s by l e n g t h r a t h e r than by weight. An experienced t i c k e t agent was consulted t o help r e c o n c i l e the data.'"*" 'Data contained i n the Annual Reports of the M i n i s t e r of Highways c l a s s e d each v e h i c l e as (a) automobile, t r u c k , mobile home/camper, or bus. Data contained i n H a l f Monthly l o a d i n g s t a t i s t i c s (post-November 1971) c l a s s e d v e h i c l e s as (b) passenger autos, t r u c k s , motorcycles/drop t r a i l e r s , tow t r a i l e r s , buses, over 6'6"(panel t r u c k s , campers or mobile homes), or under 6'6" . The c l a s s i f i c a t i o n of t r u c k s i n (a) i n c l u d e d some s m a l l e r non-commercial f r e i g h t v e h i c l e s (e.g. panel t r u c k s ) . Consequently almost twice as many v e h i c l e s were c l a s s e d as t r u c k s i n (a) as i n ( b ) . In the f o l l o w i n g m a t e r i a l , each reference t o t r u c k s i s i n d i c a t e d as r e f e r r i n g t o (a) the pre-November 1971 c l a s s i f i c a t i o n or (b) the post-November 1971 c l a s s i f i c a t i o n . - 7 9 -Aggregated data The problem of s e p a r a t i n g aggregated c l a s s i f i c a t i o n s of data was encountered. One p a r t i c u l a r d i f f i c u l t y arose from t h e . p r a c t i c e of accumulating t r a f f i c data by a count of cash r e g i s t e r e n t r i e s , coded by t r a f f i c type, at the f e r r y t e r m i n a l . In t h i s case two c a t e g o r i e s of t r a f f i c (motorcycles and drop t r a i l e r s ) r e c e i v e d the same code and became i n d i s t i n -g u i s h a b l e . This d i f f i c u l t y was r e s o l v e d again by r e f e r r i n g t o the judgment of an experienced t i c k e t agent. L i m i t e d government f i n a n c i a l data Only l i m i t e d access t o f i n a n c i a l data was granted by the M i n i s t e r of Highways. F i n a n c i a l i n f o r m a t i o n was r e s t r i c t e d t o cost and revenue data by f e r r y route, broken down i n t o v e s s e l and t e r m i n a l costs over a three year p e r i o d . The M i n i s t e r was unable t o d i s c l o s e the d e t a i l s of costs i n c l u d e d i n each category on the grounds t h a t d e t a i l e d exam-i n a t i o n of day-to-day o p e r a t i n g costs i s a c o s t l y and time consuming process which should be reserved f o r the a u d i t o r s 2 of the L e g i s l a t u r e . P ersonal communication w i t h the M i n i s t e r of Highways, the Rt. Hon. Robert M. Strachan, dated May 1 4 , 1 9 7 3 . -80-L i m i t e d p r i v a t e f e r r y data The u n w i l l i n g n e s s of p r i v a t e operators t o divulge data i n a way which may not be i n t h e i r i n t e r e s t was c i t e d i h the f i r s t chapter. In p a r t i c u l a r , the p r i n c i p a l p r i v a t e f e r r y operator, C.P.R., was u n w i l l i n g t o r e l e a s e t r a f f i c and f i n a n c i a l data which were not a l r e a d y p u b l i c knowledge. This s i t u a t i o n i s accepted because i t would probably be faced by any t r a n s p o r t a t i o n economist a d v i s i n g the P r o v i n c i a l Government on f e r r y matters. -81-k\2 C h a r a c t e r i s t i c s of t r a f f i c 4 t 2 t l The routes of i n t e r e s t R e l a t i o n t o government system Government f e r r y routes 1 and 2 are of approximately equal s i z e . Together they account f o r t w o - t h i r d s of the t r a f f i c c a r r i e d by the e n t i r e government system of a dozen r o u t e s . There are other d i r e c t government f e r r y connections between Vancouver I s l a n d and the Mainland but Routes 1 and 2 c a r r y by f a r the major p r o p o r t i o n (about 97%) of the govern-ment-carried t r a f f i c . E x h i b i t 3 i l l u s t r a t e s t h e i r importance both i n terms of t o t a l and commercial t r a f f i c c a r r i e d . In the f o l l o w i n g m a t e r i a l , routes 1 and 2 are aggregated. This i s done without s i g n i f i c a n t l o s s of d e t a i l because of t h e i r s i m i l -a r i t y . Other government routes are ignored. This i s j u s t i -f i e d by the predominance of routes 1 and 2 i n the government system and because other routes serve s m a l l e r and separate t r a n s p o r t a t i o n markets. R e l a t i o n t o p r i v a t e c a r r i e r s The p u b l i c c a r r i e r i s dominant i n the f e r r y system. This i s i l l u s t r a t e d by E x h i b i t k which shows the c a p a c i t y of the major c a r r i e r s of highway v e h i c l e s i n the Summer of 1973• The measure used f o r comparison of the c a r r i e r s i s c a l l e d the d a i l y l i f t - o f f capacity.-^ This i s a measure of the maximum 3The l i f t - o f f c a p a c i t y on a route i s c a l c u l a t e d as follows« D a i l y l i f t - o f f c a p a c i t y i n autos/day=(number of v e s s e l s on route)x(average v e s s e l deck c a p a c i t y i n passenger auto spaces) x(numberof round t r i p s per v e s s e l per day)x(2 s a i l i n g s per E X H I B I T 3 -82-B . C . G O V E R N M E N T F E R R I E S - R O U T E S O F I N T E R E S T Thousands of Vehicles Carried in F. Y. ending March 31, 1972. Direct fRoutes1 \ Route 1 Vancouver^ of Island j Interest I Route 2 Mainland /. Comox - Powell River Govt. ] Ferry / Routes V Kelsey Bay - P. Rupert Other govt. Saltwater routes TOTALS3 * A l l Vehicle Types Trucks 2 Only 942 36% 98 27% -702 27% 105 28% 45 2% 7 2% 11 — .4 _ 897 35% 159 43% 2597 100% 369 100% • NOTES: 1. Route 1 i s Tsawwassen-Swartz Bay (for Victoria); Route 2 Is Horseshoe Bay Departure Bay (Nanaimo). 2. Categorisation of trucks as for pre-November 1971; includes some non-com-mercial heavy or large vehicles, excluding mobile homes. 3. Figures may not add due to rounding. 4. Percentages less than 1% denoted by " - ". Source; Province of B. C , Annual-Report of Minister of Highways for the Fiscal Year Ending March 31, 1972. E X H I B I T 4 " 8 > P U B L I C V S . P R I V A T E F E R R Y C A P A C I T Y between lower Vancouver Island and the Mainland (highway vehicles only) Summer 1973 Scheduled daily l i f t o f f capacity Carrier and Route Traffi c Type Automobiles/day % GOVERNMENT FERRIES Route 1 Route 2 A l l Vehicles A l l Vehicles 6500 5500 Subtotal CANADIAN PACIFIC B.C.C.S. 12,000 Commercial Vancouver - Victoria (barge) do; (new vessel)|All Vehicle'' Vancouver - Nanaimo (barge) do. Subtotal TILBURY ISLAND TERMINALS LTD. Tilbury Island - Vancouver Is. TOTAL Commercial A l l Vehicles 400 1000 200 1000 2,600 Commercial 200 14,800 NOTES; 1. A l l capacities expressed in automobiles, as a common unit. For vessels carrying only commercial vehicles, capacity was calculated using 1 com-mercial vehicle = 3 automobiles. 2. Commercial preferred. Sources; Vessel capacities, schedules and t r a f f i c types obtained from personal interviews with Mr. R. Halliburton, B. C. Ferries; Mr. J. Yates, B.C.C.S.; Mr. S. Prokop, T.I.T.L. -84-number of v e h i c l e s which can be tr a n s p o r t e d over a gi v e n route i n one day u s i n g the assigned v e s s e l s o p e r a t i n g on schedule. Both d i r e c t i o n s of the route are counted. The government f l e e t on Routes 1 and 2 has more than f o u r times the l i f t - o f f c a p a c i t y of B.C.C.S. ( a f t e r the ina u g u r a t i o n o f the C a r r i e r P r i n c e s s s e r v i c e which increased B.C.C.S.*s l i f t - o f f c a p a c i t y by some 60%). The recent entrant i n t o the market, T.I.T.L., i s dwarfed by both the former c a r r i e r s . Note t h a t the l i f t - o f f c a p a c i t y does not r e f l e c t d i f f e r e n c e s i n the t r a f f i c composition, peaking and u t i l i s a -t i o n of each s e r v i c e . Compositional d i f f e r e n c e s might be expected from the f a c t t h a t government f e r r y operators have been d i s c o u r a g i n g commercial t r a f f i c s i n c e 196? i n the summer season (whereas B.C.C.S. and T.I.T.L. are c u r r e n t l y a c t i v e l y s o l i c i t i n g i n t h i s market). P r e c i s e f a c t u a l i n f o r m a t i o n about the s p l i t of commercial t r a f f i c between the c a r r i e r s i s not e a s i l y obtained i n view of the rel u c t a n c e of B.C.C.S. t o d i s c l o s e t r a f f i c data. I t i s p o s s i b l e t o make educated guesses w i t h the a i d of the opinions of those i n the i n d u s t r y and of the l i m i t e d amount of hard data a v a i l a b l e . The commercial v e h i c l e s p l i t i n E x h i b i t 5 should be i n t e r p r e t e d w i t h t h i s i n mind. B.C.C.S. makes a s u b s t a n t i a l c o n t r i b u t i o n t o the t r a n s p o r t a t i o n of commercial v e h i c l e s ( p a r t i c u l a r l y drop t r a i l e r s ) , B.C.C.S. s e r v i c e s are a u s e f u l , and even e s s e n t i a l , supplement t o government s e r v i c e s ( e s p e c i a l l y i n view of data below showing E X H I B I T 5 - 8 5 -C O M M E R C I A L V E H I C L E S P L I T B E T W E E N C A R R I E R S on lower Vancouver Island-mainland routes Carrier Vehicle Type Estimated Averagi Commercial Units in Spring, 1973 e Daily Carried B.C. Ferries Routes 1 & 2 1 l i v e trucks drops 220 4 224 48% Canadian Pacific B.C.C.S. li v e trucks drops 502 ' 1803 230 49% T.I.T.L. drops 154 3% Total Number of units transported per day 469 100% NOTES: 1. Post-November 1971 classification of trucks. 2. Obtained by taking 5% of capacity assuming similarity of B.C. Ferries Traffic composition*. 3. Assessed from discussions with Mr. S. Prokop, T.I.T.L., and from a physical survey taken fey E.H.Rimes (see below) 4. May be subject to fluctuation since this represents the i n i t i a l market capture of T.I.T.L. Sources: 1. Personal interviews with Mr. S. Prokop, General Manager, T.I.T.L. 2. Rimes, Edward H., An Examination of Transportation Trends on Vancouver Is. Graduating essay for B. Comm., University of B.C., 1972. Unpublished. - 8 6 -t h a t peak p e r i o d government operations are at f u l l c a p a c i t y ) . 4:2;2 C h a r a c t e r i s t i c s of commercial v e h i c l e s ' Commercial v e h i c l e demand f o r Island-Mainland t r a n s i t f a l l s i n t o two d i s t i n c t c a t e g o r i e s : l i v e t r u c k s and drop t r a i l e r s . L i v e t r u c k s are those which are accompanied by a d r i v e r on the f e r r y . They commonly c a r r y p e r i s h a b l e s and l i v e s t o c k but a l s o the f u l l range of f r e i g h t goods i n c l u d i n g bulk products. The demand comprises many separate t r u c k e r s , both p r i v a t e and common c a r r i e r s . Many use the f e r r y s e r v i c e s o n l y a few times per week. The r e g u l a r and frequent s e r v i c e o f the government f e r r i e s i s a t t r a c t i v e t o t h i s t r a f f i c ? the daytime a v a i l a b i l i t y and r e l a t i v e l y short d u r a t i o n of s a i l i n g , minimise the d r i v e r ' s i d l e time. B.C. F e r r i e s guarantee commercial v e h i c l e space provided t h a t (a) the v e h i c l e i s i n the l o a d i n g area 30 minutes before s a i l i n g time and (b) commer-c i a l v e h i c l e s do not occupy more than one t h i r d of the deck space on a f u l l c a p a c i t y s a i l i n g . This r e g u l a t i o n i s regarded as a concession t o t r u c k e r s under present t r a f f i c c o n d i t i o n s but at peak periods congestion delays and u n c e r t a i n t i e s can be a s i g n i f i c a n t cost t o the t r u c k e r s . In c o n t r a s t B.C.C.S. operates a r e s e r v a t i o n system f o r a l l v e h i c l e s so tha t a space i s guaranteed but f o r l i v e t r u c k s the s e r v i c e i s somewhat i n -frequent and not always punctual. Only two daytim© s a i l i n g s are a v a i l a b l e aboard the P r i n c e s s of Vancouver (the f i g u r e i s -87-doubling w i t h the i n t r o d u c t i o n of the new v e s s e l ) . Night f e r r y i n g of l i v e t r u c k s i s rare by v i r t u e of high wage costs A f u r t h e r disadvantage of B.C.C.S. f o r l i v e t r u c k s i s the r e l a t i v e l y l ong voyage times. B.C.C.S. routes are longer and are served by slower v e s s e l s than those of the government. Drop t r a i l e r s are commercial u n i t s which are detachable from the t r a c t o r u n i t . The time consuming process of l o a d i n g these t r a i l e r s onto a v e s s e l has l e d t o severe r e s t r i c t i o n on the government's f a s t l o a d i n g f l e e t . Turn-around f o r the government's r o l l - o n r o l l - o f f v e s s e l s i s 20-25 minutes. In t h i s time some 200 v e h i c l e s are removed and re p l a c e d by 200 others ( i . e . one v e h i c l e i s t r a n s f e r r e d every 3 seconds). When drop t r a i l e r s are c a r r i e d a u n i t can be loaded i n a p e r i o d of only 1 or 2 minutes; t h i s i s because of the l o g i s t i c a l problem of h i t c h i n g , u n h i t c h i n g and removing the t r a c t o r from the v e s s e l . T r a c t o r u t i l i s a t i o n i s improved i f t r a i l e r s are dropped at a temporary storage p o i n t at the t r u c k e r ' s l e i s u r e t o await a s a i l i n g . One t r a c t o r i s then used t o lo a d a l l w a i t i n g t r a i l e r s . The l a c k of storage space near B.C. F e r r i e s Terminals destroys much of the advantage inherent i n the concept of drop t r a i l e r s (even i n the absence of r e s t r i c -t i v e r e g u l a t i o n s ) . Both the p r i v a t e operators provide a storage area c l o s e t o the t e r m i n a l t o accommodate t r a i l e r s before and a f t e r s a i l i n g . I t i s common p r a c t i c e t o drop the -88-t r a i l e r s d u r i n g the day f o r n i g h t f e r r y i n g . This enables the t r u c k e r t o provide h i s customer w i t h next-day d e l i v e r y . The r e s u l t i s t h a t p r i v a t e c a r r i e r s s p e c i a l i s e i n the t r a n s p o r t a t i o n of drop " t r a i l e r s and the government c a r r i e r i n l i v e t r u c k s . I t i s not true t o say t h a t there i s f i e r c e c o m p e t i t i o n f o r the t r a n s p o r t a t i o n of l i v e t r u c k s ( o r i i d e e d non-commercial v e h i c l e s ) between p u b l i c and p r i v a t e e n t e r p r i s e . The reason f o r the c a r r i e r s p e c i a l i s a t i o n s l i e s i n the i n t e r -p l a y of h i s t o r i c a l a ccident and the divergent c h a r a c t e r i s t i c s and requirements of t r a f f i c types. 4;2s3 T r a f f i c composition and peaking The composition of t r a f f i c c a r r i e d by B.C. government f e r r i e s may be examined i n d i f f e r e n t ways; E x h i b i t 6 shows t h a t the p r i n c i p a l component of t r a f f i c averaged over the year i s the passenger automobile f o l l o w e d by the t r u c k (as d e f i n e d pre-November 1971)• Mobile homes and t r a i l e r s are next i n rank f o l l o w e d by buses ( c h a r t e r and scheduled aggre-gated). Passenger t r a f f i c ( i n c l u d i n g d r i v e r s ) , v e h i c l e pas-sengers and walk-on f e r r y passengers averaged 2.8 persons per v e h i c l e c a r r i e d ( f o r f i s c a l 1972 on Routes 1 and 2). V e s s e l c a p a c i t y i s designed t o accommodate 6 passengers f o r each v e h i c l e so t h a t , i n v a r i a b l y , v e h i c l e deck space i s f u l l before passenger accommodation i s s a t u r a t e d . E X H I B I T 6 -89-B . C . G O V E R N M E N T F E R R I E S - T R A F F I C C O M P O S I T I O N Routes 1 and 2 combined Thousands of vehicles carried in F. Y. ending March 31, 19722 Passenger Automobiles 1294 79% ^ Trucks 1 • 203 12% Mobile Homes and Trailers 119 7% Buses , 28 2% TOTAL 1644 100% NOTES: 1. Pre-November 1971 classification of vehicles, includes some non-commercial vehicles i n truck category. 2. It should be noted that the percentage figures are averages over the sea-sons and conceal differences in peaking in the t r a f f i c categories. Source: Province of B. C , Annual Report 6f Minister of Highways for the f i s c a l year ending March 31, 1972. -90 -Annual average t r a f f i c composition f i g u r e s conceal a divergence i n the seasonal peaking c h a r a c t e r i s t i c s of the components. By d i v i d i n g the t r a f f i c i n t o (1) out-of-province v e h i c l e s , (2) t r u c k s , (3) other v e h i c l e s ( i . e . i n - p r o v i n c e , non-truck) the c o n t r a s t i n the peaking p r o p e r t i e s becomes apparent. E x h i b i t 7 presents d a i l y demand served by t r a f f i c type by month i n absolute numbers of v e h i c l e s . E x h i b i t 8 and 9 are d e r i v e d from the same data. E x h i b i t 8 shows the r e l a t i v e peaking of t r a f f i c types by n o r m a l i s i n g the peaks of E x h i b i t 7 t o a constant area of 100$. Note t h a t out-of-province t r a f f i c d i s p l a y s the sharpest peak ( a t t r i b u t a b l e t o heavy summer t o u r i s t t r a f f i c together w i t h a s m a l l normally r e s i d e n t p o p u l a t i o n of e x t r a - p r o v i n c i a l l y r e g i s t e r e d v e h i c l e s ) . Truck t r a f f i c i s n o t a b l y the most uniform across the seasons whereas other v e h i c l e s from w i t h i n the province show i n t e r -mediate peaking. This l a t t e r category i s an aggregation of r e g u l a r non-seasonal f e r r y users (commuters and I s l a n d r e s i -dents) w i t h a more s h a r p l y peaked p r o v i n c i a l t o u r i s t component. E x h i b i t 9 shows the changing t r a f f i c composition by month. This assumes a n e g l i g i b l e number of t r u c k s were out-of-province (determined by l i c e n c e p l a t e ) : j u s t i f i e d by ( i ) i n c r e a s i n g use of Vancouver as a transhipment p o i n t (see 4 : 3 : 2 ) and ( i i ) the economical t r u c k i n g r a d i u s of up to 400 miles f a l l i n g i n s i d e the province f o r Canadian t r a f f i c . Purdy, H.L. T r a n s p o r t a t i o n and ^ P u b l i c P o l i c y i n Canada F a c u l t y of Commerce and Business A d m i n i s t r a t i o n , U n i v e r s i t y of B.C., Vancouver. 1971. E X H I B I T 7 -91-S E A S O N A L I T Y O F T R A F F I C B Y T Y P E Routes 1 and 2 9000 8000 7000 6000 5000 4000 _ 3000 2000 — 1000 — Total Vehicles 4=1+2+3 / / / / (1) Out of Province Vehicle (Assumed Not Commercial Trucks) i i i i rn—i i j i j J J F M A M J J A S 0 N D Months of 1972 NOTES: 1. Post-November 1971 Classification of Traffic Types Source: Half monthly loading data, Tsavwassen and Horshoe Bay Terminals, 1972. Out of Province Motor Vehicle Loadings, 1972. Traffic Department, B. C. Ferries E X H I B I T 8 " 9 2 " R E L A T I V E S E A S O N A L P E A K I N G B Y T R A F F I C T Y P E (Normalized Demand Curves to Area Beneath=100%) Routes 1 & 2 Combined 30 — MONTH OF 1972 Note: Post - November 1971 Classification of Tr a f f i c Types. Sources: 1. Half Monthly Loading Data 1972 and 2. Out of Province Loadings 1972, B.C. Ferries Tra f f i c Dept. I E X H I B I T 9 -93-S E A S O N A L T R A F F I C C O M P O S I T I O N ROUTES 1 & 2 COMBINED Total Traffic 100% J F M A M J J A S O N D MONTH OF 1972 NOTE; - - " . 1. Percentage calculated on vehicles numbers, not on space occupied. 2. Post-November 1971 Classification of Trucks. - -Source: Half-monthly Loading Data, Out of Province Loadings } 1972. B. C. Ferries Traffic Department. - 9 4 -The summer depression i n t r u c k t r a f f i c d e r i v e s from the peaking of the other two components and not from any absolute r e d u c t i o n i n truckers' demand. At the height of summer more than 30$ of a l l v e h i c l e s are out-of-province. 4:2:4 Capacity u t i l i s a t i o n E x h i b i t 10 d i s p l a y s the u t i l i s a t i o n of (scheduled) v e h i c l e deck space by month.^ Sharp d i s c o n t i n u i t i e s i n May and September a r i s e from the changes between the w i n t e r and more frequent summer s a i l i n g schedules. U t i l i s a t i o n of v e s s e l space i s 90$ i n the peak months of J u l y and August. This f i g u r e f a l l s t o 40$ i n the off-season. I t i s important t o note t h a t the graph shows u t i l i s a t i o n averaged across a l l s a i l i n g s i n an e n t i r e month and does not r e f l e c t the u t i l i s a -t i o n on p a r t i c u l a r l y heavy or l i g h t s a i l i n g i n each month or the frequency of such d e v i a t i o n s from the average. Capacity i s 100$ u t i l i s e d on summer h o l i d a y weekends when l i n e u p s of s e v e r a l hours are common. U s u a l l y a d d i t i o n a l unscheduled l a t e runs are operated t o c l e a r the day's backlog. ''For space u t i l i s a t i o n c a l c u l a t i o n , e q u i v a l e n t s were used; 1 passenger auto = 1.0 spaces, 1 mobile home/camper t r a i l e r = 1.5 spaces, 1 bus/truck=3 spaces. An o v e r a l l numbers-to-spaces conversion f a c t o r was obtained by weighting e q u i v a l e n t s by numerical importance of t r a f f i c types. The value of 1.19 spaces per v e h i c l e v a r i e d l e s s than 1$ over 4 years w i t h no trend. The f a c t o r i s i n s e n s i t i v e t o c ompositional changes due to the b a l l a s t e f f o r t of 80$ passenger autos i n weighting. The simple conversion f a c t o r i s adequate f o r the-purposes at hand. E X H I B I T 1 0 " 9 5 ~ B . C . G O V E R M E N T F E R R I E S - C A P A C I T Y U T I L I Z A T I O N Routes 1 and 2 Removal of Summer S a i l i n g s Introduction of Summer S a i l i n g s I I I J F M i—i—r A M J J A Month of 1972 i i r 0 N D NOTES: 1. U t i l i s e d space calculated using v e h i c l e numbers to spaces conversion f a c t o r of 1*2. 2. A v a i l a b l e space c a l c u l a t e d using scheduled s a i l i n g s only and excluding a d d i t i o n a l l a t e runs operated to remove backlogs. Source: Half monthly v e h i c l e s loading data 1972, B. C. F e r r i e s , T r a f f i c Dept. Personal interviews with Mr. R. Halliburton^ • - 9 6 -4>3 I d e n t i f i c a t i o n and, p r o j e c t i o n of t r a f f i c trends 4>3>i Growth i n B.C. F e r r i e s t r a f f i c O v e r a l l growth i n B.C. F e r r i e s t r a f f i c averaged 1 1 . 3 $ over the past f o u r years. Growth was not uniform across components (see E x h i b i t 1 1 ) . Mobile home and camper t r a f f i c increased at a phenomenal 3 0 $ p.a. Since t h i s f a s t growing component i s h i g h l y seasonal, t o t a l t r a f f i c w i l l i n f u t u r e show a s l i g h t l y sharper peaking.^ Truck t r a f f i c growth p a r a l l e l s t h a t of a l l t r a f f i c . The u n i f o r m i t y of annual increases across the years i s shown by E x h i b i t 1 2 . Again, mobile homes are of i n c r e a s i n g importance r e l a t i v e t o other components (note the r a t i o s c a l e which shows steady annual percentage growth as l i n e a r ) . A simple p r o j e c t i o n of t r a f f i c can be made under the assumption of e x p o n e n t i a l growth ( i . e . an assumption of constant annual percentage growth). E x h i b i t 13 i l l u s t r a t e s 7 the method. P r o j e c t e d demand versus p r o j e c t e d c a p a c i t y i s Though peak shape w i l l change through the growth of h i g h l y seasonal l e i s u r e t r a f f i c , t h i s i s ignored here. Taking the extreme assumption t h a t a l l mobile home t r a f f i c occurs i n summer, the minimum t o maximum r a t i o of the t o t a l t r a f f i c peak w i l l d e c l i n e from 30$ by l e s s than 2$ p.a. 'The l i n e a r i t y of h i s t o r i c a l p o i n t s on E x h i b i t 13 i s a measure of the v a l i d i t y of the e x p o n e n t i a l growth assump-t i o n . This " e y e b a l l i n g " approach i s quite s u f f i c i e n t f o r the purposes here, though the data could have supported a more s o p h i s t i c a t e d a n a l y s i s . E X H I B I T 11 ~ 9 7 ' B . C . G O V E R N M E N T F E R R I E S - T R A F F I C G R O W T H Routes 1 and 2 Average annual t r a f f i c component growth rates over the four f i s c a l years ending 1969 - 72. Annual % Component1 Growth Rate Automobiles 10.3 C Trucks 12.6 C Mobile Homes/ Camper Trailers 30.0 C Buses 2.3 CZ1 11.3 CZZ NOTES: A l l t r a f f i c (net effect) 1. Traffic categorisation as for pre-November 1971. Source: Province of British Columbia, Minister of Highways Annual Reports for the f i s c a l years ending March 31, 1969 - 1972. E X H I B I T 1 2 -98-B . C . G O V E R N M E N T F E R R I E S - T R A F F I C G R O W T H B Y T Y P E B Y Y E A R Routes 1 and 2 CO o CO 4J -a a) •H n n at o to a) J3 > 0} T3 c ed ca 3 o H 1000 — 500 200 — 100 — 50 — 20 10 Total (net effect) Automobiles •x Trucks - X Mobile Homes/ Camper Trailers H -x — — Buses 1969 1970 1971 1972 Fiscal year ending March 31 NOTES: 1. Tr a f f i c categorisation as for pre-November, 1971. Source: Province of British Columbia, Minister of Highways Annual Reports for the f i s c a l years ending March 31, 1969 through 1972. E X H I B I T 13 -99-M E T H O D O F T R A F F I C P R O J E C T I O N Routes 1 and 2 Under Exponential Growth Hypothesis .1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 F i s c a l Year Sources: Province of B.C., M i n i s t e r of Highways Annual Reports for the f i s c a l , years ending March 31 1969 through 1972. Half - monthly loading data, 1972, B.C. F e r r i e s T r a f f i c Dept. - 1 0 0 -shown i n E x h i b i t 14. Assumptions are t h a t ( i ) t r a f f i c growth i s e x p o n e n t i a l , ( i i ) the 1972 seasonal peak shape i s substan-t i a l l y maintained f o r a l l years, and ( i i i ) the new C.P.R. v e s s e l C a r r i e r P r i n c e s s captures no B.C. P e r r i e s T r a f f i c ( t h i s u n r e a l i s t i c assumption i s r e l a x e d i n E x h i b i t 1 5 ) . The f o l l o w i n g p o i n t s should be noted: (a) H i s t o r i c a l peak season excess c a p a c i t y of about 10$ i s an e f f e c t i v e minimum i f past s e r v i c e l e v e l s t o the user are o t o be maintained i n f u t u r e . (b) Maximum and minimum c r e d i b l e demand l i n e s are drawn. The accuracy of t r e n d p r o j e c t i o n and the i m p r o b a b i l i t y of l a r g e d e v i a t i o n s , c e t e r i s p a r i b u s , can be assessed s u b j e c t i v e l y from E x h i b i t 1 3 . (c) Given t h a t the e a r l i e s t p o s s i b l e completion date f o r the new G a b r i o l a run i s Summer, 1975 , some a d d i t i o n a l c a p a c i t y i s necessary t o maintain 1973 peak s e r v i c e l e v e l s i n t o 197^. I f the C a r r i e r P r i n c e s s has no e f f e c t , approximately 1500 v e h i c l e s spaces/day of a d d i t i o n a l l i f t - o f f c a p a c i t y w i l l be r e q u i r e d . This i s e q u i v a l e n t t o an a d d i t i o n a l s t r e t c h e d v e s s e l operating on e i t h e r route 1 or route 2 ( c u r r e n t c o n s t r u c t i o n cost about $10M). 8~ This 10$ excess c a p a c i t y ( 9 0 $ space u t i l i s a t i o n ) i s nominal i n the sense th a t i t depends d i r e c t l y on the chosen conversion f a c t o r of 1 .20 spaces per v e h i c l e . I f 1 . 2 6 spaces per v e h i c l e were used the f i g u r e would be 5 $ . EXHIBIT 14 ~ 1 0 1 ~ PROJECTED DEMAND VS CAPACITY For B.C. Government Ferries Routes 1 & 2 Maximum Credible Peak Demand-^ f V / / / 0 / Projected Peak: Demand Scheduled Daily L i f t o f f Capacity New Gabriola Route E a r l i e s t Completion Date And Resulting L i f t - O f f Capacity .O .0' .JO" Off Season Demand, •O — Or" PROJECTED i — i — r Jan Aug J A J A J A J A J A J A J A J A J A J A 68 69 70 71 72 73 7A 75 76 77 78 Source: Half Monthly Loading S t a t i s t i c s , 1972. B.C. Ferries s a i l i n g schedules 1970-73. Province of B.C., Minister of Highways Annual Reports for the f i s c a l years ending 1969-1972. E X H I B I T 15-102-B . C . F E R R I E S P R O J E C T E D P E A K T R A F F I C s h o w i n g m a x i m u m e f f e c t o f . C a r r i e r P r i n c e s s VANCOUVER ISLAND - MAINLAND ROUTES 20 O . u 0) PH CO <u o NJ 15 PU CO a o .d > of CO TD 0} o 10 H B.C.F. PROJECTED DEMAND WITHOUT EFFECT OF CARRIER PRINCESS (AS IN EXHIBIT 14) \ B. C. FERRIES SCHEDULED CAPACITY B.C.F. LIFTOFF CAPACITY WITH 1973 FLEET PLUS NEW GABRIOLA ROUTE B.C.F. PROJECTED DEMAND ALLOWING FOR 100% UTILI-SATION OF B.C.C.S.'S CARRIER PRINCESS WITH ANY TYPE OF TRAFFIC 1972 1973 ~ i r 1974 1975 1976 ~ l 1 1977 1978 NOTES; 1. Projection assumes that B.C.C.S. capacity i s f u l l y u t i l i s e d by f i r s t .accommodating natural growth of existing B.C.C.S. t r a f f i c and then capturing B.C. Ferries t r a f f i c of any type to f i l l available space. 2. Effect of Carrier Princess assumed to be zero in peak 1973. In fact the vessel was operational by May 1973 (percent u t i l i s a t i o n unknown) Sources: 1. Half monthly loading s t a t i s t i c s 1972, B.C. Ferries Traf f i c Dept. -10 > (d) 1 9 7 5 requirements could be s a t i s f i e d with the 1 9 7 3 f l e e t and the new G a b r i o l a route i n ope r a t i o n . 1 9 7 6 r e q u i r e -ments could be met i f an a d d i t i o n a l v e s s e l (as i n 1 9 7 4 ) were used. E x h i b i t 1 5 i s s i m i l a r t o E x h i b i t 14 except i t i s assumed t h a t the C a r r i e r P r i n c e s s i s f u l l y u t i l i s e d by ( i ) accommodating the n a t u r a l growth i n present C.P.R. T r a f f i c and ( i i ) c a p t u r i n g B.C. F e r r i e s T r a f f i c of any type t o f i l l a l l remaining space. The p o i n t s to be noted are: (e) The c a r r i e r P r i n c e s s has a notable short term e f f e c t on B.C. F e r r i e s demand. I f the v e s s e l i s 100$ u t i l i s e d , B.C. F e r r i e s r e q u i r e only an a d d i t i o n a l 500 spaces/day of l i f t - o f f c a p a c i t y f o r 1 9 7 4 . An a d d i t i o n a l s m a l l v e s s e l o p e r a t i n g supplementary runs on Routes 1 and 2 can supply t h i s . ( f ) In the longer term, the C a r r i e r P r i n c e s s has l e s s e f f e c t . As the v e s s e l accommodates the n a t u r a l growth of C.P.R. t r a f f i c (see l a t e r d i s c u s s i o n ) , B.C. F e r r i e s i s r e l i e v e d of l e s s of i t s t r a f f i c . The e f f e c t of the C a r r i e r P r i n c e s s disappears by 1 9 7 6 / 7 . (g) B.C. F e r r i e s annual t r a f f i c growth i n the l a t e seventies amounts t o 2200 spaces/day, which can be s u p p l i e d w i t h the annual a d d i t i o n of a s t r e t c h e d v e s s e l on the short G a b r i o l a r o u t e . - 1 0 4 -(h) I f completion of t e r m i n a l s f o r the new route i s delayed u n t i l the summer of 1977t approximately 5000 spaces/day i n a d d i t i o n t o the 1973 f l e e t c a p a c i t y w i l l be r e q u i r e d t o serve the peak season of 1976 . This i s e q u i v a l e n t t o three a d d i t i o n a l s t r e t c h e d v e s s e l s o p e r a t i n g on Routes 1 and 2 ( i n 1972 there were e i g h t v e s s e l s o p e r a t i n g on these r o u t e s ) . I t should be emphasised t h a t the f o r e g o i n g assumes present trends w i l l continue and current p o l i c i e s (of supply-i n g whatever demand m a t e r i a l i s e s at present p r i c e and s e r v i c e l e v e l s ) are maintained. The d i s c u s s i o n has ignored the pos-s i b i l i t y of a r a d i c a l change i n f e r r y p o l i c y . A l t e r n a t i v e p o l i c i e s r e g a r d i n g commercial v e h i c l e s are discussed i n the f i n a l chapter* i n c l u d i n g the p o s s i b i l i t y of a t o t a l ban of commercial v e h i c l e s on B.C. F e r r i e s . 4 » 3 > 2 Commercial T r a f f i c Trends Two trends i n the f r e i g h t market between Vancouver I s l a n d and the Mainland are of p a r t i c u l a r s i g n i f i c a n c e t o the operations of B.C. F e r r i e s . One i s a s h i f t away from the use of r a i l t o the use of road v e h i c l e s and the other i s the over a l l growth i n the volume of f r e i g h t . The s h i f t from r a i l t o road a r i s e s from the pressure t o make more e f f i c i e n t use of t r a n s p o r t a t i o n f a c i l i t i e s . The o v e r a l l growth p a r a l l e l s the expansion of the I s l a n d economy. - 1 0 5 -S h i f t from r a i l t o road U n t i l the 1960's and 1970's, commercial a c t i v i t y a s s o c i a t e d w i t h the I s l a n d was dominated by the f o r e s t products i n d u s t r y . In recent years the s i g n i f i c a n c e of the I s l a n d as a major r e g i o n a l market f o r consumer goods has emerged. H i s -t o r i c a l l y , r a i l was e s t a b l i s h e d as the primary mode f o r the c a r r i a g e of outbound f o r e s t products and of inbound i n t e r -mediate requirements (such as chemicals). R a i l barges were used t o access the I s l a n d r a i l network. In c o n t r a s t , the more recent t r a n s p o r t a t i o n of consumer goods and g e n e r a l f r e i g h t was dominated by highway t r u c k s which provided e s s e n t i a l f l e x -i b i l i t y of o r i g i n and d e s t i n a t i o n p o i n t s i n the I s l a n d highway system. Q A 1 9 7 1 survey^ i n d i c a t e d t h a t , on a number of loads b a s i s , inbound t r a f f i c moved 72$ by highway v e h i c l e and 28$ by r a i l . Outbound t r a f f i c was predominatly r a i l except i n the case of lumber and ( s e a s o n a l l y ) f i s h . Both r a i l and highway modes e x h i b i t backhaul prob-lems, but i n opposing d i r e c t i o n s . E x h i b i t 16 shows the s i t u a -t i o n f o r For-Hire Trucking s e r v i n g the V i c t o r i a commercial area. Revenues d e r i v e d from outbound t r a f f i c were only 3 5 $ of those generated by inbound t r a f f i c i n 1 9 7 0 ; on a tonnage b a s i s , out-bound t r a f f i c was 67$ of inbound. This d i f f e r e n c e r e f l e c t s the h i g h e r value/weight r a t i o of inbound goods and d i r e c t i o n a l ^Rimes, Edward H. An examination of t r a n s p o r t a t i o n trends  on Vancouver I s l a n d . A graduating essay f o r the degree of B. Comm., U n i v e r s i t y of B r i t i s h Columbia, 1 9 7 2 . Unpublished. E X H I B I T 16 - 1 0 6 -T R U C K I N G B A C K H A U L I M B A L A N C E For - Hire Trucking Commodity Flows (a) Revenues2 VICTORIA Commercial Centre $14.537.000 l$5.142.0001-(b) Tons 856.OOP3  1568. OOOh-Other Centres i n Canada NOTES: 1. Size of Victoria commercial area undefined. 2. Revenue and tonnage figures include oftiy for-hire trucking only, and exclude private operations. 3. Quoted standard deviation 20-29%. Standard deviation for other figures less than 10%. Source: Statistics Canada Catalogue 53-224 Annual. For^hire trucking survey, 1970. Tables 4,5. -107-d i f f e r e n t i a l s i n t r u c k i n g r a t e s . An outbound/inbound backhaul r a t i o of l / 3 f o r t r u c k i n g seems a reasonable estimate on a number of loads b a s i s , while an opposing 6 / l has been c i t e d f o r r a i l cars." 1" 0 Though the move t o a s i n g l e mode i s an obvious s o l u -t i o n t o the twin backhaul problems, t h i s has been hampered by the d i f f e r e n c e s i n o r i g i n s / d e s t i n a t i o n s and handing and equip-ment requirements i n the two t r a n s p o r t a t i o n markets. Neverthe-l e s s the v e r s a t i l i t y of the highway mode (versus r a i l d i f f i c u l -t i e s such as yard t i e - u p s and route i n f l e x i b i l i t y ) has prompted a ge n e r a l s h i f t away from r a i l towards road t r a n s p o r t . The highway and f e r r y a c c e s s i b i l i t y of most I s l a n d p o i n t s has l e d to a tendency t o regard Vancouver I s l a n d as a highway p i c k up and d e l i v e r y area centred on Vancouver. Undoubtedly, r a i l w i l l continue t o be used by alr e a d y r a i l - o r i e n t e d i n d u s t r y . But the tendency i s f o r I s l a n d goods t o be t r a n s f e r r e d by t r u c k t o Vancouver f o r transhipment onto the mainland r a i l network. Inbound r a i l shipments tend t o f o l l o w the reverse path. A precedent has been set by Doman I n d u s t r i e s L t d . , a Duncan-based iumber and t r a n s p o r t company regarded as a l o c a l l e a d e r i n the i n d u s t r y . Doman. uses drop t r a i l e r s t o 1 0 I b i d . -108-t r a n s p o r t f o r e s t products from the I s l a n d and does heavy-h a u l i n g on a c h a r t e r b a s i s throughout the West ( i n c l u d i n g Island-bound haulage). Doman*s approach ameliorates the t w i n backhaul problems; indeed Mr. Herb Doman has been quoted as saying t h a t high equipment u t i l i s a t i o n and op e r a t i n g e f f i c i e n -c i e s have been the key t o h i s Company's success. 1^" 4»3»3 Growth i n C.P.R. T r a f f i c Time s e r i e s C.P.R. T r a f f i c data i s not a v a i l a b l e but growth estimates can be made. B.C. F e r r i e s * l i v e t r u c k T r a f f i c i s growing at 12.6$ p.a. ( E x h i b i t 11). The tre n d from r a i l cars t o drop t r a i l e r s suggests t h a t the t r a i l e r market i s expanding f a s t e r than the o v e r a l l f r e i g h t market. C.P.R. f r e i g h t t r a f f i c growth w i l l t h e r e f o r e be between, say, 10$ and 20$ p.a., probably about 15$ p.a. This growth w i l l f u l l y u t i l i s e C.P.R. f r e i g h t c a p a c i t y ( i n c l u d i n g the new v e s s e l ) i n a few years, e s p e c i a l l y when capture of. l i v e t r u c k t r a f f i c from B.C. F e r r i e s i s considered. E x h i b i t 17 shows the r e l a t i o n -s h i p between the year of C.P.R.*s f r e i g h t s a t u r a t i o n and the percentage capture of B.C. F e r r i e s l i v e t r u c k t r a f f i c f o r d i f f e r e n t f r e i g h t growth r a t e s . Assumptions are t h a t ( i ) 1973 C.P.R. v e s s e l s are maintained i n s e r v i c e and no new v e s s e l s are added ( i i ) the C.P.R.*s P r i n c e s s of Vancouver continues i : LThe Vancouver Sun, A p r i l 7, 1973. E X H I B I T 17 " x u y " P R O J E C T E D F R E I G H T S A T U R A T I O N O F C . R R . C A P A C I T Y -a a> oo •H rH •H u x=> o o rH cn •H >> •M •H CJ crj P. cd o o « Pi m >4-l Ctf • u o H rH o crj •H •H Wh rc c 6 •H O U CJ CTJ a> >> >< GROWTH RATE IN COMMERCIAL TRAFFIC DEMAND i — i — i — i — r 10 20 30 40 50 60 70 80 90 100% % of B.C. Ferries Commercial T r a f f i c 1 Captured By Canadian Pacific on Introduction of Carrier Princess NOTE: 1. Post-November 1971 Classification of Trucks Source: See Exhibits 4, 5., -110-i n the mixed commercial/non commercial s e r v i c e . These assump-t i o n s conform w i t h known C.P.R. plans. P o i n t s t o note a r e i (a) E x h i b i t 17 r e f e r s t o C.P.R.'s u t i l i s a t i o n e n t i r e l y w i t h commercial t r a f f i c (except f o r the P r i n c e s s of Vancouver). Of course C.P.R. intends t o maximise u t i l i s a t i o n by a t t r a c t i n g non-commercial t r a f f i c from B.C. F e r r i e s i n the meantime. (b) C.P.R. c a p a c i t y w i l l be s a t u r a t e d w i t h commercial t r a f f i c i n the l a t e s eventies (probably about 1977 i f f r e i g h t grows at 15$ and C.P.R. captures 40$ of B.C. F e r r i e s ' l i v e t r u c k t r a f f i c ) . Again i t should be emphasised that these r e s u l t s are p r e d i c a t e d on the c o n t i n u a t i o n of past trends and present p o l i c i e s . They represent the consequences of the implementa-t i o n of a l l known present p l a n s . Future e f f e c t of T.I.T.L. The presence of T i l b u r y I s l a n d Terminals L t d . has been ignored though i t i s p o t e n t i a l l y important. In the past T.I.T.L. has s u p p l i e d only a s m a l l f r a c t i o n of mainland-Island t r a n s p o r t a t i o n ( e x h i b i t 4) but the company has plans t o expand i t s share of the drop t r a i l e r market and gene r a l bulk f r e i g h t 12 market. I f planned c a p a c i t y of 150 commercial u n i t s per day 12 Personal i n t e r v i e w , w i t h Mr. Stan Prokop, General Manager T.I.T.L. -111-( u s i n g converted C.N.R. barges) were used s o l e l y f o r drop t r a i l e r s , t h i s would be a s u b s t a n t i a l c o n t r i b u t i o n t o the t o t a l f r e i g h t c a p a c i t y i n B.C. (e q u i v a l e n t to h a l f the l i f t - o f f c a p a c i t y of the C a r r i e r P r i n c e s s ) . These t r a i l e r s would be taken from the C.P.R. which would attempt t o f i l l c a p a c i t y w i t h B.C. F e r r i e s non-commercial t r a f f i c . However, T.I.T.L.*s p o l i c y i s not t o s p e c i a l i s e i n v e h i c u l a r t r a f f i c but t o d i v e r -s i f y i n t o g e n e r a l f r e i g h t ( i n c l u d i n g lime rock, lumber and s t e e l ) . 1 3 I f h a l f T.I.T.L. c a p a c i t y were u t i l i s e d by t r a i l e r s (amounting t o 25$ of the p r o j e c t e d 1974 t r a i l e r market), the u l t i m a t e maximum r e l i e f f o r B.C. F e r r i e s would be 250 spaces per day. This i s a s m a l l e f f e c t i n the context of t o t a l t r a f f i c demand? i t i s e q u i v a l e n t t o two months' growth i n the o v e r a l l B.C. F e r r i e s * t r a f f i c expansion of 1500 spaces per day per year (see E x h i b i t s 14, 15). The f u t u r e r o l e of T.I.T.L. i s u n c l e a r . The company's p o t e n t i a l e f f e c t i s la r g e i n the commercial v e h i c l e market but r e l a t i v e l y s m a l l i n the e n t i r e v e h i c l e t r a n s p o r t a -t i o n market. But i t i s c l e a r t h a t B.C. F e r r i e s f r e i g h t p o l i c y can a f f e c t a r e l a t i v e l y s m a l l o p e r a t i o n (such as T.I.T.L.) even more d r a m a t i c a l l y than the C.P.R. The p o t e n t i a l of T.LT.L. cannot be discounted, p a r t i c u l a r l y i n view of the company's 1 3 I b i d . -112-connection w i t h the C.N.R. (which could p l a y a supporting r o l e t o the company and i s a p o t e n t i a l source of c a p i t a l f o r expansion). T.I.T.L. was e s t a b l i s h e d i n close a s s o c i a t i o n w i t h the C.N.R. and i s c o n t r a c t e d to operate C.N.R.'s r a i l barges. -113-4t4 F i n a n c i a l , revenue, cost and p r i c i n g data 4 : 4 t l Finance U n t i l 1968 the government f l e e t was a crown corpora-t i o n , able t o issue i t s own bonds t o finance c a p i t a l a s s e t s . A form of p r o v i n c i a l subsidy was payable t o the c o r p o r a t i o n from i t s i n c e p t i o n by the l e g a l p r o v i s i o n f o r the payment of up t o 2-§# p.a. of c a p i t a l indebtedness; t h i s was p a i d i n t o a reserve account together w i t h revenue i n excess of operating e x p e n d i t u r e . 1 ^ The reserve account was used t o pay the c a p i t a l indebtedness of the f l e e t and f o r the " c o n s t r u c t i o n or recon-s t r u c t i o n of i t s p r o p e r t y and w o r k s " . ^ The f l e e t was e x p l i c i t l y 17 exempted from t a x a t i o n and no formal p r o v i s i o n f o r deprec-i a t i o n was made. The f l e e t was deemed not t o be a u t i l i t y w i t h i n the i n t e r p r e t a t i o n of the P u b l i c U t i l i t i e s A c t . In 1966 the B.C. F e r r y A u t h o r i t y Act Amendment Act allowed the M i n i s t e r of Finance t o pay o f f the t o t a l outstanding c a p i t a l indebtedness of the A u t h o r i t y . Since the reserve account had accumulated t o $10.OM ($5.4M 2f# subsidy c r e d i t s p l u s $4.6M op e r a t i n g c r e d i t s ) but c a p i t a l indebtedness was $51.2M, a Debt L i q u i d a t i o n Grant of $41.2M was p a i d d i r e c t l y to the ^ R e v i s e d S t a t u t e s of B r i t i s h Columbia, c.280,s . l 6 . j-fobid., sTlT. r£lpid.t s.40. I b i d . , s .37. -114-A u t h o r i t y from the p r o v i n c i a l exchequer. 1^ E v i d e n t l y i n the e a r l y years revenues were i n s u f -f i c i e n t t o recover c a p i t a l c o s t s . Had d e p r e c i a t i o n (at 5 $ , s t r a i g h t l i n e b a s i s ) been charged, i t would have accumulated O A t o $ 1 0 .9M by 1 9 6 6 . v In f a c t , revenues c o n t r i b u t e d only $4.6M t o c a p i t a l a s s e t s over these years ( f o r comparison, f e r r y revenue was $ 1 6 .2M i n f i s c a l 1 9 6 6 ). Further, the 1 9 6 6 unde-p r e c i a t e d c a p i t a l asset f i g u r e of $ 5 1 .2M may be undervalued be-cause of ( i ) t e r m i n a l access roads and l o a d i n g ramps charged to highway expenditure and ( i i ) the f e d e r a l s h i p b u i l d i n g sub-s i d y . 2 1 In 1 9 6 8 , when the assets of the B.C. F e r r y A u t h o r i t y were t r a n s f e r r e d t o the Department of Highways, t h e i r book value was zero (because of the Debt L i q u i d a t i o n Grant) and no depreca-t i o n was charged. When s t r u c t u r a l a l t e r a t i o n s (such as i n s t a l -l i n g head l e v e l ramps and s t r e t c h i n g ) were made these were s i m i l a r l y n o n-depreciating. Funds were disbursed from the Department of Highways budget and revenues were p a i d d i r e c t l y i n t o the Consolidated Revenue Fund of the government. Gross expenditure on f e r r i e s became an i n c r e a s i n g l y important p a r t 19 7The B r i t i s h Columbia F e r r y A u t h o r i t y , Annual Reports 2 0 f o r the F i s c a l Years Ending March 3 1 , 1 9 6 6 , 1 9 6 ? . Estimated from statements of accummulated c a p i t a l expenditure found i n The Vancouver Province, May 3 0 , 1 9 6 3 ; May 28, 1964} J u l y 3 1 , I96T: 1 $6.4M i n 1 9 6 2 / 3 plus $2.1M i n 1 9 6 6 , t o t a l l i n g $8.5M p a i d t o p r o v i n c i a l s h i p b u i l d e r s . The Vancouver Sun, October 6 , 1 9 6 2 and The Vancouver Province, May 3 0 , 1 9 6 3 . -115-of the budget of the Department of Highways. This i s shown by E x h i b i t 18 ( o n l y aggregated c o s t s , c a p i t a l p l u s operating, were a v a i l a b l e ) . kikt2 Revenues and costs Statements of income and expenditure f o r B.C. F e r r i e s f o r 1970-1972 appear i n E x h i b i t 19. These show t h a t operations on routes 1 and 2 c o n s i s t e n t l y cover o p e r a t i n g costs (though other routes do n o t ) . Note that d e p r e c i a t i o n or wear and t e a r (beyond normal maintenance) i s not included as an expense. A rough estimate shows t h i s would cancel the op e r a t i n g surpluses on routes 1 and 2. When a l l o c a t e d a d m i n i s t r a t i v e overheads are i n c l u d e d routes 1 and 2 make a net l o s s . E x h i b i t 20 shows estimated net l o s s e s f o r each year. Revenues and costs per u n i t output ( i . e . per u n i t of l i f t - o f f c a p a c i t y ) are a l s o e s t -imated. These i n d i c a t e t h a t the increases i n net l o s s from 1970 t o 1971 was caused by r i s i n g u n i t costs r a t h e r than f a l l i n g revenue or u t i l i s a t i o n . Terminal o p e r a t i n g c o s t s are only 19$ of t o t a l o p e r a t i n g c o s t s . This i m p l i e s t h a t o p e r a t i n g costs r i s e almost p r o p o r t i o n a t e l y t o the number of s a i l i n g s . F e r r y s e r v i c e s are labo u r i n t e n s i v e ? s a l a r i e s form 72$ of ope r a t i n g expenses (55$ i f d e p r e c i a t i o n and overhead are i n c l u d e d ) . 1972 revenue was B . C . t x i - i i b i I I O " ~ G O V E R N M E N T S P E N D I N G O N H I G H W A Y S A N D F E R R I E S $M 220 -200 — 180 — 160 — 140 — 120 • 100 — 80 — 60 -40 — 20 — 0 Fiscal year Highways and Ferries Ferries 66 67 68 69 70 71 72 73 f i s c a l year ending March 31 Gross highways expenditure Ferries expenditure Percent ferries of gross highways ending (inc. ferries) expenditure 19- $M (a) $M 66 110.5 14.9 13.5% 67 130.2 18.5 14.2% 68 131.6 20.5 (b) 15.6% 69 133.7 22.5: 16.8% 70 174.5 29.7 17.0% 71 135.0 28.7 21.2% 72 188.6 39.2 20.7% 73 179.3 34.5 • 19.3% 74 212.8 46.5 21.9% Ca) From sources (1) and (2) for pre-1968; source (1) for 1969«-72; source (3) for 1973-74. (b) Highways expenditure alone for 1968 $M111.1; ferry expenditures not available for 1968. Author's estimate by linear interpolation. Sources; (1) Minister of Highways Annual Reports (2) B. C. Ferry Authority Financial Statements (3) Budget Speech (estimates), March 9, 1973. EXHIBIT 19 B.C. FERRIES Statements of Income and Expenditure - FY's ending 1970, 71, 72 A l l figures in Thousands of dollars ROUTE 1 ROUTE 2 ROUTES 1 + 2 VESSEL COSTS 70 71 72 70 71 72 70 71 72 Salaries + Wages 3639 4721 5285 3557 4232 4916 7196 • 8953 10174 Operating 1431 1716 1665 1479 1091 1666 2910 2807 3331 Catering 1228 1417 1515 1040 1086 1042 2268 2503 2557 Deas 189 205 189 205 378 410 TOTAL. VESSEL 6486 7853 8632 6264 6409 7829 12750 14262 16461 TERMINAL COSTS Salaries + Wages 948 1090 1201 650 726 804 1598 1816 2005 Operating 478 573 707 451 306 341 929 879 1048 TOTAL TERMINAL 1427 1663 1908 1100 1032 1146 2527 2695 3054 Total Vessel + Ter. 7913 9516 10540 7364 7441 8974 15277 16957 19514 Revenue for Period 10974 11338 12925 8088 8381 9246 19062 19719 22171 Net Gain (Loss) 3061 1822 2385 723 940 271 3784 2762 2656 NOTES: 1. Methods of allocating costs between routes using the same terminal unspecified. 2. Items under vessel operating and terminal operating costs unspecified. 3. Deas means maintenance at Deas dock. 4. Figures may not add due to rounding. SOURCES: 1. Province of B.C., Minister of Highways Annual Report for the Fiscal Year ending March 31, 1972. 2. Personal Communication with the Rt. Hon. Robert M. Strachan, Minister of Highway OTHER ROUTES TOTALS 70 71 72 70 71 72 3181 3793 4065 10377 12743 14239 1974 2195 3543 4884 5002 6874 175 195 434 2443 2698 2991 251 409 629 819 5583 6181 8462 18333 20443 24943 357 439 548 1955 2255 2553 554 608 960 1483 1487 2008 911 1047 1507 3438 3742 4561 6495 7228 9970 21772 24185 29484 5472 5843 6681 24534 25562 29032 (1021)(1385)(3107) 2763 1377 (451) General Admin. Insurance 1689 2585 1240 Deas 663 1517 2614 Total operating 24124 28287 33338 Capital Cost 5594 410 5847 Total Costs 29718 28696 39186 Revenue 24534 25562 29032 Net Gain (Loss) (5184)(3134)(10153) EXHIBIT 2 0 - 1 1 8 -B.C. FERRIES ROUTES 1 & 2 REVENUE AND COST DATA (Revised to include depreciation and overhead) Revised Income and Expenditure Statement Total Vessel and Terminal Operating Costs^-Depreciation Allocated Administrative Overhead^ F i s c a l year ending March 31 1970 1971 Thousands of Dollars 15,277 2,800 1,452 16,957 2,800 2,584 1972 19,514 2,800 2,428 Total Expenditure Less Revenues Net Loss 19,559 19,062 497 22,341 19,719 2,622 24,742 22,171 2,571 Unit Costs and Revenues Cost per vehicle space provided Revenues V " " $11.52 $11.23 $12.53 $11.06 $12.54 $11.24 Notes; 1. From Exhibit 19. 2. ' 8 vessels at $7M each depreciated at 5% p.a., straight l i n e basis. 3. Allocated on basis of vehicle numbers carried. Source: Exhibit 19 - 1 1 9 -22 d e r i v e d 43$ from passengers , 33$ from passenger automobiles, 16$ from commercial v e h i c l e s , and 8$ from other t r a f f i c 2? 24 c a t e g o r i e s . J-4t4:3 P r i c i n g Both B.C. F e r r i e s and C.P.R.'s B.C.C.S. have complex r a t e s t r u c t u r e s . B.C. F e r r i e s p u b l i s h e s a 64-page 2*5 t a r i f f J which g i v e s r u l e s and r e g u l a t i o n s and s p e c i f i e s r a t e s f o r a l l routes f o r automobiles, t r u c k s , t r a i l e r s , mobile homes, pickup and panel t r u c k s , buses, ambulances, hearses, t a x i s , and passengers ( i n c l u d i n g s p e c i a l r a t e s f o r mid-week t r a v e l , organised p a r t i e s , c l e r g y and the b l i n d ) . There are p r o v i s i o n s f o r o v e r s i z e p e n a l t i e s and bulk discounts (termed " s c r i p " ) . 2 6 The B.C.C.S. p u b l i s h e s an 8-page t a r i f f . Only Island-mainland commercial v e h i c l e t a r i f f s are of d i r e c t i n t e r e s t and they are d i s p l a y e d i n E x h i b i t 21. (T.I.T.L. r a t e s are set by agreement w i t h the customer and are not as yet p u b l i s h e d ) . The f o l l o w i n g p o i n t s are noteworthy J "22? On board c a t e r i n g costs and revenues n e t t e d out by assuming they are equal. ^Post-November 1 9 7 1 c l a s s i f i c a t i o n of t r a f f i c . 24 Estimated from E x h i b i t 19 together w i t h Half-monthly Loading S t a t i s t i c s 1 9 7 2 , B.C. F e r r i e s T r a f f i c Department, 2< ^ F e r r i e s D i v i s i o n - B . C . F e r r i e s , Passenger and F e r r y T a r i f f No. 1 , made by order i n C o u n c i l , e f f e c t i v e October 2 1 , 1 9 7 1 . 26 Canadian P a c i f i c Railway L t d . , B r i t i s h Columbia Coast Steamship S e r v i c e , T a r i f f No. 4 . e f f e c t i v e J u l y 1 , 1 9 7 2 . E X H I B I T 2 1 " " 1 2 ° -F R E I G H T R A T E S T R U C T U R E S B . C . A N D C P F E R R I E S 60 50 ~ 40 One-way rate _ 30 $ 20 10 FREIGHT RATE STRUCTURES B.C. AND CP. FERRIES a. CP. Vict, p. _B_.C_tr_l_._ c. CP. Nan. d. B.C. trk. off-season only Rate Line Route Tra f f i c a CP. DV-SB trk & t r l b B.C. T -SB t r l only HB do. c CP. DV trk & t r l d B.C. T -SB trk only T 20 10 30 40 Jo ^) Length of commercial vehicle, feet *Abbreviations used: CP. Canadian Pacific Rail- Service B.C. B.C. Ferries Government Service DW Downtown Vancouver, CP. Terminal SB Swartz Bay Terminal, Victoria HB Horseshoe Bay Terminal, Vancouver N Nanaimo T Tsawwassen Terminal trk truck t r l t r a i l e r Sources: (1) Province of B.C., Ferries Division, B.C. Ferries Passenger and Ferry Tariff No. 1, made by Order i n Council effective October 21, 1971 (2) Canadian Pacific Railway Ltd. British Columbia Coast Steamship Service Tariff No. 4 effective July 1, 1972. -1Z1-(a) Both c a r r i e r s charge by v e h i c l e l e n g t h and rat e d i s c o n -t i n u i t i e s f o r drop t r a i l e r s occur at the same v e h i c l e lengths. B.C.C.S. has charged by le n g t h f o r some time but B.C. F e r r i e s adopted, t h i s method more r e c e n t l y (October 21, 1971). The manager of A n a l y s i s and Planning, C.P.R. L t d . , Vancouver, f e l t t h a t the government was the " r a t e - l e a d e r " i n f e r r y s e r v i c e s , e s t a b l i s h i n g p r i c e l e v e l s which p r i v a t e e n t e r p r i s e was l e f t 27 t o f o l l o w . .' The s i m i l a r i t y of r a t e s t r u c t u r e s i n d i c a t e s t h a t more than j u s t cost c o n s i d e r a t i o n s have played a p a r t i n p r i c i n g . (b) B.C. F e r r i e s charges the same rat e i r r e s p e c t i v e of route but d i s t i n g u i s h e s between drop t r a i l e r s and t r u c k s . The drop t r a i l e r t a r i f f i s of course i n o p e r a t i v e i n summer when t r a i l e r s are banned. B.C. F e r r i e s drop t r a i l e r t a r i f f i s c o n s i d e r a b l y h i g h e r than i t s l i v e t r u c k t a r i f f . Drop t r a i l e r s are t h e r e f o r e r e l a t i v e l y discouraged from u s i n g the s e r v i c e (on B.C.C.S. they are charged i d e n t i c a l l y ) . This i s c o n s i s t e n t w i t h past B.C. F e r r i e s p o l i c y towards drop t r a i l e r s . (c) B.C.C.S. charges the same f o r t r a i l e r s or t r u c k s but d i s t i n g u i s h e s between rout e s . U n l i k e B.C. F e r r i e s ' v e h i c l e r a t e s , those of B.C.C.S. include the d r i v e r . Therefore $2 ($1 midweek) should be added t o B.C. F e r r i e s ' l i v e t r u c k r a t e s Personal Interview, Mr. R.K. Gamey, Manager A n a l y s i s and Planning, C.P.R. L t d . , Vancouver. -122-f o r i n t e r - c a r r i e r comparisons. The r a t e d i f f e r e n c e between B.C.C.S. routes probably p a r t l y a r i s e s because of the d i s p a r i t y i n sea mileage ( 4 5 vs 4 0 m i l e s ) . (d) The two c a r r i e r s * r a t e s are comparable f o r l i v e t r u c k s on s e r v i c e s t o Nanaimo (most l i v e t r u c k s l i e i n the 25 t o 45 f o o t range). But t r u c k e r s face costs i n a d d i t i o n t o the f e r r y t a r i f f . A downtown t o downtown journey r e q u i r e s a dozen miles more road haulage u s i n g the B.C. P e r r i e s s e r v i c e . On the other hand, voyage time i s an hour l e s s . A r e s e r v a t i o n system does not operate on B.C. F e r r i e s as i t does on B.C.C.S. (e) B.C. F e r r i e s charges l e s s f o r l i v e t r u c k s on the V i c t o r i a run (about $13 l e s s ) . For the t r u c k e r t h i s must be set a g a i n s t the l i n e - h a u l cost d i f f e r e n c e i n reaching (or l e a v i n g ) the mainland f e r r y t e r m i n a l (Tsawwassen i s 20 m i l e s south of Van-couver) . The l f - h o u r d i f f e r e n c e i n voyage time i s a l s o an important f a c t o r . ( f ) Both c a r r i e r s provide f o r bulk discount. C.P.R. reserves the r i g h t t o enter any s p e c i a l c o n t r a c t s w i t h t r u c k e r s , a l l o w -i n g them discounts f o r t r i p s i n excess of a s t a t e d number. B.C. F e r r i e s operates the " s c r i p " scheme, a l l o w i n g a 10$ 20$ or 30$ discount depending on the frequency of use of the s e r v i c e . The degree to which these t a r i f f s are cost-based i s d i f f i c u l t t o assess. F i r s t , no cost data i s a v a i l a b l e from B.C.C.S. Second, there i s the problem of cost a l l o c a t i o n between - 1 2 3 -passengers and v e h i c l e s ( t e r m i n a l cost a l l o c a t i o n between routes had a l r e a d y been performed on some unknown ba s i s i n the raw f i n a n c i a l d a t a ) . Three p o i n t s may nevertheless be made on the B.C. F e r r i e s t a r i f f : ( i ) On routes 1 and 2 aggregated revenue approximately covers o p e r a t i n g and a d m i n i s t r a t i v e expenses. I t does not recover c a p i t a l c o s t s . ( i i ) There i s p r i c e d i s c r i m i n a t i o n i n favour of passenger automobiles i n the sense t h a t they pay l e s s per l a n e - f o o t of deck space than do commercial v e h i c l e s (an auto of 15 f e e t i s charged $5 whereas a 40-foot commercial v e h i c l e i s charged approximately $40). This p r i c i n g p o l i c y i m p l i e s t h a t the government f e e l s some o b l i g a t i o n t o serve passenger autos at r e l a t i v e l y low p r i c e s . As we p r e v i o u s l y observed, the im p l i e d p o s i t i o n i s t h a t Island-mainland t r a n s p o r t a t i o n should be pro-v i d e d at low p r i c e s (the o v e r a l l l e v e l of r a t e s has not changed sin c e the i n c e p t i o n of the s e r v i c e ) and tha t c a p a c i t y should be provided f o r whatever demand m a t e r i a l i s e s . ( i i i ) Revenues from commercial v e h i c l e s cover costs and even c o n t r i b u t e to a r e t u r n on investment. When the e f f e c t s of pass-engers are inc l u d e d , revenue from commercial v e h i c l e s i s some 28 20% g r e a t e r (on a per foo t b a s i s ) than f o r passenger c a r s . 28" Based on gain of one t r u c k and d r i v e r f a r e and l o s s of three cars' f a r e s (approx. three occupants per c a r ) . -124-Yet, as mentioned, aggregated revenues from a l l t r a f f i c do not recover d e p r e c i a t i o n expense (which amounts t o some 10$ of op e r a t i n g expense). Commercial v e h i c l e s c o n t r i b u t e t h i s de-p r e c i a t i o n and more, which can be considered as a r e t u r n on 29 c a p i t a l . 7 Being approximately equal to the d e p r e c i a t i o n expense, the excess amounts t o about 5$ before-tax r e t u r n on v e s s e l c a p i t a l c o s t . -125-CHAPTER 5 ANALYSIS OF' POLICIES -126-5»1 I n t r o d u c t i o n : o b j e c t i v e s The o b j e c t i v e of t h i s chapter i s t o examine and compare some p o s s i b l e commercial v e h i c l e p o l i c i e s f o r B.C. F e r r i e s . This r e q u i r e s a sy n t h e s i s of a n a l y t i c a l and f a c t u a l m a t e r i a l from preceding chapters. Three a l t e r n a t i v e commercial v e h i c l e p o l i c i e s are examined. The p o l i c i e s are (A) c o n t i n u a t i o n of present p o l i c y (which gives B.C. F e r r i e s 50$ of the commercial v e h i c l e market), (B) a t o t a l ban on commercial v e h i c l e s and (C) a r e d u c t i o n i n the number of commercial v e h i c l e s c a r r i e d t o give a sub-s t a n t i a l l y s m a l l e r market f r a c t i o n . A p o s s i b l e f o u r t h p o l i c y , t h a t of i n c r e a s i n g the number of commercial v e h i c l e s c a r r i e d by B.C. F e r r i e s , i s not considered. The r a t i o n a l e f o r such a p o l i c y would presumably l i e i n m a i n t a i n i n g p r i c e / s e r v i c e l e v e l s t o commercial v e h i c l e s i n the face of a d e c l i n e i n p r i v a t e s e r v i c e s . There i s no evidence of such a decline? indeed p r i v a t e operators, as has been shown, are c u r r e n t l y upgrading t h e i r s e r v i c e s . A l s o the apparent p o l i c y of the government i s t o concentrate on ma i n t a i n i n g p r i c e / s e r v i c e l e v e l s t o passenger automobiles. Therefore, n e g l e c t i n g the p o s s i b i l i t y of a r a d i c a l change i n government p o l i c y , t h i s f o u r t h a l t e r n a t i v e i s dismissed as u n r e a l i s t i c . These p o l i c i e s can be implemented by a d j u s t i n g p r i c e or s e r v i c e l e v e l or both. P r i c e and s e r v i c e l e v e l of the p u b l i c -127-c a r r i e r were i d e n t i f i e d as the a v a i l a b l e p o l i c y v a r i a b l e s i n chapter 2 and t h e i r e f f e c t s i n the unregulated, mixed p u b l i c / p r i v a t e f e r r y system were des c r i b e d i n general terms. The appendix to chapter 2 emphasised the equivalence of the two v a r i a b l e s i n implementing p o l i c i e s . The optimal p r i c i n g model of chapter 2 suggested th a t economic e f f i c i e n c y i n commercial v e h i c l e operations i s achieved when the p u b l i c c a r r i e r ( i n competition w i t h a p r i v a t e c a r r i e r ) p r i c e s i t s s e r v i c e s i n excess of the marginal cost of p r o v i d i n g a f e r r y space. The excess should be equal to the excess of the p r i v a t e c a r r i e r ' s p r i c e over i t s (the p r i v a t e c a r r i e r ' s ) marginal c o s t . When the p r i v a t e operator's costs are not known, the p r i c i n g r u l e f o r economic e f f i c i e n c y c a l l s f o r the p u b l i c c a r r i e r t o p r i c e i t s s e r v i c e s t o cover both f i x e d and v a r i a b l e costs and t o earn a reasonable r e t u r n on c a p i t a l . The d i s c u s s i o n of p r i c i n g i n chapter 4 showed that (on the a v a i l a b l e information) commercial v e h i c l e s are p r e s e n t l y charged a r a t e which does indeed cover a l l c o s t s and c o n t r i b u t e s a r e t u r n on c a p i t a l investment. That i s , on the a v a i l a b l e i n f o r -mation, present commercial v e h i c l e p o l i c y approximates t o economic e f f i c i e n c y i n commercial v e h i c l e operations. The c o n c l u s i o n i s t h a t a move away from present p o l i c i e s (e.g. p o l i c i e s B and C ) i s l i k e l y t o be a move away from economic e f f i c i e n c y i n commercial v e h i c l e operations. -128-Why then examine these other p o l i c i e s ? Chapter 2 suggested that economic e f f i c i e n c y v/as not the only c r i t e r i o n by which p o l i c i e s are judged;. there are c e r t a i n considerations which are external to economic e f f i c i e n c y . Chapter 3 i d e n t i f i e d three issues which seem to be p a r t i c u l a r l y s i g n i f i c a n t i n f e r r y operations. These are (a) the p o l i t i c a l and economic importance of continuous f e r r y operations which i s the rationale for some government control in the system, (b) the p o l i c y f o r long term development of the f e r r y system ( i . e . public versus priva t e ) , p a r t i c u l a r l y i n view of the p o t e n t i a l l y severe e f f e c t of the government's p a r t i c i p a t i o n on the l e v e l of private investment and (c) the p o l i c i e s towards other t r a f f i c types, p a r t i c u l a r l y the apparent p o l i c y of the past i n which passenger autos are served at r e l a t i v e l y low prices and capacity i s expanded to meet any demand v/hich materialises. This suggests that part of the analyst's task i s to examine al t e r n a t i v e p o l i c i e s s p e c i f i c a l l y f o r these i d e n t i -f i e d s o c i a l and p o l i t i c a l considerations. Therefore each of the p o l i c i e s A, B and C i s examined f o r the following s p e c i f i c e f f o r t s (conveniently classed as short and long term): ( i ) Short term e f f e c t s : does the p o l i c y approach economic e f f i c i e n c y as per the p r i c i n g model of chapter 2? What are the e f f e c t s on competing f e r r i e s , on customers ( a l l t r a f f i c types) and on B.C. F e r r i e s i t s e l f ? -129-( i i ) Long term e f f e c t s : How w i l l investment i n f e r r i e s , p u b l i c and p r i v a t e , be e f f e c t e d ? What are the s t r a t e g i c i m p l i c a t i o n s f o r government c o n t r o l and i n f l u e n c e i n the f e r r y system? To what extent can any given l e v e l of s e r v i c e be assured i n the f u t u r e ? -130-5:2 Three commercial v e h i c l e p o l i c i e s 5:2> 1 P o l i c y A: Con t i n u a t i o n of present p o l i c i e s E f f e c t s on B.C. F e r r i e s and C.P.R. Present B.C. F e r r i e s p o l i c y guarantees l i v e t r u c k s or f e r r y space i f the t r u c k a r r i v e s t h i r t y minutes before s a i l i n g , provided t h a t t r u c k s do not occupy more than one t h i r d of dock space on a f u l l s a i l i n g . L i v e t r u c k r a t e s are comparable t o those of C.P.R. on Route 2, but are somewhat lower than the competing s e r v i c e f o r Route 1. The p r i c i n g model of chapter 2 i n d i c a t e s t h a t present commercial v e h i c l e p o l i c i e s are close t o economic e f f i c i e n c y , ( s i n c e f e r r y space i s p r i c e d approximately at the l e v e l recom-mended by the model). However, the model says nothing about other e f f e c t s of the p o l i c y , n o t a b l y the e f f e c t s on other types of t r a f f i c and the s t r a t e g i c i m p l i c a t i o n s f o r government i n f l u -ence i n the f e r r y system. The C a r r i e r P r i n c e s s ( o p e r a t i n g downtown Vancouver t o Swartz Bay, f o r V i c t o r i a ) o f f e r s poor s e r v i c e l e v e l s t o l i v e t r u c k s , compared w i t h B.C. F e r r i e s Route 1. The voyage time i s l o n g e r (the e x t r a dead time being a s i g n i f i c a n t cost t o t r u c k e r s ) and s a i l i n g s l e s s frequent (three round t r i p s per day, one of them at n i g h t , compared wi t h B.C. F e r r i e s 16 daytime round t r i p s ) . C.P.R. t e r m i n a l l o c a t i o n s o f f e r no d i s t i n c t -131-advantage t o l i v e t r a c k s over those of B.C. F e r r i e s . In a d d i t i o n , C.P.R. r a t e s are s u b s t a n t i a l l y higher f o r l i v e t r u c k s . Therefore, unless C.P.R. can o f f e r t r u c k e r s b e t t e r terms, i t w i l l capture onl y a s m a l l f r a c t i o n of B.C. F e r r i e s commercial t r a f f i c . B.C.C.S. may nev e r t h e l e s s a t t r a c t other t r a f f i c (e.g. r e c r e a t i o n a l v e h i c l e s ) p a r t i c u l a r l y at peak times when l i n e - u p s of s e v e r a l hours occur on B.C. F e r r i e s . In the past B. C.C.S. has not been eager t o handle h i g h l y seasonal t r a f f i c but w i l l probably be w i l l i n g t o do so i f i t can be made p r o f i t -a b le, i . e . i f t r a f f i c w i l l bear the charges necessary t o cover the c o s t s of excess w i n t e r c a p a c i t y . This would probably r e -qui r e higher r a t e s than those of B.C. F e r r i e s . The s i t u a t i o n i s s i m i l a r t o t h a t of t r u c k i n g , i . e . r e c r e a t i o n a l t r a f f i c w i l l move t o C.P.R. i f the p r i c e / s e r v i c e l e v e l combination favours C. P.R. but current B.C. F e r r i e s p r i c i n g p o l i c y appears t o m i l i t a t e a g a i n s t t h i s . The need f o r continued expansion of government capa-c i t y w i l l be slowed but not a r r e s t e d by the i n t r o d u c t i o n of e x t r a C.P.R. c a p a c i t y i n the C a r r i e r P r i n c e s s . C.P.R.'s aim i s t o maximise u t i l i s a t i o n of the, new v e s s e l by c a p t u r i n g t r a f f i c o f any type ( p r e f e r a b l y t r u c k s ) from B.C. F e r r i e s . The r e l i e f a f f o r d e d t o B.C. F e r r i e s depends on C.P.R.'s -132-s u c c e s s , 1 which i s not guaranteed by c o n t i n u i n g present p o l i c i e s . E f f e c t on t r u c k e r s of c o n t i n u i n g present p o l i c i e s Truckers are p a r t i a l l y p r o t e c t e d from summer con-g e s t i o n by the guarantee of a space i f a r r i v a l i s 30 minutes before s a i l i n g (provided t r u c k s do not occupy more than one t h i r d of deck s p a c e ) I f some l i v e t r u c k s do choose t o use the C a r r i e r P r i n c e s s , t h i s presumably w i l l a r i s e from a cost s a v i n g . - Therefore, t r u c k i n g costs w i l l be l i t t l e a f f e c t e d i f present p o l i c i e s are continued (and may even f a l l s l i g h t l y on average). Long term e f f e c t s of p o l i c y A P r i v a t e investment w i l l occur as p r i v a t e f e r r i e s expand c a p a c i t y t o meet the growth i n t h e i r own share of the market, but i t i s u n l i k e l y t h a t any p r i v a t e operator w i l l be able t o match the p r i c e / s e r v i c e l e v e l o f f e r e d to l i v e t r u c k s E x h i b i t 15 shows the magnitude of t h i s e f f e c t . The C a r r i e r P r i n c e s s has a l i f t o f f c a p a c i t y of about 1,000 spaces per day. B.C. F e r r i e s peak demand i s growing at about 1,500 spaces per day per year. The C a r r i e r P r i n c e s s t h e r e f o r e could accommodate the e q u i v a l e n t of 8 months' growth. 2 This suggests t h a t i n making the d e c i s i o n to i n v e s t i n the C a r r i e r P r i n c e s s , the C.P.R. was hopeful or expectant of a change i n government p o l i c y . -'On average i n the summer season t r u c k s occupy only 9$ of deck space so th a t t r u c k s are r a r e l y turned away. -133-by B.C. F e r r i e s . C.P.R. w i l l probably i n v e s t i n a new v e s s e l f o r drop t r a i l e r s i n the l a t e s e v e n t i e s . (See E x h i b i t 17, showing th a t present C.P.R. c a p a c i t y w i l l be s a t u r a t e d at about t h i s t i m e ) . Of course, t h i s depends on the impact of other operators (e.g. T.I.T.L.) i n the drop t r a i l e r market. The government w i l l maintain i t s p o s i t i o n as " r a t e -l e a d e r " i n the commercial v e h i c l e market -by c o n t i n u i n g present p o l i c i e s . Although d e s t r u c t i v e competition between p r i v a t e c a r -r i e r s f o r drop t r a i l e r s cannot be prevented, minimum l e v e l s of s e r v i c e can be maintained and p r i c e l e v e l s can be i n f l u e n c e d . Summary of e f f e c t s of p o l i c y A (present p o l i c y ) I f present p o l i c i e s are continued, t r a f f i c w i l l s h i f t t o u t i l i s e the C.P.R.'s C a r r i e r P r i n c e s s but the magni-tude of the s h i f t depends on whether B.C.C.S.'s r a t e s t r u c t u r e i s adjusted t o a t t r a c t the t r a f f i c . Not very many l i v e t r u c k s can be expected t o use the C a r r i e r P r i n c e s s but i t may be p o s s i b l e t o a t t r a c t non-commercial summer t r a f f i c because of heavy congestion on B.C. F e r r i e s . Trucking costs w i l l change l i t t l e . The C.P.R. w i l l probably i n v e s t i n an a d d i t i o n a l v e s s e l by 1980 t o accommodate growth i n the drop t r a i l e r market. Other p r i v a t e f e r r y operators may enter the market to complete f o r drop t r a i l e r s but l i v e t r u c k s w i l l continue to use B.C. F e r r i e s . By m a i n t a i n i n g s u b s t a n t i a l r e p r e s e n t a t i o n i n the market, the government w i l l r e t a i n i t s p o s i t i o n of i n f l u e n c e on p r i c e s and -134-s e r v i c e s o f f e r e d t o commercial v e h i c l e s . 51 21 2 P o l i c y B; T o t a l ban on commercial v e h i c l e s A t o t a l ban of commercial v e h i c l e s on B.C. F e r r i e s w i l l guarantee more space f o r other t r a f f i c . Commercial v e h i c l e s ( p r i n c i p a l l y l i v e t r u c k s ) w i l l be o b l i g e d t o use p r i v a t e f e r r i e s . Some members of the p u b l i c have c a l l e d f o r 4 such a ban., They suggest th a t i t w i l l a l l e v i a t e present congestion and w i l l slow the growth of B.C. F e r r i e s c a p a c i t y requirements. A ban on commercial v e h i c l e s would be a move away from economic e f f i c i e n c y f o r f e r r y i n g commercial v e h i c l e s , according t o the p r i c i n g model of chapter 2. This i s t o be weighed ag a i n s t p o s s i b l y b e n e f i c i a l e f f e c t s on other t r a f f i c types i n l i g h t of the immediate c a p a c i t y problems of B.C. F e r r i e s , and against other f a c t o r s (below). E f f e c t s of ban on B.C. F e r r i e s Operating d i f f i c u l t i e s on B.C. F e r r i e s w i l l be r e -l i e v e d and f l e e t u t i l i s a t i o n might be increased. Quoting an o f f i c e r of the T r a f f i c Department, "Trucks and cars simply do not mix"."' Head-level ramp c a p a c i t y cannot be used w i t h more E The Vancouver Sun, May 3, 1973; ^Personal i n t e r v i e w w i t h Mr. K. S t r a t f o r d , T r a f f i c Department B.C. F e r r i e s . - 1 3 5 -than a few t r u c k s on board. The t a l l t r u c k s r e q u i r e the over-head space p a r t i a l l y occupied by the ramps. G e n e r a l l y , l o a d i n g and unloading procedures are s i m p l e r i n the absence of t r u c k s . More space f o r other t r a f f i c i s guaranteed.^ In the 7 summer peak t r u c k s occupy 9$ of v e h i c l e deck space and 18$ o Q i n w i n t e r (averaged over the year, 1 3 $ )• R e l e a s i n g space w i l l r e l i e v e congestion immediately but t h i s r e l i e f w i l l continue only i f the r e s u l t i n g excess c a p a c i t y i s maintained by f u r t h e r expansion t o match growth. A l t e r n a t i v e l y , the excess c a p a c i t y can be used as a g r e a t h i n g space t o postpone the expan-s i o n of c a p a c i t y . The e f f e c t i v e postponement p e r i o d a f f o r d e d by banning t r u c k s i s about s i x months. 1^ B.C. F e r r i e s revenues w i l l f a l l and costs w i l l remain roughly the same. Since t r u c k s p r e s e n t l y c r o s s - s u b s i d i s e other t r a f f i c , t h e i r removal w i l l cause revenues t o f a l l even — S — ' Note the word "guaranteed". More space f o r t r a f f i c might i n any case appear as C.P.R. captures t r a f f i c of a l l types from B.C. F e r r i e s i n order t o f i l l excess c a p a c i t y from the i n t r o d u c t i o n of the C a r r i e r P r i n c e s s . See E x h i b i t s 15 and 1 7 . The ban would i n e f f e c t guarantee about 100$ capture of B.C. F e r r i e s Truck T r a f f i c ( i n the absence of any other c a r r i e r w i t h s u b s t a n t i a l excess c a p a c i t y ) . 'Post-November 1971 c l a s s i f i c a t i o n of t r u c k s . o Half-monthly Loading S t a t i s t i c s , T r a f f i c Department, B.C. F e r r i e s . See E x h i b i t s 7, 8, 9-Q A year-round ban w i l l make B.C. F e r r i e s seasonal peak r e l a t -i v e l y sharper. Since t r u c k t r a f f i c i s the l e a s t seasonal, i t s removal increases the r a t i o of o v e r a l l summer/winter demand from 3«33 "to 3^5 i n terms of v e h i c l e numbers (or from 3.14 t o 3«^5 i n terms of spaces). However, i f the ban i s f o r summer only, the e f f e c t i s t o reduce the r e l a t i v e sharpness ..-from 3 ' 3 3 t o 3«24 i n terms of v e h i c l e numbers. At peak season, a ban saves 750 spaces per day (250 t r u c k s per day) under a growth rate of demand of 1 , 5 0 0 spaces per day per year. - 1 3 6 -i f other t r a f f i c u t i l i s e s the r e l e a s e d space (assuming no p r i c e r e v i s i o n ) . At one extreme, suppose t h a t a l l r e l e a s e d t r u c k spaces are u t i l i s e d by cars w i t h a t y p i c a l number of occupants ( t h i s w i l l occur from one peak season t o the next i f the ban i s used t o postpone investment). Annual r e v e n u e s 1 1 w i l l f a l l by 12 l e s s than 3$ (revenues on each r e l e a s e d space f a l l i n g by 20$). Passenger t r a f f i c w i l l be 12$ higher than i t otherwise would be and passenger accommodation w i l l be b e t t e r u t i l i s e d than at p r e s e n t . 1 3 Costs w i l l change l i t t l e > t i c k e t i n g c o s t s w i l l i n -crease s l i g h t l y since the number of v e h i c l e s w i l l increase and passenger cos t s w i l l increase m a r g i n a l l y . At the other extreme i f excess c a p a c i t y r e s u l t i n g from the ban i s maintained to provide a b e t t e r l e v e l of s e r v i c e , annual revenues w i l l f a l l by 16$. This w i l l prompt a gen e r a l review of r a t e s . There w i l l be some s a v i n g i n a d m i n i s t r a t i v e costs f o r commercial v e h i c l e s but t h i s i s n e g l i g i b l e . Short term e f f e c t s on p r i v a t e f e r r y operators Truck t r a f f i c w i l l increase immediately on C.P.R. f e r r y s e r v i c e s . I f B.C.C.S. captures a l l banned t r u c k t r a f f i c , i t s commercial v e h i c l e t r a f f i c w i l l increase by 100$ and w i l l Assuming a year-round ban unless otherwise s t a t e d . 12 Based on l o s s of one t r u c k and d r i v e r f a r e , g a i n of 3 cars* f a r e s (approximately three occupants per c a r ) . 1 3 B a s e d on 2.9 occupants per car ( h i s t o r i c a l average), 1.0 \ occupants per t r u c k and 3.0 cars per t r u c k space. Walk-on passengers are ignored (no a v a i l a b l e data d i s t i n g u i s h e s between v e h i c u l a r and walk-on passengers). -137-comprise 50$ drop t r a i l e r s and 50$ l i v e t r u c k s . Present C.P.R. , c a p a c i t y w i l l be sa t u r a t e d w i t h commercial v e h i c l e s by 197V5 ( r e f e r t o E x h i b i t 17). I f past C.P.R. p o l i c i e s continue, plans w i l l be i n i t i a t e d f o r f l e e t expansion and upgrading of commercial v e h i c l e s e r v i c e s . Probably a new v e s s e l w i l l be constructed by 1976. The immediate e f f e c t s of the ban on other e x i s t i n g and p o t e n t i a l p r i v a t e f e r r y operators are u n c l e a r . Depending upon the success of C.P.R. t o provide comprehensive s e r v i c e t o l i v e t r u c k s and drop t r a i l e r s , the e f f e c t w i l l be e i t h e r ( i ) b e n e f i c i a l t o other operators by s p i l l o v e r of drop t r a i l e r s (or l i v e t r u c k s ) , p o s s i b l y encouraging new en t r a n t s i n t o the market (e.g. by d i v e r s i f i c a t i o n of e x i s t i n g companies such as Seaspan I n t e r n a t i o n a l ) or ( i i ) harmful by v i r t u e of a p o s s i b l e C.P.R. monopoly i n the commercial v e h i c l e market. I f the ban i s made at short n o t i c e , i t i s u n l i k e l y t h a t C.P.R. w i l l be able t o m o b i l i s e t o dominate the market immediately and the r e -f o r e some t r a f f i c w i l l go t o T.I.T.L. I f the B.C. F e r r i e s ban i s e f f e c t i v e f o r the peak season only/, the e f f e c t s on p r i v a t e operators w i l l be complex. Smoothing of B.C. F e r r i e s demand w i l l be achieved at the expense of c r e a t i n g an a r t i f i c i a l summer peaking of demand f o r p r i v a t e f e r r y s e r v i c e s . P r i v a t e operators' share of the market w i l l then o s c i l l a t e from 100$ t o 50$ season by season. The e x t r a c o s t s -138-a s s o c i a t e d w i t h peaking w i l l he recovered by e i t h e r h i g h e r year-round p r i c e s or peak p r i c i n g . E f f e c t s on t r u c k i n g i n d u s t r y Trucking costs w i l l r i s e i n the short term, and p r i c e s t o the s h i p p e r w i l l f o l l o w ( n e g l e c t i n g any change i n f e r r y r a t e s themselves). The l e v e l of s e r v i c e provided by p r i v a t e operators w i l l be i n f e r i o r (at l e a s t at f i r s t ) t o that provided by B.C. F e r r i e s . Voyage times w i l l increase f o r t r u c k -ers and s a i l i n g s w i l l be l e s s frequent. Costs w i l l change depending on the r e l a t i v e l o c a t i o n s of t r u c k o r i g i n s and des-t i n a t i o n s and f e r r y t e r m i n a l s but a minimum average cost increase f o r l i v e t r u c k s of $15 per v e h i c l e per t r i p i s a reasonable >xii 15 e s t i m a t e . " ^ This w i l l be approximately a 10-20$ cost increase between o r i g i n and d e s t i n a t i o n . The t r e n d towards drop t r a i l e r s and away from l i v e t r u c k s w i l l be encouraged. Since (under the circumstances described) drop t r a i l e r s have a cost advantage over l i v e t r u c k s , they w i l l be i n c r e a s i n g l y used f o r Island-mainland t r a f f i c . 14 A> Based on v e h i c l e standing cost of $15 per hour ( i n c l u d i n g v e h i c l e costs and d r i v e r wage) and moving cost of $20 per hour. Personal i n t e r v i e w w i t h Mr. D.R. MacDonald, T r a f f i c Manager, Trimac L i m i t e d , Calgary. ^ U s i n g an average of 2 hours' moving time, 2 hours' standing time and $40 f e r r y f a r e f o r each t r i p , a t o t a l cost of $110 per t r i p . -139-Long term e f f e c t s of "ban In the long term, a permanent government ban on commercial v e h i c l e s w i l l r e s u l t i n s u b s t a n t i a l p r i v a t e i n v e s t -ment i n f e r r y f a c i l i t i e s . The l i v e t r u c k t r a f f i c p r e s e n t l y c a r r i e d by B.C. F e r r i e s i s r e l a t i v e l y non-seasonal and the r e -f o r e more a t t r a c t i v e t o p r i v a t e operators than other t r a f f i c types. The C.P.R. has the competitive advantage of being a la r g e e s t a b l i s h e d c a r r i e r w i t h s u b s t a n t i a l resources of i n v e s t -ment c a p i t a l . Probably the C.P.R. w i l l attempt t o monopolise the e n t i r e commercial v e h i c l e market. The l o c a t i o n of C.P.R. te r m i n a l s i s favourable f o r the n o r t h e r l y Nanaimo route but the route t o Swartz Bay ( f o r V i c t o r i a ) from downtown Vancouver i s long and time-consuming f o r l i v e t r u c k s . P r i v a t e operators w i t h a more s o u t h e r l y mainland t e r m i n a l are b e t t e r p l a c e d to serve V i c t o r i a and are nearer the centre of i n d u s t r i a l l o c a -t i o n (note the p o s i t i o n of T i l b u r y I s l a n d ) . I t i s here t h a t other p r i v a t e operators can be expected t o appear. 1^ " ^ A f t e r time of w r i t i n g , a s i g n i f i c a n t development was reported i n The Vancouver Sun, August 14, 1973. A $60M seaport has been proposed at T i l b u r y I s l a n d , i n i t i a l l y accommodating three deep sea v e s s e l s and a c t i n g as an assembly and d i s t r i b u t i o n p o i n t f o r B.C., Western Canada and the U.S. The Canadian C o n s t r u c t i o n Consortium L t d . asked D e l t a C o u n c i l f o r approval i n p r i n c i p l e of the development on August 13, but c o u n c i l voted a g a i n s t g i v i n g approval i n p r i n c i p l e u n t i l i t r e c e i v e s p r o f e s s i o n a l advice on the f e a s i b i l i t y of the development. -140-In l e a v i n g the commercial v e h i c l e market, the prov-i n c i a l government abandons the a b i l i t y to c o n t r o l p r i c e s and s e r v i c e l e v e l s f o r commercial t r a f f i c , i n p a r t i c u l a r i t can-not assure minimum s e r v i c e l e v e l s , though of course the pos-s i b i l i t y of r e - e n t r y remains. I t i s d i f f i c u l t t o assess the l i k e l i h o o d of excessive p r i c e s , rate wars between p r i v a t e car-r i e r s or a d e c l i n e of s e r v i c e s below acceptable l e v e l s . 1 ' ' 7 This u n c e r t a i n t y i t s e l f i s a reason f o r m a i n t a i n i n g some government c o n t r o l c a p a b i l i t y . R e g u l a t i o n by l e g a l means has been r u l e d out as a v i a b l e instrument of c o n t r o l because of j u r i s d i c t i o n a l d i f f i c u l t i e s . The only recourse i n these circumstances i s r e v i v a l of government commercial v e h i c l e s e r -v i c e s ( o r the t h r e a t ) to compete w i t h p r i v a t e s e r v i c e s . Implementation of p o l i c y B A ban on commercial v e h i c l e s can be implemented i n s e v e r a l ways. A gradual i n t r o d u c t i o n can be achieved, f o r example, by f i r s t banning c e r t a i n types of t r u c k s (e.g. very long ones), or by s u c c e s s i v e l y r a i s i n g p r i c e s u n t i l a l l t r u c k s choose to use p r i v a t e f e r r i e s . An "overnight" ban, w i t h ample n o t i c e , could a l s o be used without p r e l i m i n a r y steps. — -'The reader i s r e f e r r e d t o the d i s c u s s i o n of the c o n t r o l l i n g e f f e c t s of government presence i n the market described i n s e c t i o n 2:1:3 under the headings " P r i c e l e v e l e f f e c t s on. competition" and "Service l e v e l e f f e c t s on competition." -141-Summary of e f f e c t s of ban A ban of commercial v e h i c l e s on B.C. F e r r i e s w i l l guarantee a s h i f t of t r a f f i c t o C.P.R. which might occur i n any case (though to a s m a l l e r e x t e n t ) . The ban w i l l t h e r e f o r e help t o a l l e v i a t e congestion on B.C. F e r r i e s and/or postpone the need f o r more c a p a c i t y . But these e f f e c t s are sm a l l because commercial v e h i c l e s occupy only a s m a l l p r o p o r t i o n of f e r r y space and because t r a f f i c i s growing r a p i d l y . A gene r a l review of B.C. F e r r i e s r a t e s w i l l be r e q u i r e d because of l o s s of revenue. The C.P.R. can be expected t o s p e c i a l i s e more h e a v i l y i n com-m e r c i a l t r a f f i c and t o i n v e s t i n e x t r a c a p a c i t y i n the near f u t u r e . A ban i n the summer .peak only w i l l t r a n s f e r a peak lo a d t o p r i v a t e operators. Trucking costs w i l l r i s e ( f o r l i v e t r u c k s ) as a d i r e c t r e s u l t of the ban since p r i v a t e operators cannot supply a l e v e l of s e r v i c e e q u i v a l e n t t o tha t of the government f l e e t . In r e l i n q u i s h i n g i t s presence i n the com-m e r c i a l t r a f f i c market the government a l s o abandons an oppor-t u n i t y of i n f l u e n c i n g the f e r r y system. The commercial v e h i c l e market may be monopolised by the C.P.R. or a l t e r n a t i v e l y other p r i v a t e operators may f l o u r i s h , depending whether the C.P.R. m o b i l i s e s i t s resources t o dominate the market. 5»2:3 P o l i c y C> Accepting only a few commercial v e h i c l e s A r e d u c t i o n i n the number of commercial v e h i c l e s c a r r i e d by B.C. F e r r i e s (e.g. r e d u c t i o n of market share from -142-50$ t o 15$) i s designed t o r e t a i n many of the p o s s i b l e b e n e f i t s of a complete ban while m a i n t a i n i n g government r e p r e s e n t a t i o n i n the market as a c o n t r o l measure. I t can be implemented by i n c r e a s i n g p r i c e s , decreasing s e r v i c e l e v e l s , or both; i . e . i t i s a move away from the economic e f f i c i e n c y of present p o l i c i e s f o r f e r r y i n g commercial v e h i c l e s (as shown by the p r i c i n g model). E f f e c t s of p o l i c y C and B.C. F e r r i e s The e f f e c t s of p o l i c y C (e.g. a 70$ r e d u c t i o n of t r u c k s ) w i l l be s i m i l a r t o , though not as extreme as, p o l i c y B (a 100$ r e d u c t i o n ) . Loading and unleading procedures w i l l be s i m p l e r than a t present. About 7$ more deck space could be r e l e a s e d at peak times. Revenues w i l l f a l l u nless a general r a t e r e v i s i o n occurs. E f f e c t s of p o l i c y C on p r i v a t e f e r r i e s Again, the C.P.R. w i l l r e c e i v e most d i v e r t e d t r a f f i c . I f B.C. F e r r i e s continues p o l i c y C f o r a few years, present C.P.R. c a p a c i t y w i l l be sat u r a t e d w i t h commercial t r a f f i c by 1975/6 and plans f o r a d d i t i o n a l c a p a c i t y w i l l be i n i t i a t e d i n the near f u t u r e . The futu r e of other p r i v a t e operators i s not c l e a r and depends on whether C.P.R. upgrades i t s s e r v i c e s suf-f i c i e n t l y t o s a t i s f y the l i v e t r u c k market. E f f e c t s of p o l i c y C on t r u c k e r s The e f f e c t of p o l i c y C w i l l be a general increase i n -143-t r u c k i n g c o s t s . This w i l l a r i s e e i t h e r from the f e r r y f a r e increase i n v o l v e d i n the p o l i c y or from the lower l e v e l of s e r v i c e . The cost increase w i l l "be of the same order of magni-tude as f o r p o l i c y B (10$-20$). Again, the tre n d from l i v e t r u c k s t o drop t r a i l e r s w i l l be r e i n f o r c e d . Long -term e f f e c t s of p o l i c y C The major d i f f e r e n c e between p o l i c i e s B and C l i e s i n the degree of government c o n t r o l i n the system by r e t a i n i n g a presence i n the commercial v e h i c l e market; the p r o v i n c i a l government maintains the f l e x i b i l i t y t o i n f l u e n c e p r i c e and s e r v i c e l e v e l s according to i t s p o l i c y . Commercial v e h i c l e r a t e s can be prevented from r i s i n g above competitive l e v e l s and minimum s e r v i c e l e v e l s can be maintained. However, the p o s s i b i l i t y of d e s t r u c t i v e c o m p e t i t i o n between p r i v a t e c a r r i e r s i s not removed. Any advantage of p o l i c y C over p o l i c y B l i e s i n the extent t o v/hich s e r v i c e s are guaranteed r a t h e r than i n c o n t r o l of competition between c a r r i e r s and i t s e f f e c t s on the l e v e l of p r i v a t e investment. Indeed the v e s t i g i a l government presence i n p o l i c y C may i t s e l f be a long term discouragement t o p r i v a t e investment ( i n the e a r l y s i x t i e s , the very presence of the government accounted f o r a t l e a s t one p r i v a t e operator's d e c i s i o n not t o enter the f e r r y b u s i n e s s ) . Implementation of p o l i c y C The present market share can be reduced i n s e v e r a l says. A simple p r i c e r i s e w i l l d i v e r t l i v e t r u c k s t o p r i v a t e f e r r i e s . A r e d u c t i o n i n s e r v i c e l e v e l (e.g. by r e s t r i c t i n g the number of s a i l i n g s open t o t r u c k e r s ) w i l l have the same e f f e c t . The problem i s to decide how much t o r a i s e p r i c e or reduce s e r v i c e l e v e l t o ob t a i n the t a r g e t market f r a c t i o n . A stepwise change i n p r i c e s (maintaining current s e r v i c e l e v e l s ) can be used. Only a s m a l l number of changes (e.g. two) should be made, otherwise the t r u c k e r s might not respond i n t e l l i g e n t l y t o the r a t e s . A l t e r n a t i v e l y , t r u c k s can be banned a t peak times and permitted t o use only l e s s congested s a i l i n g s . Other p o s s i b i l i t i e s are to withdraw the guarantee of a space i f the t r u c k a r r i v e s 30 minutes before s a i l i n g , or t o i n s t i t u t e a l i m i t e d space r e s e r v a t i o n system. A subsequent p r i c i n g a d j u s t ment can be made to c o r r e c t to the d e s i r e d demand. Summary of e f f e c t s of p o l i c y C A r e d u c t i o n of the commercial v e h i c l e market share of B.C. F e r r i e s can be achieved by i n c r e a s i n g p r i c e s , reducing s e r v i c e l e v e l s t o commercial v e h i c l e s , or both. I t w i l l r e i n -f o r c e a s h i f t t o the C.P.R. and w i l l t h e r e f o r e help t o a l l e v i a t e congestion on B.C. F e r r i e s . But the e f f e c t i s s m a l l because t r u c k s occupy a sm a l l f r a c t i o n of B.C. F e r r i e s and because t r a f f i c i s growing r a p i d l y . The C.P.R. w i l l probably i n v e s t i n -145-a new v e s s e l i n the next few years. Costs w i l l r i s e f o r l i v e t r u c k s , but t h i s w i l l be c o n t r o l l a b l e to some extent because of the government's presence. The r i s k of complete d i s r u p t i o n of commercial v e h i c l e s e r v i c e s (e.g. by s t r i k e a c t i o n ) i s reduced. P r i v a t e c a p i t a l investment i n f e r r i e s by other p o t e n t i a l operators may be i n h i b i t e d by continued government presence i n the commercial v e h i c l e market. -146-5»3 Comparison of a l t e r n a t i v e p o l i c i e s Three major areas of d i f f e r e n c e between p o l i c i e s A, B t and C have emerged. These are (a) i n the economic e f f i c i e n c y of each model as i n d i c a t e d by the p r i c i n g model of chapter 2, (b) the i m p l i c a t i o n s of each p o l i c y f o r other t r a f f i c types and f o r the f u t u r e c a p a c i t y requirements of B.C. F e r r i e s and (c) the i m p l i c a t i o n s of each p o l i c y f o r government i n f l u e n c e and f u t u r e p r i v a t e investment i n the f e r r y system. These are d i s c u s s e d i n t u r n . (a) Economic e f f i c i e n c y i n commercial v e h i c l e operations Present commercial v e h i c l e p o l i c y ( p o l i c y A) approx-imates t o economic e f f i c i e n c y because present p r i c i n g p o l i c y i s close t o t h a t recommended by the model of chapter 2, i . e . , the i n d i c a t i o n s are t h a t present p o l i c y a l l o c a t e s resources f o r the t r a n s p o r t a t i o n of goods between Vancouver I s l a n d and the mainland i n a f a i r l y e f f i c i e n t f a s h i o n . P o l i c i e s B and C i n v o l v e d i f f e r e n t l e v e l s of s e r v i c e and p r i c e (higher p r i c e and lower s e r v i c e level) f o r commercial v e h i c l e s and t h e r e f o r e appear to be l e s s economically e f f i c i e n t . P o l i c i e s B and C i n v o l v e s u b s t a n t i a l l y increased t r u c k i n g c o s t s . There are r e a l resource costs i n v o l v e d i n f o r c i n g l i v e t r u c k s t o use longer f e r r y routes and l e s s con-venient schedules. This i s not because B.C. F e r r y t r u c k i n g -147-r a t e s are s u b s i d i s e d since t r u c k s appear to pay t h e i r c o s t s . I t i s e s s e n t i a l l y because the l o c a t i o n of the C.P.R. route makes i t l e s s e f f i c i e n t f o r t r a n s p o r t i n g l i v e t r u c k s than B.C. F e r r i e s route 1 (between the mainland and the V i c t o r i a a r e a ) 1 ^ (b) I m p l i c a t i o n s f o r other t r a f f i c types and f l e e t expansion I f p o l i c i e s towards other, non-commercial, t r a f f i c are continued, the p o l i c i e s A, B and C l e a d t o d i f f e r e n t requirements f o r i n c r e a s i n g B.C. F e r r i e s ' c a p a c i t y . I f the p o l i c y of s e r v i n g a l l non-commercial demand which appears (at r e l a t i v e l y low p r i c e s ) i s continued, there i s an immediate problem i n s e r v i n g the summer peaks of demand i n 1974 and 1975 or u n t i l the new G a b r i o l a route i s c o n s t r u c t e d . I f the c a p i t a l investment r e q u i r e d i s t o be minimised, then a l l e x i s t i n g f e r r y f a c i l i t i e s , i n c l u d i n g p r i v a t e l y owned f a c i l i t i e s , must be u t i l i s e d . Chapter 4 showed i n d e t a i l the e f f e c t s of u t i l i s -i n g excess C.P.R. c a p a c i t y on B.C. F e r r i e s ' demand. P o l i c y A does not guarantee that C.P.R. c a p a c i t y w i l l be u t i l i s e d . P o l i c i e s B and C take p o s i t i v e steps t o ensure i t s u t i l i s a t i o n . __ An average a d d i t i o n a l r e a l resource cost of $15 per l i v e t r u c k t r i p f o r V i c t o r i a s e r v i c e s would t o t a l $ 0 . 5 M . per year. This c o n t r a s t s w i t h the c a p i t a l cost lump sum s a v i n g of $ 0 . 2 5 M . ($5M. at 8 $ f o r 6 months) a f f o r d e d by postponement of investment i n f e r r y c a p a c i t y . This c a l c u l a t i o n i s not s u f f i c i e n t i n i t s e l f ; a b e n e f i t - c o s t study would a l s o count other b e n e f i t s and c o s t s , n o t a b l y time savings f o r non-commercial t r a f f i c a s s o c i a t e d w i t h the ban. -148-(c) Government i n f l u e n c e i n the system The c o n t i n u a t i o n of present p o l i c i e s a l lows the government t o exert some c o n t r o l over p r i c e s and s e r v i c e s i n the system. This i s a l s o seen i n p o l i c y C. A ban on commer-c i a l v e h i c l e s ( p o l i c y B) e l i m i n a t e s t h i s c a p a b i l i t y . The p o l i -c i e s can only be judged i n the l i g h t of the value p l a c e d on t h i s c o n t r o l c a p a b i l i t y by the government. This value as a matter of government p o l i c y i s not known. While c o n t r o l i s enhanced w i t h government p a r t i c i p a -t i o n , p r i v a t e investment i s discouraged. I f i t i s the long term p o l i c y t o encourage p r i v a t e investment, t h i s i s best done by adopting p o l i c y B (the ban), or by d e c l a r i n g t h a t i t i s t o be adopted i n the f u t u r e . At present there i s l i t t l e evidence t o i n d i c a t e whether a m u l t i - c a r r i e r p r i v a t e system would emerge, or whether a monopolist would take over the market. But i t i s apparent t h a t the market would be served i f the government were t o withdraw. -149-CHAPTBR 6 CONCLUSION -150-i 6i l Review of t h e s i s The r a t i o n a l e f o r t h i s t h e s i s l i e s i n the current s t a t e of f l u x i n f e r r y operations i n B r i t i s h Columbia, p a r t i c u -l a r l y i n f e r r y operations between Vancouver I s l a n d and the main-land.' F r e i g h t t r a f f i c i s expanding r a p i d l y and there i s a growing emphasis on the use of highway t r u c k s as opposed t o r a i l c a r s . Vancouver i s used i n c r e a s i n g l y as an assembly and d i s t r i b u t i o n p o i n t f o r I s l a n d goods. Non-commercial t r a f f i c i s a l s o expanding, n o t a b l y summer r e c r e a t i o n a l t r a f f i c . P r i v a t e l y owned f e r r y s e r v i c e s have been upgraded as a conse-quence of the pressure on B.C. F e r r i e s . This s t a t e of f l u x c a l l s f o r an examination of the present government f e r r y p o l i c y and the a l t e r n a t i v e s . In B r i t i s h Columbia, the government p a r t i c i p a t e s w i t h p r i v a t e e n t e r p r i s e i n the ope r a t i o n of the f e r r y system. The arrangement i s an unregulated, mixed p u b l i c / p r i v a t e system. In t h i s arrangement the p o l i c y v a r i a b l e s open t o the government are the p r i c e s and. s e r v i c e s of the p u b l i c c a r r i e r , B.C. F e r r i e s . The t h e s i s examines the e f f e c t s of these v a r i a b l e s on the e n t i r e system of f e r r i e s , and proposes o b j e c t i v e s and c r i t e r i a i n s e t t i n g these v a r i a b l e s . The primary o b j e c t i v e of the t h e s i s i s t o examine and compare a l t e r n a t i v e commercial v e h i c l e p o l i c i e s . This o b j e c t i v e i s approached f i r s t by i d e n t i f y i n g the a n a l y s t ' s r o l e i n p o l i c y -making. The a n a l y s t ' s t a s k i s t o analyse the p o l i c y a l t e r n a t i v e s -151-i n terms of economic e f f i c i e n c y and t o explore t h e i r i m p l i -c a t i o n s f o r i d e n t i f i e d s o c i a l or p o l i t i c a l o b j e c t i v e s which are important but e x t e r n a l t o the o b j e c t i v e of economic e f f i c i -ency. These other o b j e c t i v e s can then be weighed by the p o l i c y -maker. The o b j e c t i v e of economic e f f i c i e n c y i n d i c a t e s t h a t p r i c i n g of B.C. F e r r i e s commercial v e h i c l e s e r v i c e s should cover a l l costs and make a reasonable r e t u r n on c a p i t a l invested, i n c l u d i n g an allowance f o r the e q u i v a l e n t of income taxes. This behaviour i s the same as t h a t which would be p r a c t i s e d by a competitive p r i v a t e e n t e r p r i s e . Other p r i c i n g behaviour of B.C. F e r r i e s would l e a d t o a. d i s t o r t i o n of the optimal a l l o c a -t i o n of resources. However, there are p u b l i c p o l i c y o b j e c t i v e s and c o n s i d e r a t i o n s which transcend pure economic e f f i c i e n c y ob-j e c t i v e s . These other o b j e c t i v e s and c o n s i d e r a t i o n s appear from a d i s c u s s i o n of past developments i n f e r r y operations i n the pr o v i n c e . They are p r i n c i p a l l y ( i ) the economic and p o l i t i c a l importance of continuous f e r r y operations i n the province which provides a r a t i o n a l e f o r some element of government c o n t r o l i n the system, ( i i ) the p o l i c y o b j e c t i v e s f o r the lon g term develop-ment of the f e r r y system, whether p u b l i c or p r i v a t e , i n l i g h t of the p o t e n t i a l l y severe e f f e c t of government p a r t i c i p a t i o n on p r i v a t e competition; and ( i i i ) the importance of s e r v i n g non-commercial v e h i c l e s , since the government's present p o l i c y seems t o be t o c a r r y these v e h i c l e s at present p r i c e and -152-s e r v i c e l e v e l s at l e s s than c o s t . A s u b s i d i a r y o b j e c t i v e of the t h e s i s i s t o assemble a body of i n f o r m a t i o n about f e r r y operations i n B.C. which may be u s e f u l t o f u t u r e r e s e a r c h e r s . This i s accomplished by r e v i e w i n g the h i s t o r y of f e r r y operations i n the Northwest and by a n a l y s i n g the current o p e r a t i n g and f i n a n c i a l s i t u a t i o n of B.C. F e r r i e s . The f i n a l a n a l y s i s shows t h a t present p o l i c y i n commercial v e h i c l e operations i s apparently c l o s e t o t h a t which i s d i c t a t e d by pure e f f i c i e n c y c o n s i d e r a t i o n s ; but other c o n s i d -e r a t i o n s , above, may dominate i n the p o l i c y d e c i s i o n . Other p o s s i b l e p o l i c i e s considered are t o t a l withdrawal from the com-m e r c i a l v e h i c l e market, and p a r t i a l withdrawal. The e f f e c t s of these p o l i c i e s d i f f e r i n s e v e r a l ways. The fewer commercial v e h i c l e s c a r r i e d , the g r e a t e r the r e l i e f to B.C. F e r r i e s * p r e s s i n g c a p a c i t y requirements and non-commercial v e h i c l e s are more e a s i l y accommodated. But the p o t e n t i a l r e l i e f i s not very g r e a t . I f t r u c k s are t r a n s f e r r e d t o p r i v a t e f e r r i e s , the l e v e l of government c o n t r o l and i n f l u e n c e over commercial v e h i c l e f e r r y operations i s reduced. This can be weighed a g a i n s t the p o l i t i c a l and economic importance of government c o n t r o l . As government i n f l u e n c e d e c l i n e s , there i s a corresponding encourage-ment t o p r i v a t e operators t o i n v e s t i n f e r r y f a c i l i t i e s t o serve the commercial v e h i c l e market. -153-In summary, the o b j e c t i v e of a n a l y s i n g a l t e r n a t i v e p o l i c i e s i s accomplished by b r i n g i n g together the terms of reference provided by chapter 2, the background of f e r r y oper-a t i o n s i n chapter 3 and the d e t a i l e d data of chapter 4. The t h e s i s confines i t s e l f t o an examination of commercial v e h i c l e p o l i c i e s but n e c e s s a r i l y touches r e l a t e d t o p i c s . Some of these merit g r e a t e r a t t e n t i o n than can be g i v e n i n t h i s t h e s i s . These "suggestions f o r f u t u r e research" are o u t l i n e d i n the f o l l o w i n g s e c t i o n . -154-6t2 Suggestions f o r f u t u r e r e s e a r c h A l t e r n a t i v e p o l i c i e s towards non-commercial v e h i c l e s , e s p e c i a l l y t o u r i s t and commuter groups, could be u s e f u l l y i n v e s t i g a t e d . This t h e s i s showed t h a t r e c r e a t i o n a l v e h i c l e s form the f a s t e s t growing t r a f f i c component. One p o l i c y a l t e r n a -t i v e i s t o charge r e g u l a r users as at present but t o charge t o u r i s t s a peak season premium (the groups could be d i s t i n g u i s h e d by a l l o w i n g bulk purchase of t i c k e t s w i t h discount which i r r e g -u l a r users would not f i n d a t t r a c t i v e ) . This would help t o recover the costs a s s o c i a t e d w i t h summer peaking. A l t e r n a t i v e l y the f e a s i b i l i t y of a r e s e r v a t i o n system could be i n v e s t i g a t e d , p o s s i b l y w i t h p r i v i l e g e s f o r i s l a n d r e s i d e n t s . However, the M i n i s t e r of Highways has s a i d i n parliament t h a t any attempt to give preference t o I s l a n d or mainland r e s i d e n t s would "give B.C. a bad name" among to u r i s t s . " 1 " At the present time i t i s u n c l e a r whether l a t e or night-runs w i l l be i n s t i t u t e d on B.C. F e r r i e s . A u s e f u l t o p i c would be t o examine p o l i c y a l t e r n a t i v e s f o r o p e r a t i n g r u l e s and r a t e s on these f e r r i e s ( n i g h t time labour costs which form the major p r o p o r t i o n of f e r r y o p e r a t i n g expense w i l l make n i g h t runs c o n s i d e r a b l y more expensive than daytime r u n s ) . The V i c t o r i a D a i l y C o l o n i s t . March 16, 1973 and A l b e r n i  V a l l e y Times. March 20, 1973--155-General research t o i d e n t i f y f a c t o r s which d e t e r -mine the demand f o r t r a v e l would a s s i s t i n p r e d i c t i n g t r a f f i c and suggest methods of i n f l u e n c i n g i t . For example, there i s some evidence t o show t h a t p o t e n t i a l t r a v e l l e r s are s t r o n g l y i n h i b i t e d i f they know before making plans t h a t s e r v i c e s are h e a v i l y congested; on a h o l i d a y weekend i n May, 1973, B.C. F e r r i e s sponsored r a d i o b u l l e t i n s throughout the weekend a d v i s i n g m o t o r i s t s t h a t there would be no e x t r a s a i l i n g s on any f e r r y run (because of labour d i f f i c u l t i e s ) . 2 The r e s u l t on Routes 1 and 2 was t h a t t r a f f i c was c o n s i d e r a b l y l e s s than expected, and was even l e s s than on a normal weekend. This suggests t h a t i f m o t o r i s t s can be informed of the l i k e l y l e n g t h of queues f o r a g i v e n s a i l i n g they w i l l a d j u s t t h e i r plans a c c o r d i n g l y . For example, a taped telephone message could inform i n q u i r e r s of the estimated l a t e s t times they should a r r i v e at a f e r r y t e r m i n a l t o board the s a i l i n g . This i s an i n t r i g u i n g management science problem because of the feedback e f f e c t of the telephone s e r v i c e i t s e l f on the l e n g t h of the l i n e -ups. There i s a g e n e r a l need f o r data on a l l f e r r y users t o a s s i s t i n policymaking. O r i g i n - d e s t i n a t i o n data f o r a l l types of v e h i c l e s w i l l a s s i s t , among other t h i n g s , i n p r e d i c t i n g -The Vancouver Sun, May 22, 1973• - 1 5 6 -demand f o r the new G a b r i o l a route. I t w i l l a l s o a s s i s t i n the desig n of highway access t o the new t e r m i n a l s and the design of a minimum-cost system of Island-mainland t r a n s p o r t a t i o n . -157-. BIBLIOGRAPHY The A l b e r n i V a l l e y Times, March 20, 1973 Baumol, W i l l i a m J . " M o n o p o l i s t i c Competition and Welfare Economics", American Economic Review, May, 1964, pp. 44-52. A l s o r e p r i n t e d i n Rima, I n g r i d H. Readings i n the H i s t o r y of Economic Theory (below). Baumol, W.J. and Bradford, D.F. "Optimal Departures from M a r g i n a l Cost P r i c i n g " , American Economic Review, 1970, vol. 60. #3, pp. 265-283. B r i t i s h Columbia Department of Highways. Annual Reports f o r the F i s c a l Years Ending March 31, 1969 through 1972 B r i t i s h Columbia Department of Highways, F e r r i e s D i v i s i o n - . B.C. F e r r i e s . Passenger and F e r r y T a r i f f No. 1., e f f e c t i v e October 21, 1971. B r i t i s h Columbia Department of Highways, F e r r i e s D i v i s i o n -B.C. F e r r i e s , T r a f f i c Department. Half-monthly  l o a d i n g data f o r Horseshoe Bay and Tsawwassen  Terminals, 1972 and Out-of-Province Loadings, 1972. (unpublished). B r i t i s h Columbia. Revised S t a t u t e s of B r i t i s h Columbia, Chapt 380. B r i t i s h Columbia F e r r y A u t h o r i t y Act and  B r i t i s h Columbia F e r r y A u t h o r i t y (Vesting) Act, 1968. B r i t i s h Columbia. Revised Sta t u t e s of Canada, 1970, Appendix, p. 279. Order of Her Ma.iesty i n C o u n c i l A d m i t t i n g  B r i t i s h Columbia i n t o the Union, May 16, 1971. - 1 5 8 -The B r i t i s h Columbian. May 1 2 , 1 9 6 4 . Cadieux, H. and G r i f f i t h s , G. Dogwood F l e e t t the Story of  the 3 r i t i s h Columbia F e r r y A u t h o r i t y from 1 9 5 8 . Nanaimo, B.C.: Cadieux and G r i f f i t h s L t d . , 1 9 6 7 . Canada. S t a t i s t i c s Canada 53-224. F o r - h i r e Trucking Survey 1970, June, 1 9 7 2 . Canadian P a c i f i c Railway L i m i t e d , B r i t i s h Columbia Coast Steamship S e r v i c e . T a r i f f No. 4 , e f f e c t i v e J u l y 1, 1 9 7 2 . Comox D i s t r i c t Free Press. October 3 1 , 1 9 6 2 . The Economist I n t e l l i g e n c e U n i t L i m i t e d . A t l a n t i c Provinces T r a n s p o r t a t i o n Study. Ottawa: The Queen's P r i n t e r , 1 9 6 7 . Greene, Ruth. P e r s o n a l i t y Ships of B r i t i s h Columbia. West Vancouver, B.C.: Marine Tapestry P u b l i c a t i o n s L i m i t e d , 1 9 6 9 . Heggie, Ian G. Charging f o r Port F a c i l i t i e s . An Occasional  Working Paper. Vancouver, B.C.: The Centre f o r T r a n s p o r t a t i o n Studies, the U n i v e r s i t y of B r i t i s h Columbia, 1 9 7 2 . Heggie, Ian G. Transport Engineering Economics. Maidenhead, England: McGraw H i l l L i m i t e d , 1 9 7 2 . The Kelowna Courier, March 3 1 , 1 9 7 3 . Lewis, W.A. "Overhead Costs", i n Munby, Denys (ed). Transport, (below) -159-Munby, Denys (ed.). Transport. Harmondsworth, England Penguin Books, 1968. The Nanaimo D a i l y Press, November 9, 1962. P r i n c e Edward I s l a n d . Revised Statutes of Canada, 1970. Appendix, p. 291. Order of Her Majesty i n C o u n c i l  A d m i t t i n g Prince Edward I s l a n d i n t o the Union, June 26, 1873. Purdy, H.L. T r a n s p o r t a t i o n and P u b l i c P o l i c y i n Canada. Vancouver, B.C.: The U n i v e r s i t y of B r i t i s h Columbia, 1971. Rima, I n g r i d H. (ed.). Readings i n the H i s t o r y of Economic Theory. New York: H o l t , Rinehart and Winston, 1970. Rimes, Edward H. An Examination of T r a n s p o r t a t i o n Trends on Vancouver I s l a n d . Vancouver, B.C.: a graduating essay f o r the degree of Bachelor of Commerce, U n i v e r s i t y of B r i t i s h Columbia. 1972. (unpublished). Rushton, Gerald. "The Union Steamship Company of B r i t i s h Columbia. A Short H i s t o r y " , i n Greene, Ruth. P e r s o n a l i t y Ships of B r i t i s h Columbia (above). Turvey, Ralph. Economic A n a l y s i s and P u b l i c E n t e r p r i s e s . London: A l l e n and Unwin L i m i t e d , 1972. Union Steamship Company L i m i t e d . Our Coa s t a l T r i p s . Vancouver, B.C.: Sun P u b l i s h i n g Company, 1923. -160-The Vancouver Province, May 30, 1963. May 28, 1964. J u l y 31 August 26, 1965. December 1, 1966. J u l y 27, September 4, 14, 1971. The Vancouver Sun. January 22, i960. January 19. October 6, 1962. November 1, 1966. May 11, 1967. January 15 1972. January 31. March 21, A p r i l 7, May 3, 22, August 14, 1973. V i c k r e y , W i l l i a m . "Some I m p l i c a t i o n s of Marginal Cost P r i c i n g f o r P u b l i c U t i l i t i e s " , American Economic Review, Supplement, 1955. v o l . 45, #2, pp. 605-20. A l s o i n Munby, Denys (ed.). Transport, (above). The V i c t o r i a D a i l y C o l o n i s t . March 21, 1966. February 21, March 16, 1973. The V i c t o r i a Times, March 7, 16, 27, 1973. The V i c t o r i a n ( V i c t o r i a ) , March 28, 1973. Wegg, Tal b o t . "The Sweet Seagoing Buses of S e a t t l e " , C i t y May-June, 1971, v o l . 5. #3, PP. 49-51. -161-Per s o n a l Interviews and Communications Mr. I r v i n Froese, V.P. T r a n s p o r t a t i o n S e r v i c e s , Johnston Terminals L t d . , Vancouver, B.C. Mr. Ron Gamey, Manager, A n a l y s i s and Planning, Canadian P a c i f i c Railway L t d . , Vancouver, B.C. Mr. Richard H a l l i b u r t o n , T r a f f i c Department and former T i c k e t Agent, B.C. F e r r i e s . Tsawwassen Terminal. Mr. D. Robert MacDonald, T r a f f i c Manager, Trimac L t d . , Calgary, A l t a. Mr. Howard Mann, V.P. Management S e r v i c e s , Swan Wooster L i m i t e d , Vancouver, B.C. Mr. Stan Prokop, Manager, T i l b u r y I s l a n d Terminals L t d . , Vancouver, B.C. The Rt. Hon. Robert M. Strachan, then M i n i s t e r of Highways, as of May, 19731 M i n i s t e r of Transport and Communi-c a t i o n s , Government of the Province of B.C. Mr. Ken S t r a t f o r d , T r a f f i c Department and P u b l i c Information O f f i c e r , B.C. F e r r i e s , Tsawwassen Terminal. Mr. Jim Yates, Marine Superintandant, B r i t i s h Columbia Coast Steamship S e r v i c e , Canadian P a c i f i c R a i l L t d . , Vancouver, B.C. 

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