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LETTER: Feds need to rethink ferry service finances

A less-than-efficient and cost-effective transportation system has serious implications for the provincial economy, according to Capt. Sid Hynes, executive chairman of Oceanex.
A less-than-efficient and cost-effective transportation system has serious implications for the provincial economy, according to Capt. Sid Hynes, executive chairman of Oceanex. - SaltWire Network

On Jan. 31, The Telegram published a lengthy letter from Port Aux Basques Mayor John Spencer addressing his concerns with the cost of marine transportation services provided by Marine Atlantic between North Sydney and Port Aux Basques.

The mayor also provided his perspective on the 40-year-old Royal Commission that studied our province’s transportation network and the federal government’s role in it.

Like the mayor, we have considered ways to enhance our marine transportation system, including the Gulf ferry service. Irrespective of our obvious commercial interest, we are keenly aware that a less-than-efficient and cost-effective transportation system has serious repercussions for the Newfoundland and Labrador economy.

As such, we echo the mayor’s call that the federal government look differently at how it finances and operates the Gulf ferry service.

The price sensitivity of the private-passenger market outlined by Spencer is quite different than that of the freight transportation market.

Marine Atlantic’s total operating cost represents only a small fraction of the nearly $20 billion of expenditures in the province. With nearly 80 per cent of Marine Atlantic’s traffic being commercial in nature, there is a significant opportunity to properly price the movement of freight transportation over the Gulf ferry service on a 100 per cent cost-recovery basis and to address the incremental cost of providing private passenger service on an appropriate cost recovery basis as determined by the federal minister of Transportation.

In the 2015 report “Newfoundland Domestic Trade Routes and Competition Assessment” prepared for Transport Canada by CPCS, the authors presented a comparison of Canadian ferry rates. This comparison clearly demonstrated the substantial benefit conveyed upon the trucking industry by current Gulf ferry freight transportation rate-setting practices. It further demonstrates that if the Gulf ferry rates were doubled, this service would still provide some of the most affordable ferry rates in the country, confirming the resulting rates would in fact, be both fair and reasonable.

As for the 1978 report, the Commission’s criticism of Gulf rate setting was that it had no apparent basis and the recommendation to tie it to highway cost was simply an attempt to tie rate setting to a methodology that was free of political interference.

The report was also cognizant of the importance of not reducing the competitive advantage of private marine shipping companies, who were also subsidized at the time. It is indeed unfortunate that the need to remove the external pressures on Marine Atlantic rate setting remains even today in the current context of a deregulated and unsubsidized transportation environment.

The Economic Council of Canada, a Crown Corporation tasked with providing policy recommendations to the federal government, issued a 1980 report titled “Newfoundland: From Dependency to Self-Reliance” in which it commented on the 1978 Royal Commission discussion of subsidization of the Gulf ferry.

The 1980 report concluded that the market should be allowed to operate efficiently, and the money used in subsidizing the ferry service could be put to better uses such as providing an income supplement for the working poor.

Oceanex Inc. has been raising its concerns regarding the impact of freight rate subsidization via the Gulf ferry service for years.

Like Mayor Spencer, we too hope the government fully reflects on this service and its total impact on taxpayers.

Capt. Sid Hynes

Oceanex Executive Chairman

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