Thursday, October 27, 2005

The Fast Ferry Report Card

The 6 month report on the CAT, or Fast Ferry, is out. The numbers are worse than originally projected. For those of you who are either not from Rochester, or have managed to avoid listening to the news since.... oh, about forever here's a Democrat and Chronicle primer.

I just want to react to some things in the article.

The high-speed ferry between Rochester and Toronto lost $4.2 million through August, a progress report released Wednesday shows far surpassing initial projections of a $725,000 deficit in its first year.

The operating shortfall alone erases half of the $8 million cushion set aside for anticipated deficits in the first three years. What remains of the cushion, and what is needed long term, might not be sorted out until the ferry board releases its 2006 plan in December.

"We're actually within budget on expenses," said City Councilman and ferry board President Benjamin Douglas. "So it becomes a revenue issue."

The loss is not so much of the blow to the operation. Given a late start for the ferry, a lack of tour promotions because of the uncertainty of the start-up, the high price of fuel, and still paying piloting fees, the revenue shortfall isn't such a terrible thing. Oh, it is terrible though. It's terrible because it is so much greater than the original projection, and that it consumes so much of the fund set aside to finance future shortfalls. Given this information, I can't fathom that the Ferry can avoid requiring more cash from public sources in the near future. The indications here are that someone didn't get their numbers right. Unfortunate, but not impossible to understand. There are a lot of unknowns in getting this thing up and running, and the sooner that is understood, the less these choppy waves will cause us trouble.

Our esteemed Dean of the Simon School of Business, Mark Zupan, was able to weigh in on the report:
An important number, not included in the 13-page report, is the operating profit or loss in August, said Mark Zupan, dean of the University of Rochester's William E. Simon Graduate School of Business Administration.

Zupan said operators must define their plan to hedge future energy costs.

Which makes a lot of sense. I'm curious as to what kind of hedging Bay Ferries has in place for its fuel costs, and whether the Rochester CAT is part of that hedge, or if the city is responsible for any fuel hedges. A hedge is essentially financial insurance constructed with marketderivativess, notes, eyes of newt, and other icons of monetary witchcraft. In this case, you want to buy something that will keep the price of fuel from going too high. You'd rather pay for some insurance you don't use than expose yourself to the risk of increasing fuel costs. I;d be very interested to see what the hedge they had in place was, and what they intend to do about it.


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