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Did ferry fares really have to go up?

Photo courtesy of Wikimedia Commons.

It's been hard to avoid the headlines, the political sniping and the flood of letters-to-the-editor as ferry users brace for the fare hikes that kick in next Monday.

The company is calling the hike a fuel surcharge, something it's allowed to apply, with permission, when fuel costs rise significantly and it has to pass the cost along to passengers.

There's already a five-per-cent surcharge on the minor routes to account for earlier fuel increases. On Dec. 12, the price of a ticket goes up 2.5 per cent on major routes and by the same amount on the Horseshoe Bay-Langdale route -- the first time the surcharge has been applied there. 

The response has been predictable. And understandable.

The cost of takng a family of four and their car on a one-way trip between Nanaimo and Vancouver is more than $100 now. Traffic is down. Ferry-dependent communities and businesses are angry and looking to the government, which owns BC Ferries, to fix the mess. And opposition politicians, sensing blood in the Island waters, are demanding to know why Transportation Minister Blair Lekstrom allowed any kind of a surcharge when fares are supposed to be frozen until October of next year -- by law.

BC Ferries says it has no choice. The company says it already faces a $20 million operating loss this year and fuel has gone up so much that, with no wiggle room, it has to hike fares. 

(Not everyone agrees that fuel prices have really gone up that much, but that's a whole other discussion.)

When it announced the surcharge, the company noted that its annual fuel cost was $45.9 million in 2003 and that in 2011/2012, it could be more than $120 million.

That's one way of explaining the problem. It's true, fuel is more expensive than it was eight or nine years ago.

But there are other ways of looking at the situation. Especially when the only solutions being presented are to increase fares and decrease service.

One alternative is to ask how good BC Ferries is at doing the things that other marine transportation companies do to cope with the fuel costs they all face.

Hedging is one thing they do. Building fuel-efficient vessels is another.

Fuel hedging is pretty simple. It's done by most big companies that have to buy a lot fuel. Airlines, for example. It means they make advance purchases of fuel at a fixed price for delivery in the future, to protect against the shock of anticipated price hikes -- like the ones BC Ferries says it is experiencing.

It's a kind of insurance against big future price hikes.

And, like when buying insurance, companies have choices about how they hedge. It requires a skilled manager to make sure it's done well, and at a cost that makes it affordable.

Does BC Ferries hedge well? Hard to say, because they don't release financial figures in a way that would let us decide. But there are some signs that Ferries hasn't been ahead of the curve on this one. For one thing, the company was set up in 2003. It wasn't until 2005, when fuel prices were biting it hard, that it even decided to start hedging -- and that was offered as an option when the ferry commissioner, who has to approve fares and surcharges, was called in to OK a surcharge.

Not a great sign that hedging wasn't an automatic part of the business from the start. It says something about the level of expertise at work.

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