Home' Trinidad and Tobago Guardian : July 27th 2017 Contents Trinidad and Tobago has found
itself having a very inefficient
transportation link system.
This situation, exacerbated by
an ever increasing demand for
the connection between the
islands to be seamless, requires in-depth anal-
ysis rather than a "patch and make fit system"
It would be useful to highlight the main issues
which need to be addressed in resolving the
A central issue is the acquisition of the
right vessel(s). Other issues revolve around
the economic, social and technical challenges
associated with establishing an efficient and
sustainable mode of inter-island transport.
Acquiring a ferry
Getting the ideal fit will require the building
of a ferry that is designed for local conditions
and our requirements. The cost of building
would be in excess of US$100 million. The
major advantage to owning a vessel is that you
have full control of this asset, and at the end of
the depreciated life cycle you have a residual
value which can be monetised if need be.
Further, when you buy and therefore own
a vessel, there is the tendency to pursue local
content as it relates to technical, crew, and
operations/charter, which are the three core
areas of ship management.
An alternative way forward would be to Time
Charter a vessel instead of incurring the cost
of a new build. This may be a viable option for
the following reasons:
We can negotiate a long term charter on a
new building, based on the extent of the invest-
ment. Given maintenance and demand factors,
this charter could be between 10 and 15 years.
The long-term charter of a vessel would not
require a large initial capital outlay but rather a
commitment to lease for a guaranteed period.
These arrangements are quite common, and it
leaves the operation of the vessel to the experts
who have breadth and depth of experience in
these operations and are therefore eminently
qualified to offer an efficient solution. This
may or may not, however, be a more cost ef-
The charter vessel can be a new building
which is constructed to the specification as
required, while foregoing the large initial cap-
ital outlay. The ideal vessel for the seabridge
will require a specific size, draft, cargo and
passenger capacity; specific stabilisers for our
rough sea conditions, speed, type of fuel etc.
A new vessel will permit the installation of
fuel efficient and possible even LNG engines
to reduce the overall cost of operations.
Negotiations can begin immediately on such
a project, instead of the typical protracted
process of the government doing the design,
financing and construction.
If the decision is to continue with the fast
ferry type vessel, it appears that we do not have
the ability to effectively maintain these highly
sophisticated vessels. Chartering leaves the
responsibility of maintaining and dry-docking
to the owners.
With the effluxion of time on the charter,
our needs may change, and we will have the
option of extending the Charter on the existing
vessel or securing another vessel that best fits
our changing needs.
Over the course of 15 years our requirements
may have been adjusted, and another model
may at time be more practical and/or cost ef-
fective. If we then choose to get another vessel,
we do not have the responsibility of having to
sell the current one. But we also would not
benefit from the residual value of the vessel.
Another advantage is that the government
knows on an annual basis, the fixed amount
required for budgeting purposes.
Of course there are also risks associated with
time chartering a vessel, the most significant
of which is a rift developing between charter
parties and the charterer then picks up and
leaves, resulting a huge service disruption.
The probability of this occurring is however
very slim since contract terms will minimise
A third alternative is to purchase the ves-
sel and outsource the management of vessel
Short- to medium-term
Ultimately, it costs more to charter a vessel.
However, the impetus for chartering is that
chartering invariably gives an assurance that
there will be reliability and efficiency, more-
so if the contract includes all the technical,
crew, and operational competencies required
to maintain a high level of efficiency. Tradi-
tionally (and certainly over the course of the
last 10 years), we have always chartered ferries
as an interim measure only, as we sourced a
vessel for purchase.
In the context of the aforementioned con-
siderations, and holding all else constant, it is
therefore recommended that serious consid-
eration be given to the time charter option as it
eliminates the need to raise significant capital.
It also eliminates the need to invest in spares,
training and maintaining, and an army of en-
gineers and service men. Along with crewing
and managing, outright purchase represents
a very large investment.
Funds that are available could be used in de-
veloping dock side area at the port and have
an ultra modern, efficient facility.
In the long run, the above is perhaps the
simplest among the considerations for the
establishment of an effective and sustaina-
The local seabridge or inter-island ferry as
it is more commonly known is heavily subsi-
dised. Reportedly, the monthly cost of the ferry
subsidy is US$20 million. This represents 75-
80 per cent of the cost of operating the ferry.
The choice of fast ferry versus conventional
ferry is a significant driver of costs. Fast ferries
cost significantly more to operate than con-
Apart from higher fuel costs, fast ferries
cannot accommodate crew and as such, when
such vessels are commissioned, onshore ac-
commodations have to be sourced for the crew.
This represents another significant element of
cost. Currently, the cost of on-shore accom-
modation for crew is in excess of TT$100,000
dollars monthly. Against these astronomical
subsidies, let's examine what it costs to use
On the passenger side, the cost for adults
is TT$100 (US$16) return, children TT$50
(US$8) return and senior citizens free. Is this
fee structure realistic in light of the true costs
of operating the ferry? The adult fare is less
than the cost of a one-way fare from San Fer-
nando to Piarco airport.
To take the analogy further, in what city in
say the United States, can we get into a taxi and
pay US$8 to travel relatively the same distance.
The more poignant issues to be reconciled
are as follows:
• What is the Government’s obligation re-
garding the sea-bridge?
• Is the Government obligated to provide a
viable inter-island transport system for both
cargo and passengers? And if so, at what cost
and at what service levels?
• Is the seabridge used primarily for business
or for leisure?
• What drives demand for the ferry?
• What level of subsidy is reasonable to sup-
port the seabridge?
• What level of service should be expected
at a certain price-point?
These are questions for very serious delib-
At first blush, we contend that the Toba-
go ferry can be likened to GATE, whereby a
subsidy is so mis-allocated that a significant
number of persons who can afford to pay a
commercial rate are being subsidised.
Consequently, this places an artificially
higher demand for the service than if a more
realistic market price was in place, and this if
further exacerbated by an unreasonably high
service expectation at the artificially low rate.
We further contend that in the quest to ful-
fill a social obligation to ensure its existence,
the Tobago ferry service has been significantly
mis-priced, resulting in a huge and unnec-
essary burden on taxpayers. Is it worth it to
the government (and the taxpaying public)
to continue to provide that level of service at
such a huge subsidy? Were the Tobago sea-
bridge a commercial venture, it would cost the
travelling public at least twice the cost of the
Before we decide on purchasing ferry/fer-
ries, we need to establish the parameters for
what we are really trying to achieve. We need
to determine what the objectives are for the
seabridge and what the optimal ways to achieve
the objectives are.
Proper analysis needs to be conducted to
support rational decision making. A balance
needs to be struck between the level of subsidy
and the level of service. In our view, we sim-
ply cannot continue to (effectively) burn the
country's revenues in fuelling these ferries in
such a callous manner. The opportunity cost
is that in a situation where we don't have good
hospitals/healthcare, etc, we need to put our
resources to the most viable if not the most
The subsidy should be no more than 50 per
cent. Consideration should therefore be given
to a combination of conventional and fast ferry.
Consider adopting a two-tier pricing strat-
egy, where the conventional ferry will bear
the subsidy but the fast ferry will be priced
at market or close to market rate. This way,
you match service levels with the real cost of
Alternately, deregulate the seabridge and
allow commercial operators to offer a fast-fer-
ry service, with Government only supplying
conventional and perhaps cargo ferry service.
As, and if necessary, bring the foreign exper-
tise but manage the contractual arrangements
to ensure the desired transfer of expertise/
knowledge and technology takes place. Do
not let the contact be a gravy-train for the
Ultimately, the real challenge for T&T is how
to achieve a viable and sustainable seabridge
and control and manage costs.
In another feature, we will address the ultimate
option to a subsidised (cargo) ferry; interna-
tional vessel calls for Tobago.
JULY 27 • 2017 guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG13
An alternative perspective
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