A closer look at boatline finances and traffic patterns.
The latest round of Steamship Authority (SSA) fare hikes that went into effect on Jan. 1 struck a nerve with Islanders. An online petition that attracted close to 3,000 signatures unsuccessfully pressed the argument to authority members to suspend or rescind the hikes in the face of dropping oil prices.
SSA management pointed to ongoing costs which would lay claim to any fuel savings, as well as the continuing volatility of oil prices. Until last year, the rising cost of oil had an impact on expenses, but it is only one factor in a financial equation that has not changed significantly over the years, management said. Increases in auto, truck, and passenger fares balance increases in the cost of labor, benefits, and all SSA maintenance projects, in addition to the cost of fuel.
The SSA’s 2013 annual report, published in April 2014 and available online, provides a wealth of data about boatline operations, costs, and revenue. In 2013, SSA total revenues were $90,123,000. In that same year the SSA had $85,967,000 in total operating outflows.
On the revenue side
In 2013, the SSA carried a total of 452,000 cars, 162,000 trucks (including pickups), and 2,847,000 passengers to and from Martha’s Vineyard and Nantucket. During 2013, there were 22,050 one-way ferry trips completed, 409 more than in 2012.
On the plus side of the ledger, the SSA received its 2013 revenues from three major categories: passenger tickets 31.8 percent, automobiles 31.1 percent, and freight 25.6 percent. Parking in SSA lots accounted for another 6.3 percent of the total.
The breakdown of revenue by dollar amounts is as follows: $28,600,000 for passenger tickets, up approximately 4 percent from 2012 to 2013. Automobiles accounted for $28,000,000, up 2.4 percent. Parking was $5,656,000, up 2.6 percent. Other sources of revenue contributed $4,732,000, up 6.4 percent. With revenue of $23,000,000 in 2013, freight led all categories with a year-over-year increase of 12.3 percent. In 2013, the SSA had a net operating income of $4,188,000.
Fares are not equal
Although auto fares accounted for 31.1 percent of SSA revenue in 2013, not all fares are equal. The excursion fares available for Island residents are heavily subsidized by full-fare auto rates. For example, a “regular rate” round-trip auto ticket for Martha’s Vineyard vacationers in season costs $137, plus $32 for two passenger tickets. This is approximately 80 percent more than the new $94 excursion auto fare, which has no additional charge for two adult passengers and two children. In 2013, the average excursion fare covered approximately one-third of the cost of transportation.
On both the Martha’s Vineyard and Nantucket routes, the percentage of excursion autos carried changes from month to month. It should come as no surprise that during July and August, the number of standard-rate autos carried jumps dramatically, to more than 80 percent of the total of vehicles carried.
The reverse is true in the winter months from December to March, when excursion fares rise to more than 60 percent. Over a 10-year period, the percentage of excursion autos compared with standard autos has dropped from 43 percent in 2004 to 37 percent in 2014 for Martha’s Vineyard. According to Robert Davis, SSA treasurer, in order to qualify for the excursion-rate program, a person must be named on a street list published by each of the towns. Mr. Davis thinks that stricter enforcement of requirements for participating in the Preferred Program has been a factor in the gradual percentage decline.
On the cost side
The total of all payroll, benefits, and payroll taxes accounted for a little more than 52 percent of SSA operating costs in 2013. Vessel and facilities maintenance, excluding labor, added another 10.5 percent. Fuel represented 10.6 percent of the $85,967,000 in total operating outflows in 2013. Results for 2014 are being finalized by the SSA’s auditors, and the 2014 annual report will be available in April.
Labor is the major cost factor in SSA operating expenses, and categories such as payroll, health insurance, and pension funding do tend to increase from one budget cycle to the next. For example, pension and health insurance benefits are expected to go up by an additional 11 percent in 2015, to just over $14 million.
But a reading of the administration’s monthly business reports also shows that in 2014, there were savings in most categories when comparing budget to actual. For example, through November, payroll, benefits, and payroll taxes were more than $600,000 under budget.
Over the years, SSA management has sought and won manning concessions, SSA General Manager Wayne Lamson told The Times.
Mr. Lamson outlined manning levels for each of the vessels. The Island Home, for example, carries 12 crew members, which is two more than the 10 minimum required by the U.S. Coast Guard (USCG). The Martha’s Vineyard and Nantucket also carry one or two more crew members than required by USCG regulations. However, Mr. Lamson pointed out, if the minimum manning level was scheduled for each trip and one of the licensed crew was suddenly unable to serve, it would cause delays in departures. He said that were the SSA were to sail at minimum manning levels, if an individual was late the ferry could not depart. That would require the SSA to pay for crew members on standby status should they be needed on short notice.
As noted, personnel expenses account for the lion’s share of the budget. But in 2013, the biggest and most dramatic change in an expense category was in maintenance. SSA paid $4 million for damage sustained from Hurricane Sandy to the pier and facilities in Oak Bluffs. The SSA typically spends about twice as much each year maintaining its vessels versus its terminals and other property. In 2013, direct maintenance cost for vessels, excluding labor, was $5.6 million.
That extra cash
Any savings realized by a drop in fuel prices is already earmarked. In an interview with the Times in Woods Hole, Mr. Lamson explained that after paying the bills required to run SSA operations throughout the year, the money that is left over — plus cash from the depreciation expense account — is used for the payment of interest and principal on outstanding bonds, as well as other onetime special items. “That cash is set aside and cascades down from operating income into special accounts that pay interest on our debt, as well as bond redemptions and other longterm projects like renovations to the Woods Hole terminal. There is a specific timetable for transferring the money into the named funds throughout the year,” he said. “The process is defined by the SSA’s enabling legislation, dating back to 1961.”
According to the annual report, the Steamship Authority was scheduled to pay approximately $2 million in interest as well as principal payments of $5.5 million in 2014. In March 2015, the SSA currently has just under $39 million in outstanding bonds, and anticipates paying for its newest ferry, the Woods Hole, with an additional $36 million bond to be issued this quarter. The Commonwealth of Massachusetts guarantees Steamship Authority bonds up to $100 million.
Fuel cost Impact
Whether the January rate increase is viewed as warranted or not, it is clear that declining oil prices have already had a positive impact on the SSA’s operating income. The business summary prepared for the board each month shows that vessel fuel oil in November was $211,000 under budget and that the SSA had already achieved more than $1 million in fuel savings versus the budgeted amount for 11 months in 2014. Because the budget cycle for 2015 was quite far along before it became clear that oil prices would continue to fall, there is actually an increase in the fuel oil budget line of 2.5 percent for 2015. Because the dramatic drop in prices had only begun to have a major impact on fuel “rack rates” for industrial customers in the second half of 2014, and given that oil prices have remained at approximately half of 2012 levels, the SSA can expect significant savings in this area in fiscal year 2015. How management chooses to apply these anticipated savings will be a matter of expense planning and priorities.