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Flawed business plan sank fast ferry

Rochester Business Journal
July 4, 2014

A decade ago, the Lake Ontario fast ferry was launched amid high hopes and broad public support, only to run aground after two money-losing seasons. Nearly three-quarters of this week’s RBJ Daily Report Snap Poll respondents say it failed because of a fatally flawed business plan.

In June 2004, the Spirit of Ontario 1 began regular service between Rochester and Toronto. The nearly 300-foot vessel, operated by Canadian American Transportation Systems, made one or two round trips daily until September of that year, when CATS suspended operations.

In early 2005, a city of Rochester subsidiary called Rochester Ferry Co. LLC bought the ferry in a bankruptcy auction and service resumed in late June. It ran until December, when service was suspended for the winter.

In January 2006, newly elected Mayor Robert Duffy said the city-run ferry operation—which had depleted all its reserves, run up another $2.5 million in debt and needed to borrow an estimated $11.5 million to operate in 2006—would shut down permanently. In April 2007, the boat was sold to a German company.

Just as they had supported the launch of the fast ferry service, many people backed Duffy’s decision to shut it down. But Duffy’s predecessor, former Mayor William Johnson Jr., said: “In my opinion, this venture never had a fair chance to prove itself. ... I truly believe, in my heart, that we could’ve pulled this off.”

Nearly 70 percent of this week’s poll respondents are optimistic that ferry service between Rochester and Toronto using a smaller vessel could succeed.

Roughly 660 readers participated in the poll, conducted June 30. Of those, 30 percent rode the Rochester-Toronto fast ferry while it was in service.

Which of the following most closely reflects your views on the fast ferry?
It failed because the business plan was fatally flawed.  74%
It failed due to poor management.  15%
It could have worked if given more time and money. 11%

Did you personally ride the Rochester-Toronto fast ferry while it was in service?
Yes: 30%  No: 70%

If a private company proposed restoring ferry service between Rochester and Toronto using a smaller vessel, do you think it could succeed?
Yes:  69%  No:  31%

COMMENTS:
This misadventure was doomed from day one. The people responsible for determining the appropriate size of this ship were clearly on heavy medication or having delusions of grandeur—perhaps both! Had they at least started with a smaller ferry this actually might have worked. Instead, they opted to “go big or go home” and home they went—quickly. Talk about mosquito hunting with a flame-thrower—this was the definition of overkill by collective hubris. I expect these birds are out there somewhere today running another business into the ground with their excuses about Rochester “not giving the fast ferry enough of a chance.” Former Mayor Duffy made the only sensible call and none too soon.
—John Donohue, Merkel Donohue

If a private person wants to spend their own money on this, feel free, but please let’s not spend any more taxpayer dollars on this type of venture.
—Brian F. Curran, attorney

I agree with Mayor Johnson that it was never given an opportunity. The ferry was a good idea poorly implemented and plagued by some horrible luck (crashing in NYC). The decision to kill it was purely political. When Duffy pulled the plug, it was Bill Johnson’s failure. Had he taken a chance and continued, it would have become his own failure if it didn’t succeed. So he killed it. The city should have hired technical support and run it themselves at inception. Instead, the errors of the private management, including building an oversized boat, helped to sink the entire project. The need remains. The ferry’s biggest problem was Rochester’s amazingly self-destructive lack of confidence in itself.
—Gary Bogue

We loved the fast ferry, used it several times, and would definitely support another smaller vessel.
—Tom Brady, the XLR8 Team Inc.

There is a possibility a MUCH smaller ferry, crossing only a few days a week during the summer months, might work. But I wouldn’t invest my own money in such an “iffy” endeavor.
—Suzanne Phillips

The fast ferry was a) not fast and b) ridiculously expensive. Much easier and cheaper to drive.
—Faye Casey

Duffy was too quick to pull the plug. It was gross incompetence that led to the loss of truck revenue, which is what ultimately led to the deficit.
—John Midolo, Managing Partner, RCM Strategies LLC

It should’ve been named Titanic. It was doomed to fail from the start because of poor business sense.
—Rich Calabrese Jr., Rochester

My wife and I (plus various family members) used the fast ferry twice, and loved it as an easy way to get to Toronto and back. The crossing was relaxing, and the border paperwork was fast and easy. The biggest problem we saw, at the time, was the lack of backup in case of maintenance issues; two smaller ferry boats would have been much better. And, perhaps, with a stop in Buffalo and another Canadian city also. We were very disappointed when it was closed, and didn’t visit Toronto for many years after, due to the heavy traffic in Canada and the delays at the border.
—George Scharr,  Flower City Printing

Could very well succeed if they think “outside the boat.” Good management and a sound financial plan—along with a floating casino theme, in my opinion—would be a home run. Weddings, parties and events would make up for the slow, cold season.
—Ed Rosen, Fairport

The original fast ferry business model presumed far too much cooperation from Canadian customs in support of high volumes of commercial traffic. The fast ferry plan relied far too much on that commercial traffic, which was almost immediately minimized by Canadian customs revenue strategy. (The) fast ferry was one enterprise where you actually can blame Canada for its failure.
—Arn Lager, Micro Instrument Corp.

The ferry concept did not sufficiently consider the factor of substitution that hurt the demand for the service. This applied to both passenger and commercial traffic. Ferry took almost four hours to Toronto. No real time savings. The fare cost more than gasoline and toll driving to Toronto. No money savings. If you are a ferry passenger only, getting around from the Toronto terminal was difficult. The Toronto ferry terminal is in downtown, and traffic is a nightmare there. The ferry on its own will not attract tourists and business to Rochester. There has to be substantial structural demands before this business model will work. Unfortunately, I am not seeing them.
—Patrick Ho, Rochester Optical

It can work if the company running it sets up support services properly on both sides of the border. One of the main failures last time was the port facilities in Canada where the majority of the traffic would have come from. No matter what the size of the vessel, this needs to be addressed first. I also think more ports of call would be needed, like Niagara Falls, N.Y.
—Michael Knox, Bidders Guide Publications

No partnership with Canada, as I don’t remember them having a real terminal set up coming from Rochester, or any advertising in Canada about coming to Rochester. Seemed like just Rochester residents leaving to spend money in another country. In addition, not much to do when you land in Rochester in regard to the Port of Rochester. Do we even have a hotel there? Some potential if planned better, but I would not support any taxpayer money being spent on any plans for a ferry.
—Keith Newcomer

Even the most junior of financial analysts could have identified two fatal flaws in the business model: a) the operating costs of the ferry divided by the prices being charged required there to be more customers than there are people, trucks or buses in or around Rochester; and b) the very slight benefit of speed to Toronto only benefits those who want to arrive at the time of the ferry’s arrival. Both of these “demand” factors should have been obvious to anyone with the authority to spend millions of dollars.
—Dave Kennedy, Webster

The ship was often full, and many Canadians came over contrary to what the naysayers said. Fuel prices increased dramatically from design in the late ‘90s to execution in 2003, and the ship was a bit of a lemon. Additionally, never getting the tractor-trailer business hurt. We need to connect our city to the Toronto area, which has more than 5 million people.
—Eric Bourgeois, Rochester

It needs to be the proper size for the market. The previous vessel was built for a city the size of New York City.
— Joe Dattilo

(It was) a good concept that was poorly executed. Step one to a new service is to have the best ferry operators in the world tell us how to make it a commercial success. Best practices.
—Carlos Mercado

Basics such as ship registry, setting up freight options, and even gambling were not researched beforehand. If this had been done, it could have been very successful! For example, my brother was hired for marketing the venture, but it was so late into the process, he never had a chance to develop it properly.
—Paul McCarthy

The plan was flawed from the start since they did not have authorization to carry commercial vehicles and due to its large size. The Lake Breeze (Michigan to Milwaukee, Wisc.) has been a successful private venture. Coincidentally both vessels were built by the same Australian firm.
—Craig Densmore, Penn Yan

Regardless of whether the fast ferry could have worked, Bill Johnson’s folly should be an important lesson for Lovely Warren and her administration as the city of Rochester meets with developers about the controversial plan to redevelop the Port of Rochester.
—Peter J. Gregory, Rochester

The ferry was not well managed. Upon arriving in Toronto, it was chaos. No taxi line, the luggage was handled poorly and in no order. The delay at the port was so long, we could have driven our car to Toronto for less money and for the same number of hours.
—Roz Goldman

That boat was the biggest thing floating on Lake Ontario and never was more than one-quarter full. Perhaps something smaller and slower? Demand? Get Louise (Slaughter, D-Perinton) to push Obama to annex Toronto, a la Putin, as there are a lot of English speakers with Rochester accents in Toronto. Homeland Security can close the Buffalo bridges giving the ferry a monopoly, as well.
—Ian Cunningham

The business model was fatally flawed from the beginning, and there were no changes that could have made it viable as a passenger transportation service. Ferry travel is only viable where road travel is not viable. The fact is that driving to Toronto is viable along the QEW and only takes an hour longer than the fastest ferry trip. Now add the weather factors, mechanical factors, limited scheduled trips under the best of circumstances, etc. and it never had a chance of being anything but a novelty. A very expensive novelty. I don't believe it was ever meant to be a transportation service, more likely a ruse to put slots or other gambling onboard. Then it would have made money. The organizers should have gotten their gambling licenses before cracking the champagne bottle across the bow.
—Bob Sarbane

I know the private backer of the Fast Ferry. He never would have invested his millions, if she didn't think it would be a success. The plan was not fully developed to even begin service. Rochester started with developing the dock, restaurant and smaller shops. Very nice. But it seemed to stop there. How generate the income, sell tickets, price tickets, money for car, van, small truck, large trucks. Plan party on board. Plus Toronto did not have any dock development yet.
—Toni Connors

Government involvement, government restrictions, all in the name of job creation, etc. Why would anyone think this was not headed for disaster? Duffy cut the losses. No one could have saved that plan. If a private venture wants to do it, they will want to profit. I know that is blasphemy to many, but it will be their loss or their profit and jobs could be created and the economy could be helped. Just keep the government out of it.
—Bill Lanigan

The fast ferry failed due to political convenience and focus on the ship itself being a profit center. I believe the vision needed to change to imagine what the port and Lake Avenue would look like today if 10 years’ worth of riders had been coming through the port from parts of NY and Canada, that today don't, going to wherever their final destination may have been--but including Rochester as a part of that. A smaller ferry service isn't the answer-- it is a different vision of what the purpose of the boat is. It isn't just a shuttle like a bus line--it is an attraction for outside dollars (both American and Canadian) to choose Rochester as a point in their travel plans. That traffic generates businesses and jobs that I believe more than offsets any losses the boat has (if any with proper management and scheduling).
—Brett Farrow

It's hard to believe anyone would decide a similarly very large ferry would be profitable between Rochester and Toronto; a smaller ferry, maybe. The concern today is whether a large, multi-storied hotel/residential/retail expanse in Charlotte is similarly a bad idea. Not to mention that the renderings of possibilities in that beautiful location lack any architectural excitement whatsoever.
—Carolyn Phinney Rankin, president, creative director, Phinney Rankin Inc.

Successful businesses are created to profitably fulfill a need. And if that need exists, chances are someone will offer the product or service. Government too often tries to create a need where one does not exist. And once they attempt to create this need, they manage it very poorly because they are never held to the same profit-driven standards. If they are in the "red" they simply take more of our tax dollars. This is not a successful formula.
—T. Baker, Henrietta

When not in use ferrying cars across Lake Ontario, it could have used in many different ways. A great place to throw corporate meetings and parties, proms, dinners, midnight cruises, gambling, seminars, rented out for various other situations. With ferrying in mind, why not have stops all along Lake Ontario, Oswego, Cape Vincent/1000 islands, Kingston, Trenton, Niagara on the lake, etc.
—Dan Zarpentine

We all know why the Fast Ferry did not work: Can you say "Ready, Fire, Aim!"
—Jay Birnbaum

I think the business plan and management both contributed to the demise of the fast ferry. Why would a floating attraction and entertainment center sit empty week after week, when it could have been utilized. The Rochester Fast Ferry Services included onboard restaurant and bars, 2 movie theatre rooms with giant plasma screen televisions, 38 televisions with satellite TV connection throughout the ship, wireless internet access, duty free shopping, games room, outfitted children's play area, and a business class lounge with fax/phone. It could have been productive without even leaving the dock. And even more if it went on lake sails. If the fast ferry were successful a second ferry would have been possible. Another Rochester opportunity lost.
—Greg Clyde

The fast ferry was doomed to failure due to county, towns and government opposition. The result was a poorly thought out business plan. Republican-controlled county and towns helped facilitate failure. Perhaps the private sector can garner Republican support and give a new venture.
—Wayne Donner, Rush

Lack of experience and poor planning proved too much to overcome at the time. Commercial trucking was to be the key financial underpinning for the project but too little attention was paid to what that entailed. Also needing an U.S. licensed captain and a better buy-in from Toronto were fatal flaws. With time those issues could have been resolved. Of course subsequent Homeland Security issues would also have needed attention. Also, given the response by Charlotte residents to the current development plan, I wonder how they would have responded to hundreds of trucks going up and down Lake Avenue every day. Duffy did the right thing at the time, but with a better plan and a smaller boat it's something that could be viable in the future.
—Frank Orienter Rochester,

It was an absolute stupid idea on Mayor Johnson's part, and even when the financial analysis showed it could not succeed, he still pushed it forward. He should have been charged with misappropriation of public money.
—Rick Corey, Penfield

Any viable ferry would require that it carry commercial truck traffic, which would help pay to make it at least break even venture. This freight hauling would need to be seamless with customs at port and ease of entry and exit by tractor trailers at each port. The ferry should be powered by LNG so the energy source is readily available. Seasonal (8-10 months a year) service with downtime for repairs should be considered. A business model with a reasonable chance for success would need to be implemented.
—Michael L. Harf

I took the ferry and it was awesome. I feel Canada was not receptive to our arrivals and poor planning especially on loading in Rochester, Could easily have taken care of customs on the boat so we could easily off-load in Canada.
—Ted Marks

This would work if Rochester uses Toronto as a partner. If both cities work together and apply lessons learned from the previous attempt, then this could be very successful.
—Joanne Greene-Blose

If you fact-check your research, I believe you'll find that the original business plan was based on break-even via cargo transport, with passenger revenue as profit. Those were sound assumptions in the pre-9/11 days, but with 9/11 the paradigm suddenly changed. Cargo restrictions became so security-strict that that key source of revenue was jeopardized. Also, since the ship was registered in another country -- the Bahamas perhaps, although after so many years I'm not quite sure which country it was -- the post-9/11 security regulations now required a pilot boat to escort the ferry in and out of Rochester, and then in and out Toronto, on each crossing, with recurring fees to do so that were again never anticipated, and therefore never factored into the original business plan. When blame is assigned, therefore, let's not forget that the world changed significantly with 9/11, and that circumstances far beyond the ferry's control may have led to its demise. Had there never been a 9/11 attack, I truly believe that the fast ferry, as originally envisioned and conceived and funded, might still operating profitably today. I cannot vouch for the accuracy of all my facts, but that's the story as best I can recall it today, so many years later. And that is an historical perspective that is rarely even considered, but probably should be.
—Jocelyn Goldberg-Schaible, president, Rochester Research Group

If there was a viable market for this service a ferry would be in place...there is not.
—Peter Short, Pittsford

The fast ferry was bought and paid for by the citizens of the city of Rochester, but the only passengers I ever knew were people from the Rochester suburbs, who paid no more than their highly subsidized fare. Public transportation never makes a profit. For each $1 ride with RTS the cost is about $3. There is the story of a tailor who makes pants for $4 and sells them for $2. When asked how he can survive, he said "I'll make up the difference with volume." There were so many problems with the fast ferry, some foreseen, some unforeseen and some most certainly should have been foreseen. I'm not sure who was responsible for selling the port's development rights to the ferry promoters for $1, but that was another stroke of genius. After 10 years, is Rochester still paying off the loan for the fast ferry? If we could buy the fast ferry back and turn it into a floating casino, that could solve a couple local issues at once.
—Clifford Jacobson M.D.

Judging by successful ferry services in operation on the New England coast and in the Pacific NW, the keys to keeping such a service afloat is two-way traffic and smart scheduling that reflects real passenger needs. The Fast Ferry failed because it was one massive boat that didn't cross frequently enough and at times that suited travelers on either side of the lake. A ferry service between ROC and TO requires two smaller vessels crossing in opposite directions and frequently enough that no one is left stranded overnight on the "wrong" side of the lake. Under that model, I and many others in the region would be much more likely to take advantage of the service--and often.
—Christine Corrado

Never got a chance to ride it, since it was gone to fast but would have often if it stayed. The extremely high piloting fees, to bring it in and out of the lake are what helped kill it as fast as it did. Duffy should have fixed that pilot fee issue, and give it at least one more year to prove it was a viable business. Conservative Rochester strikes again. Also, relying on the international trucking business to ride the ferry, was not a long-term viable business plan idea as well.
—Todd Westman

The apparent lack of communication with the powers-that-be in Toronto was the first warning I remember that all was not well. When the annual Ontario/Toronto travel insert arrived in the D&C with no mention of the ferry as a means of transportation, that alarm went off again. The final outcome, while disappointing, was not surprising then.
—Gary Harris

To participate in the weekly RBJ Snap Poll, sign up for the Daily Report at rbj.net/dailyreport.asp.

7/4/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.



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