Interview regarding the Fast Ferry

City: You’ve mentioned that one of the major
issues that must be resolved before resuming ferry service is the construction
of a permanent Toronto terminal. The mayor says that still stands as the
largest hurdle. What’s going on with that?

            Martin: When we closed on the vessel,
this was an outstanding issue. And at that time, the terminal was supposed to
be completed by late October. The lenders felt if it were done by then, we’ll
have shelter and passengers could be dropped off at the terminal, check in,
wait in the large waiting area, not unlike the one here, and then get all the
way to the vessel in an enclosed, heated environment.

            The
temporary terminal basically is a collection of trailers. The first trailer you
walk up to is the ticket booth. You either purchase tickets there or pick up
your boarding pass there. But if there’s any kind of line at all… the window is
actually the window of the trailer, so you’re standing outside. So in inclement
weather, you’re not going to want to stand for more than a minute or two. If
there’s any line at all, you have no shelter.

            The actual
passenger terminal is a portable building that can hold up to 200 people. And
on any day when you have more than 200 people sailing — which we have had
many — people just wait outside until the vessel arrives. Again, you’re not
going to be able to do that in November or December.

            City: The completion date on the Toronto terminal is now January 11, right?

            Martin: Right. We did the groundbreaking maybe two weeks ago or so.
And it was just a couple of days before the groundbreaking that we were told it
was moved to January 11.

            City: People at the Port Authority are telling us that it was known back in
June that this thing wouldn’t be finished until January.

            Martin: No, because in June the date
was late October. Sometime in July that slid to late November. Sometime in the
beginning of August it slipped to December. Then right before the
groundbreaking, I was told it would be mid-January.

            City:They do say they’ve
been talking about ways for the temporary terminal to deal with the colder
weather — covered, heated walkways, etc. Have you seen any progress on that?

            Martin: Well, I heard from another
reporter last night that she had been told by someone with TPA that they were gonna build a sheltered, heated walkway. The walk from the
passenger terminal to the vessel is about 75 to 100 yards. And that, again, was
on an outside walkway adjacent to the water.

City: What about some of these other issues? As
soon as the suspension of service was announced, local politicians were saying,
We’re close on the trucks, we’re close on the customs
fees. How close are we on some of this stuff?

            Martin: On the Canadian customs fees,
we have not heard anything since before the parliamentary elections [in June].
We were told this would be resolved before the elections. Then we were told it
would be just after the elections. And we haven’t heard anything since. That
issue has been dead in the water since then. But there seems to be some renewed
activity on that front, and clearly we would welcome that.

            As for the
trucking issue: We have a letter dating back to June saying we were good to go
with our business plan, which everyone knows included trucks. When we were ready
to move trucks, we went down to Customs and said: It looks like we’re going to
be putting trucks on, starting next week. I mean, obviously we didn’t start the
first week of service planning to put trucks on immediately. We had to ramp up.

            At some
point in early July, we went to Customs and said we’re going to start putting
trucks on. The local Customs here said, All we’ve got
to do is check with Buffalo and see
what procedures they want us to follow. That kind of put everything on hold.
When the procedures finally came back, we got a letter dated July 27 that
basically said trucks had to meet certain requirements.

            City: These were the requirements that the trucks participate in the Customs
Trade Partnership Against Terrorism (C-TPAT) program
and the Free and Secure Trade (FAST) program?

            Martin: Yeah. And the C-TPAT was the
killer. We met with the Rochester Business Alliance a week after receiving this
letter, and they basically said, “None of us meet C-TPAT requirements, and none
of us ever will meet C-TPAT requirements.” Apparently it’s real onerous; it
takes months to get approved, and it’s more than what most truck companies are
willing to go through. There are some companies that qualify, but these are
really big companies.

            City: Given all that, are you going to be able to reach the capacity you’re
hoping to reach with the trucks?

            Martin: Well, given this, we haven’t been able to identify anyone
yet who’s willing to ship meeting all these requirements.

            And that’s
the problem. Had we just had the FAST requirement, we could move some trucks,
because quite a few companies out there are FAST approved. But once you throw
these other requirements on there, it so limits the pool of users that it
prohibits us from moving trucks.

            We need
Customs to loosen the requirements on those trucks. The ultimate goal would be
to move any truck. But even if we have to do that in stages, with some
commitment from Customs that they would allow us to move to general cargo, that would be huge. There’s nothing at this point telling
us that will happen, other than a commitment from our political leaders that
they’re gonna help us work on this.

City: You found out about both these requirements
on July 27, after you had the service up and running?

            Martin: Right. When we first started
the service, the Toronto terminal
was going to be up by October. We had permission from Customs to proceed with
our operations, saying we had met all their requirements….

            City: And that included the trucks?

            Martin: Well, it didn’t specifically
list the trucks. But it said they reviewed our business plan and they approved
it and we were ready to go with our business. A third of our winter revenue was
projected to be from trucks. They knew that was part of our business plan. The
terminal here was designed to accommodate trucks.

            Why would
they say “you’re good to go” and not say “except for trucks,” if there was an
exception in there? We didn’t think to ask, because we assumed that when they
said “you’re OK to go,” that means “you’re OK to go.” There was no reason to
think otherwise.

City: Where do you stand on the American flag
issue?

            Martin: That’s really an issue between
our lender and the Coast Guard. CATS has met every
other requirement. We were scheduled to go to US flag Thursday of this week. On
Friday of this past week, pilotage was going to go
away and we were automatically going to incur that $6,000-a-day savings
[Canadian]. On Monday night [Labor Day], we received word from the lender that
they could not and would not approve of the process by which the mortgage was
going to transfer from the Bahamian title to the US
flag title.

            The lender
is saying they don’t want any time to lapse between the removal of the mortgage
from the Bahamian and the attachment to the US
mortgage. They want that to happen at exactly the same time. They don’t want
any space there, whether it’s a few minutes or a couple of hours.

            And the
Coast Guard is saying that’s impossible.

            Again,
people say, “You should have known this.” But this is an issue that came up
Monday night. And what it did was throw the US
flag into an uncertain category that prevents us from losing the pilotage costs, which continue to prevent the company from
going forward. It immediately pushed that onto the list of unresolved issues,
for which the lender says, “If you can’t get these issues resolved, we question
the viability of this business to go forward.”

            I’m
confident that once the lender gets here and sits with the Coast Guard, they
can resolve that issue. They’ve got to come up with a solution that gives them
satisfaction.

City: These daily fees you’ve been paying for
Canadian Customs and pilotage: What exactly does that
money go towards?

            Martin: In the case of pilots, it goes
to paying the pilots, it goes to paying the limousine
service that drives them back and forth to work. They actually get to and from
work in stretch limousines, which I think is interesting.

            City: Where are they coming from?

            Martin: They’re not local. The St.
Lawrence Seaway Pilots Association [provides] the American pilots. They’re from
Cape Vincent, New York.
The limo service is $195 one way.

            City: So the pilotage fees are just what these
piloting companies are asking you to pay?

            Martin: They are actually authorized by
the US Department of Transportation. Their fees are set by regulation and
approved by the US Coast Guard. The Coast Guard was who we had to appeal to.
The Coast Guard initially told us we only needed pilots for transiting the
lake, not docking and undocking the vessel. That was in August in 2003. That
letter was later rescinded and they said they’d reconsidered, that we would
have to pay pilots for docking and undocking.

            Remember,
too, that the pilots are not actually piloting the vessel, and they’re not
docking and undocking the vessel. They’re standing there, watching and telling
our captains if they’re doing anything differently from what should be done.

City: What about the $2,500 a day in Canadian
Customs fees?

            Martin: That goes to Customs. It pays
for their expenses. It should be noted that I’m pretty sure we’re the only
border crossing along the United States-Canadian border for which these fees
are assessed. From what I understand, this is a law that passed not long ago.
These fees have been enacted for any new border crossing. What had happened is,
initially, because it was a relatively new requirement, the owners had been
told by Canadian politicians that they would grandfather The Breeze into the
law, so we would not have to pay the fee. They had assurance this would happen
prior to the elections but, for whatever reason, it didn’t. Then they got the
reassurances it would happen immediately after the elections, and it still
hasn’t happened.

            So it’s
$2,500 a day to the Canadians. And that has to be paid every day. So before the
vessel can dock the first time in the morning, the First Mate has to hand a
check for $2,500 to the Customs official standing there.

            City: Was there similar early political movement here on the pilotage fees? That it was thought we could get them
waived?

            Martin: Well, we were told initially that we wouldn’t have to pay
them. It wasn’t until May that we received a letter from the Coast Guard saying
they’d reconsidered, and that we will have to pay them. We were going to always
have to pay for transiting the lake. But they estimated those costs at $500 per
six-hour period. Basically, it would be $1,000 a day. But then when you throw
in the docking and undocking, you throw in the limousine service, and it adds
up to, between American and Canadian pilots, about $6,200 [Canadian].

City: What exactly will be happening when the
lender comes here? Obviously they won’t be able to see the ferry in service.

            Martin: What’s more important to the lender is that they see this
is a viable business going forward. That’s what they question at this point.
What we also would like to see is a community that really supports this service
and wants to see this service going forward.

            City: But the fact is, when the lender arrives, the service will be, in
essence, dead in the water.

            Martin: Not in their minds. What we did
was required to preserve the business until these issues could be resolved. In
their minds, moving the business forward without having these issues resolved
is not a prudent move. People here are looking at this with emotion, but [the
lenders] are looking at this as a business. And to continue operating a
business when you know you can’t succeed because of these obstacles is not
prudent.

            We hope
they’ll recognize that it made a lot more sense to stop the operations
temporarily so these issues could be resolved without incurring more bookings
and more day-to-day costs that are bleeding the company.

            We’re
hopefully going to have access to the escrow, which will help us cover what we
know will be lower ridership numbers heading into the
fall and winter. But without that escrow, or some financial resources, this
will not be a viable business going forward.

            Now, let me
back up and say: Had we started on May 1, the way we were supposed to, we never
would have dug that $2.1 million hole, that debt that’s hanging out there. And
we would have been building up the cash needed to carry us through the fall and
winter.

            But because
we were not able to start until June 19, we started in the hole. We had a few
glitches in the beginning that further hurt the operation. It wasn’t until
mid-July that we were providing a good, reliable service, and the numbers shot
up to the sell-out capacity we had through the month of August.

City: How did the announcement to suspend service
come about? The mayor says he was told by CATS that it was leaked, but they
were going to stand by it.

            Martin: I don’t know about that. I
wasn’t involved in the discussions between the mayor and the owners. I do know
that on Tuesday, when I arrived at work, I was going on the expectation that we
had been advised late last week that we would not be able to access the escrow.
So the owners had begun looking for alternative sources of funding. We went
through the weekend thinking that alternative resources had been secured. At a
meeting on Tuesday morning, it became clear that those other resources were not
available.

            We got the
call from the owners just after lunch on Tuesday saying that the other
resources were not going to be available, the lender was not going to release
the escrow, and that it will be irresponsible for us to continue taking
bookings and running the business knowing there was no revenue coming to help
carry us through.

            With this
meeting with the lenders next week, hopefully we can show them the business plan,
show them where our thoughts are — maybe get some of these issues resolved,
or have commitments that they will be resolved before the lenders get here —
and then the lenders would free up the escrow and we can move forward.

            City: Are you optimistic about that happening sooner than later — say, before the spring comes around?

            Martin: Yeah, I really am. I feel we’ll be in service again, but it
would be unfair for me to put a date on it. I do feel it will be before next
spring. The April 15 date was put out there, but maybe it shouldn’t have been,
because people are focusing on that. I think what was intended was, Look, even
if we have to work through the whole winter to get these issues resolved, we
know we have a business on April 15 of next year. We know we can build the boat
up again and produce the revenues needed to move this company forward. It’s the
interim we have to fix. And we have to fix it by securing that escrow and even
securing additional financing.

            But if we
get the escrow, I think that will allow us to secure additional financing to
get us through to the other side. While the escrow alone is probably enough to
get us close to the other side from an operations standpoint, we still have
that $1.7 million in debt we need to resolve. So, we need to take care of both
those issues.

City:Since the service suspension,people have complained about things
like the website being shut down last week and having a hard time reaching
anyone at CATS. [CATS has since restored the website, www.catsfastferry.com]

            Martin: When we shut down, we did it
completely. We laid off most of our employees. Only a
handful of us remain. We’ve had several dozen volunteers come in daily to help
with the phones and take messages off the recorder and call people back.

            The
priority was to call people already booked, to see who had transportation to
get home because they were on the first leg of a round-trip journey. We didn’t
want to leave those people stranded.

            We’ve been
doing our best with the resources we have. But, again, these are volunteers,
and you can only demand so much.

            City: There must be some impact on CATS’ ability to make progress, now that
the majority of its staff has been laid off.

            Martin: Well, on those issues, yes. And for that, we’re gonna take our lumps. But we do have some of our senior
people here working on putting the information together for our meeting with
the lenders. And we have a whole bunch of volunteers here working the phones,
trying to get back to people.

            In
hindsight, maybe announcing earlier would have helped. But we really thought on
Friday that alternative financing would come through. And, on Tuesday, we
thought it best to try and get the vessel to complete her day before making the
announcement, because it would have put an unbelievable hit on those passengers
riding the remainder of the day, from a media standpoint and otherwise.

City: Can you break down the amount of public vs.
private investment made in this ferry?

            Martin: I don’t have that at my
fingertips. The public investment has been mostly in the Rochester
terminal. There is some state and city money that has gone into the acquisition
of the vessel. But all of that went to the direct purchase of the vessel. It
was a $42 million vessel initially, but after this money went into it, it
reduced the price and the money that’s actually owed the lender. I couldn’t get
you the breakdown, because there were other pieces that were financed by other
entities, like the engine manufacturer, and it’s complicated. But suffice it to
say, most of the money from the city and state went into the cost of the vessel
and not the operating costs.

            City: Once public money is involved, though, don’t these government entities
get access to the company’s books?

            Martin: No, not really. An individual who gets welfare doesn’t have
to give daily reports on what they spend their welfare check on. Surely, we’re
subject to audit, and I’m sure we’ll be producing audits and statements as a
regular course of business.

            City: Was this project expected to make money from the outset, or were you
guys expecting to take a hit initially?

            Martin: I think any startup has to
expect a period where you’re not going to make money. But if we just look at
August as the first real month of service, we were able to cover our operating
costs and we were able to reduce that $2.1 million debt we built up before
start-up to $1.7 million. So one could argue, without giving you an audited statement, that we had $400,000 extra above operating
expenses to pay toward past debt, just from the month of August.

            Some would
ask: “Why didn’t you hold on to that $400,000? You might have used that to
continue operating in the fall.” But the fact is we thought we had other
resources available to get us into the fall and winter. Maybe
the escrow. We were paying our bills.

City: At what point did CATS start talking to the
city about the likelihood of suspending service?

            Martin: Clearly, we mentioned to city leaders weeks ago that we were concerned, that we were under
some financial strain, that these issues were putting a lot of pressure on us.
A couple of weeks ago the Rump Group [Rochester
business leaders] had sent a letter to our congressional delegation, urging
them to resolve some of these issues. It’s fair to say that dating back to
that, we were telling political leaders around town that we were having some
concerns.

            City: Do you think there’s any chance the fast ferry might wind up requiring
some sort of annual public operating subsidy, that it
become a form of mass transit?

            Martin: That’s hard to say. I don’t
think we envision that at this point. Of course, we haven’t been through a fall
and winter yet. Can this entity hold itself up through a fall and winter? Maybe.Maybe not. If the public
wants the service through the fall and winter, and the business can’t sustain
itself, there might be a call at that point. But that’s not something we’re
asking for. Certainly it wouldn’t be needed during the summer. We’ve proven
that.

            Who knows,
going forward, whether you operate fall and winter? Every other passenger
vessel service on the Great Lakes shuts down for the
late fall, winter, and early spring. I’m president of our national trade
association, and all of our Great Lakes members shut
down for the winter.

            City: If The Breeze isn’t operating this fall and
winter, how will you get by without an income?

            Martin: It’s going to require either
access to the escrow or other financing.

            City: Is there a chance that if that doesn’t happen right away, Austal [the shipbuilder] will come along and take over the
ship?

            Martin: I think that is going to be
determined in the meetings next week. If the lender doesn’t want to give us any
flexibility on the mortgage payment, and they want to take the boat, that’s
possible. We don’t think it’s probable. It’s not under consideration at this
point. The lenders are coming here with the intent of letting us resolve this
issue so we can move forward.

            Does that
mean we start operating again seven days a week? Maybe not.
Maybe it’s a reduced schedule through the fall and winter before cranking it up
in April.

This article appears in Sep 15-21, 2004.