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“Does the European Style Ferry Service work in the Gulf of Mexico?”
Published June 29th in the “FerryNews” London, England on their Website

In the late 1990’s I was the President of a company that operated both a Car/Pax and RoRo ferry operations.
The original planning for the project was done with two friends then employed by the prestigious marine engineering firm, M. Rosenblatt and Son, Inc, working with me to develop a business plan that made financial projections as accurate as possible,related to costs and benefits. A plan, I might add, that was very well received when presented at an annual meeting of the American Society of Marine Engineers.

When confronted by experienced mariners and financiers considering the project, we were faced repeatedly with the question: Is this a freight carrier or is this a passenger carrier?

After a year of operating the Car/Pax operation and a RoRo freight operation over the same trade lane for another year, the answer is still not easily defined.
What is clear though, is that in order to maintain stable growth in the market a Car/Pax Ferry is the most attractive.

I suggest that the most appropriate business model is one where an analysis shows the freight revenues to be sufficient to meet the costs of operation and passenger revenues should be sufficient to meet marketing costs and provide profits.

My first instinct in the planning was to focus on whatever market would provide for all costs of operation with just revenues from the trip south to Central America from the United States. (That’s where the money was most evident) For the most part this began with conveyances (buses, cars, personal type trucks) stuffed with all manner of user goods, accompanied by passengers. In a short period this also expanded to construction equipment and buses for resale, sometimes accompanied and sometimes not.

As time went on there became a seasonal factor. During some of the winter weeks the major part of the revenue was from tourists and seasoned citizens (over 50). Perhaps a return to the migration of “snow birds” of earlier years.

For the above reasons I would characterize the most appropriate model as that of a conventional airline. Seasonal market forces, including passenger issues such as food service and personal comfort, that change the focus of the revenue stream are best addressed by such a model.

I offer the following in support of this position:

In 1994 I retired from the U.S. Customs Service after 30 plus years of government service, much of which was related to the maritime industry however the first four years was in the atmosphere of J.F. Kennedy Airport. My twilight assignment was at the Port city of Brownsville, Texas. Just prior to my retirement the government of Mexico changed some of there laws relating to how expatriate Central Americans working in the United States are permitted to transit Mexico to visit their homes in Guatemala, El Salvidor, Honduras, Nicaragua, Costa Rica and Panama. It required all of these expatriates, referred to as “Transmigrantes”, to begin their trip from the South Texas border crossings at Mc Allen or Brownsville. New facilities in these ports had recently been built and were, until then, under used.

As a port manager I was faced with processing the departing foreign nationals in enormous numbers. In conversing with some of my new clients, I found that the new requirements were difficult and the trip fraught with danger. They were begging for alternatives and having spent some time in the Philippines using the ferries there, I felt the alternative should be a Ferry from Port Isabel, Texas to Puerto Cortes, Honduras.

The Isabel Cortes Ferry Service was planned and operated for one year. Engine problems with the vessel and that a lack of a timely replacement qualified to serve U.S. ports, resulted in the termination of service. The “Transmigrantes” and others who saw the benefits in the new Trade route are still clamoring for a return of the service. In the following paragraphs, I will describe the operation as “I see it”.

History
During the 1980’s, the United States experienced a tremendous influx of Central American refugees who fled the political and economic instability in their respective countries. These refugees settled throughout the United States and into Canada. Many of these Central American immigrants saw an opportunity in taking vehicles and consumer goods back to Central America. As political and economic stability returned to the region, it became a lucrative trade from which many have made a comfortable living. Aside from those who make a living from trading in vehicles and consumer goods, many more trade only occasionally to finance their trips back home to see family and friends.

At first, this some what informal trade flowed through Mexico relatively unnoticed, but as the number of people transiting from the United States to Central America with merchandise and vehicles increased, the flow in trade became obvious. In 1992 the Government of Mexico initiated new regulatory measures to control this trade flow. The new requirements included the posting of bonds to guarantee that the merchandise would not be sold into the commerce of Mexico, restrictions as to what merchandise could be transported (electronics, spare auto parts and used tires were severely restricted). Further, Mexico required that the “transmigrates” including tourists, be formed into caravans only at border crossings of Columbia, Laredo , Hidalgo, Pharr, and Los Indios, Texas and a Customs officer would be assigned to accompany each caravan to the Guatemala Border. The number of accessible border crossings has since been reduced to three; Hidalgo, Pharr and Los Indios. All are located in the Rio Grande Valley, in the southernmost tip of Texas.

The concentration of these travelers at the few ports and the poor treatment afforded them by Mexican officials readily identified the need for an alternative. This perception is further supported by the records of poor roads, facilities and horrendous experiences of many on the 5 to 7 day trip in Mexico and Guatemala. Additionally, the perception of danger in transit has effectively stopped a previously active winter migration of retired people to Central America, particularly Costa Rica. Even Mexican officials privately advise against traveling in the night hours.

These Central American immigrants to the United States engaged in the transport of vehicles and consumer products back to Central America; on average, there are more than 1,200 vehicles weekly transiting the Southwest border at one border port of Los Indios destined for Central America. The Mexican government has placed and continues to make more severe restrictions on this trade. The overland journey through Mexico and Guatemala takes from five to seven days, and is arduous due to bad roads and interference by local officials and insurgents. There are also severe restrictions on certain classes of merchandise permitted to accompany these “transmigrates”.

In answer to the above need Isabel Cortes Ferry Service Limited was formed. I was a co-founder. The Regal Voyager arrived in Port Isabel, Texas on December 29, 1996 and completed U.S. Coast Guard requirements by January 10,1997. The vessel departed on its first voyage January 14,1997.

FERRY OPERATION

The initial clientele was made up of local winter residents and some expatriate Central Americans who only became aware of the service locally. Advance outside advertising was not done. Unexpected market resistance was encountered early on due to, the unfamiliarity with vessel travel, pressure brought to bear by Mexican Customs Agents on “transmigrate” forwarders to encourage travel overland through Mexico and a lack of confidence in reliability. This negatively affected both individual and commercial customers.
Print media ads, subsequently, were placed in ethnic community weekly newspapers describing the service and its attendant benefits. The print and electronic media were also persuaded to publish news articles and conduct talk interviews describing the revolutionary transportation service. Additional personal contact was made to enlist the support of; the transmigrate forwarders along the border and Central American Country’s Consuls as well as civic leaders in Central America. These activities had enormous effect in demonstrating the benefits of the service.
By late May bookings were approaching vessel capacity for the south bound portion of the trip and revenues for those voyages exceeded costs somewhat for that period.

Trade papers such as the Journal of Commerce, Fairplay Magazine and World Trade Magazine, as well as foreign periodicals such as Honduras This Week and The Tico Times in Costa Rica, wrote glowing reports about the new service and its impact. This increased commercial interest in booking with the Ferry service.
Companies such as Fruit of the Loom and Dickies that had maquilladora operations along the border and in Central America became interested in utilizing the two day transit time as a solution to some “just in time” material inventory problems. Further, importers of products such as frozen seafood, melons/mangos and specialty produce also demonstrated interest in the two day transit time. All indicated that when they became convinced of the reliability of our schedule they would use this method. Bookings were expected to be at about 30 to 35 – 40 foot shipper owned trailers at $1600 for dry and $2100 for refrigerated in each direction.

In order to grow the market and develop new clients I (then an adjunct instructor of International Trade at The University of Texas) worked with smaller entrepreneurs assisting them in the location of partners in the U.S. or Central America. These individuals and companies were also informed of the many opportunities, instructed as to government requirements and how to conduct business in the other countries. I went to lengths to particularly encourage enterprises such as passenger tourism, small package forwarding, twin plant manufacture, consumer products to Central America and produce to the U.S. as they would benefit most by a short consistent transit time that characterized the ferry service. (The planning of many such projects is complete and only awaiting the commencement of a new transport to begin.)

A reduction of 50% in port charges was negotiated with the Honduran government, which was recorded by Congressional action in specifying a rate for Ferry type vessels. Further, after lengthy negotiation, the U.S. F.M.C. acquiesced to the determination that the operation was for the most part a Ferry and exempt from rate filings and regulation. Only un-accompanied cargo was considered within their jurisdiction and required filings.

The Statistics

The Regal Voyager completed 34 voyages during 1997 of which 7 were late due to mechanical problems. There were two serious breakdowns that resulted in the ship being taken off the service and repaired at a shipyard. The third breakdown in January 1998 was perceived by the owners of the vessel to be so damaging to the vessel’s credibility that it was withdrawn from service and Isabel Cortes Ferry Service Limited closed.
(While business did suffer from the mechanical problems it recovered in every case within a few weeks because of the need for an alternative to driving through Mexico and Guatemala.)
Revenues
No viable financial records were able to be secured for analysis; however marketing brochures, and some notations and operational reports permitted relatively accurate projections of the revenues for the operation to be estimated. The months of June and December were selected as typical as there were the only two months that the operation continued without problem and the clientele was fully aware of past problems. Counts of passengers, cars and commercial vehicles were secured from port authority and Customs records.
An analysis demonstrated results in an average revenue, net of commissions, per voyage of $157,545.00. Assuming that the vessel is scheduled for maintenance for four weeks per year, 48 voyages per year can be expected. Annual revenues for the demonstrated market would be approximately $7,562,160.00 in the 1997 economy.
It must be noted that the first year of operation had only focused on the expatriate Central American southbound market. Reliability of schedules had not been demonstrated adequately to secure regular commercial shippers. Market growth was expected to come from increased participation of commercial shippers (northbound) and increased passenger interest in both directions. A number of Central American groups indicated considerable interest in weekend and one week shopping tours.
Expenses
Expenses that we project are based on industry averages and inquiries of venders actually used by the Ferry Service.
Charter $14,000 day x 7 days $ 98,000 per voyage
Fuel 145 tons/voyage @ $ 99 14,355
Diesel 35 tons @ $195 6,825
$ 119,180.00

Food Passenger & Crew $ 14,580
Entertainer on Ship $ 900
Port Isabel fees $ 5,203.00
Water, Berth, Passengers,bunkering,
Cars, Trucks, Lines, Pilot

Agent Fees & Customs $ 1,976.00
Puerto Cortes $ 5,508.00 $28,167.00

Total per voyage $ 157,347

Annual Administrative Costs- Ship Operation $123,081.00
Payroll including Taxes, Customs Bond, FMC Bond,
Tariff Administration, Telephone, Ship Garbage,
Portable Conveniences, Security Pier

Annual Administrative Costs Reservations $102,240.00
Office Rent,Office Equipment, Electric,
Telephone,Telephone Long Distance,
Office Supplies, Postage & Delivery,
Advertising & Promotion,Printing & Reproduction
Travel Expense,Accounting,Legal Fees
Total Annual Costs $225,321.00

Total Costs $ 7,297,977
Projected Revenues first year $7,562,160

Projected First Year Net Gain $ 264,183

It can be seen that in just the first year with all start up costs included, the strong response to marketing efforts resulted in an excellent showing, thus allowing projecting profits in excess of $1,000,000 for the second year. In today’s economy the traffic will support higher fares than the very low start up freight and passenger charges of 1997. This is what happened with essentially no north bound traffic and a terrible reliability record!!
The Future
The long distance Ferry business in Europe is a mature industry that has had a number of events that had a negative impact with a severe one being the loss of “Duty Free Sales”.
Where do we look to the future? I would like to suggest the Western Hemisphere most notably the Caribbean and Gulf of Mexico. A few operations exist such as between Maine and Canada, Washington and Canada and in the Islands near and around Puerto Rico.
At this moment there is no ferry service operating between such natural routes as the Texas Gulf Coast and the Mexican Yucatan, Central America, and Mid-Mexico Veracruz or Campeche.

Perhaps the “Big Dream” would result when trade and travel restrictions between Cuba and The United States are lifted. Any Ferry operation positioned in the area would have the opportunity of a lifetime. Transporting vehicles, passengers and equipment not easily transported by other forms of transport. Cuba could easily emerge as the distribution center of a North America – South America – Central America transportation system, utilizing trucking, busses and the Ferry. Modest transport costs making products available in locations where they only dream about them, and allowing travel at a modest cost to bring separated friends and families together again.

Is it not the reason the ferry industry in Europe began? To develop beginning economies to grow by association with more developed ones! Just a glance to the south of the United States should gladden the heart of any entrepreneur; everything is just starting to grow.

The Policies of the U.S. also support this with plans for a Hemispherical Free Trade Zone, development of a (NAFTA – I-69) Interstate Highway connecting Mexico and Canada through Brownsville, Texas, and recognition of the future of Ferries by the United States Development Bank in grant and loan policies.

1. John Smith says:

   November 15, 2007 at 4:29 am

   Good comment. It is a pitty that many people does not think like that. Thanks.

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