Increased competition, heavy debt, quarterly losses, and an aging fleet are testing Horizon Lines’ staying power. Furthermore, the company just switched CEOs, as Samuel Woodward resigned with a year left on his three- year contract and board member Steve Rubin replaced him as interim CEO.
Amid the turmoil comes a published report that Crowley Maritime Corp. is negotiating to buy Horizon’s Puerto Rico business assets for about $80 million. In addition, an analyst recently said, “shippers may begin to look for alternative carriers soon if Horizon is unable to execute a turnaround strategy.”
With more than $700 million in interest and debt due through 2016, “we think the writing is potentially on the wall for Horizon Lines” particularly in light of its vessels’ average age of 37 and the economic struggles of Puerto Rico, where Horizon is the largest U.S.-flag carrier, BB&T Capital Markets analyst Kevin Sterling said in a July note. “Our sense is Horizon will no longer be able to kick the can down the road” and will have to shed assets, Sterling said.
Citing industry sources, San Juan, Puerto Rico-based Caribbean Business said the negotiations with Crowley are part of Horizon’s plans to sell its Puerto Rico, Alaska and Hawaii Jones Act routes to stop its losses. The deal would benefit Crowley, which could use Horizon’s facilities rather than make improvements to its own to accommodate its new ships, the publication said.
VT Halter Marine is currently building two 702'×106'×32'8" ships for Crowley’s Puerto Rico trade. El Coquí and Taíno are expected out in mid- and late-2017.
Mark Miller, spokesman for Jacksonville, Fla.-based Crowley, would not comment on the Horizon acquisition report, but said, “Our plans have not changed. Our objectives are to get our two new LNG-powered container Ro/Ro ships built and continue our negotiations with Puerto Rico’s port authority to make improvements to our existing facility in San Juan. This is our priority. This is our focus.”
Horizon Lines did not respond to a request for comment.
The Charlotte, N.C.-based company reported a second-quarter loss of $1.6 million, liabilities of $706.6 million and assets of $635.2 million. Higher volume in the Puerto Rico market was partially offset by a new rival that entered the Houston-San Juan service in May 2013.
“Container rates are expected to be below 2013 levels due to very competitive market conditions and a slight change in cargo mix,” the BB&T report said. “As Horizon struggles to turn a profit, we expect the debt load will rise,” and with the 13-vessel fleet in need of an overhaul, “the ability to successfully turnaround the company is a challenge to say the least.”
All but three of the company’s vessels will need to be converted to diesel or LNG to meet pending regulatory requirements by 2020, the analyst said. The Alaska vessels have switched from steam to diesel, “but are still not in compliance with the 0.1% sulfur content requirement beginning in January 2015. Any way you slice it, Horizon Lines is looking at a significant capex spend the next couple of years just to bring all of the company’s vessels into compliance with current environmental laws.”
The cost of a new Jones Act LNG containership exceeds $200 million.
