More opportunities for Jones Act vessel operators

Debt-laden Horizon Lines’ shutdown and selloff of its operations in Puerto Rico, Alaska and Hawaii shuffles the Jones Act lineup in all three locations. 

Horizon is expected to cease liner service to Puerto Rico by the end of 2014 and sell its Alaska business and all outstanding shares to Matson Inc. in an all-cash deal valued at $456.1 million. It will also sell its Hawaii business to the Pasha Group for $141.5 million.

Matson and Pasha currently serve Hawaii. Horizon was the only carrier serving Alaska, Hawaii and Puerto Rico from the continental U.S.  The deals are expected to be completed in 2015, subject to regulatory approval.

“It’s rare to see acquisitions of this size in the Jones Act,” said Kevin Sterling, an analyst with BB&T Capital Markets. In a July note he signaled big changes ahead for Horizon, which, he said, is “now in the hands of more stable operators” that will invest in new, more fuel-efficient equipment. 

Horizon CEO Steve Rubin attributed the Puerto Rico exit to uncertain prospects for the island’s economy, continuing losses, aging ships and large capacity additions by other carriers. Charlotte, N.C.-based Horizon, which traces its history to the mid-1950s and went public in 2005, operated two vessels built in the early ‘70s, down from four in 2012. 

 In Puerto Rico, Horizon was cutting prices to maintain market share, Sterling said. Crowley Maritime “is going to be the winner in Puerto Rico,” he said

VT Halter Marine is building two 702’×106’×32’8″ LNG-powered ships for Crowley’s Puerto Rico trade due out in mid- and late-2017.

Asked to comment on Horizon’s departure, Crowley spokesman Mark Miller said his Jacksonville, Fla.-based company “will be proactively monitoring cargo volumes in the trade and will be ready to introduce additional capacity should that become necessary. Additional investment in new terminal facilities in Puerto Rico is planned.”

Sea Star Line president Tim Nolan said his company’s commitment to Puerto Rico “is evidenced by our recent charter of the world’s first liquefied natural gas (LNG) containerized vessels and related infrastructure projects in preparation for these vessels to enter the Puerto Rico trade in October 2015.”

Trailer Bridge, a third player in the Puerto Rico trade, could not be reached.

Sterling called the Alaska deal a “transformative acquisition” and a logical extension of Matson’s existing business. “We believe that Matson has been eyeing the Alaska trade for some time,” he said, but management indicated a startup was unlikely given the cost of new Jones Act equipment and the size of the market. The purchase gives Matson “50 percent market share in a stable and mature trade lane.” Totem OceanTrailer Express Inc. (TOTE), a Sea Star Line sister company, is the other big player. 

Alaska “represents a rare opportunity to grow our business in the U.S. domestic markets,” Matson CEO Matthew Cox said in a conference call. Approximately 80% of the Alaska business overlaps with Matson’s Hawaii customers.

Horizon runs three diesel-powered containerships with a remaining useful life of about 10 years and has a reserve steam-powered containership for drydock relief. It also operates Alaska terminals in Anchorage, Kodiak and Dutch Harbor.  

Honolulu-based Matson plans to install main engine scrubbers in each vessel starting in the second half of 2015 at a cost of $6 million to $8 million per vessel, said CFO Joel Wine. The conversions are being done to meet new North American Emission Control Area (ECA) standards. The ECA, which extends 200 nautical miles from the U.S. and Canada and around Hawaii’s major islands, requires fuel with a 0.1% sulfur limit. Steamships are exempt until 2020.

Pasha, which got its start in Hawaii a decade ago with the first pure car/truck carrier for the trade lane to the mainland, will get Horizon’s four Jones Act container ships. — Dale K. DuPont 


 

About the author

Workboat Staff

Leave A Reply

© Diversified Communications. All rights reserved.