Features
Future Promising
The big Jones Act buzz is around domestic ocean carriers, but overall the domestic ocean trade is working through a rough year and looking ahead to a brighter 2009
By Richard Knee
Cargo traffic in the domestic ocean trades is down, optimism springs eternal and no one in the shipping industry wants to say much about a federal probe, focusing chiefly on the mainland U.S.–Puerto Rico shipping lane, into price-fixing allegations.
The volume drops haven’t prevented rates from climbing. As in the U.S.-foreign trades, carriers are passing along the cost arising from the rocketing of oil and fuel prices.
Puerto Rico — rough going but optimistic
“Since 2004, there’s been a pretty dramatic [volume] drop southbound,” says Rob Grune, senior vice president and general manager of Puerto Rico and Caribbean services for Crowley Maritime. “There’s been an 18 percent decline in volumes. Our market share has declined 25 percent.”
“A big chunk of that,” he continues, “is a decline in automobile business. That sector continues to be challenged.”
Puerto Rico’s economy is in its worst shape in 50 years; the island’s gross domestic product fell 2 percent in 2007, its second straight year of slippage, he says. Inflation is at 11 percent, quadruple that on the mainland, and unemployment is at 10 percent, twice that on the mainland. Problems with the state’s finances persist because the executive and legislative branches are controlled by opposing parties, he says.
But not all is gloomy. “There’s a lot of optimism that the [income] tax rebate will stimulate some of the economy,” Grune says. In addition, a tax incentive plan is enabling the public and private sectors to team up on $1.5 billion worth of economic development projects in the biotechnology-manufacturing and tourism sectors, the latter involving hotel construction that will add 14,000 rooms by 2011.
A cargo-handling facility dubbed the Portal of the Future is under development on the erstwhile Roosevelt Roads Navy Base, and a large, deep-draft port, the Portal of the Americas, is expected to get a lot of transshipment business, particularly with the Panama Canal being widened, Grune says.
Hawaii and Guam — smooth sailing ahead
If Matson Navigation’s experience is typical, carriers serving Hawaii and Guam are finding the business seas a bit choppy but foresee smoother waters. Matson’s first-quarter operating profit dropped 15 percent to $15.9 million this year, even though revenues increased 5 percent to $243 million.
Company Chairman Allen Doane seems nonetheless happy, noting that the first quarter is usually the weakest. He points to “a more challenging economic climate in Hawaii and an increase of 60 percent in our average fuel cost from a year ago.”
“Lower Hawaii volume was offset, to a large degree, by improvements in yields and cargo mix and by savings from efficient fleet deployment and other cost-reduction initiatives,” he says. “The China service continued to grow, with full ships and trade-lane profitability expanding on stronger yields, better cargo mix and improved equipment control. We expect to realize gains in our annual contract rates in the next few months. In Guam, higher terminal-handling and outside transportation costs impacted trade-lane margins for the quarter, but we expect modest volume growth in the balance of the year.”
The military plans to shift resources and some 40,000 military personnel and their families to Guam from Okinawa, which will raise the island’s population to 210,000, Matson spokesman Jeff Hull says. Construction projects totaling $10 billion and generating as many as 25,000 jobs are in planning there, he says.
Port and harbor renovation projects throughout Hawaii are scheduled to start in 2009, with completion due in 2014, says Gary North, chairman of a carriers’ and stevedores’ consortium called the Hawaii Harbor Users Group.
State officials estimate that without the upgrades, the cost of food, household goods and furniture in Hawaii could rise 18 percent by 2030, says North, who is also a retired Matson senior vice president. “Right now, harbors are being utilized beyond their capacities. If we are to get to the point where goods are not able to move swiftly in and out of ports, it could have a devastating impact on the Hawaii economy,” he says.
Alaska — things picking up
For Totem Ocean Trailer Express (TOTE), which moves goods in trailers on roll-on/roll-off vessels between the mainland and Alaska, volume “has been lower than usual, but it’s starting to pick up,” says George Lowery, the carrier’s Alaska director. The drop has been across the board in terms of commodities and primarily on the northbound leg, he says, adding that very little cargo moves south, save during the summer salmon and halibut season.
Expansion work at the Port of Anchorage will make it easier for commercial ships to share the docks with military vessels, he says. TOTE has preferential berthing under a contract with the port authority, but if a military ship is already in port, there’s a problem because it takes three to four days for the vessel to load up, he says.
Government probe — ongoing
No one reached wanted to comment in any detail on a U.S. Department of Justice investigation into allegations that carriers in the mainland U.S.–Puerto Rico trade are colluding on prices, nor on whether the episode might have a ripple effect in the other domestic ocean trades. Regarding the latter, the answer seems to be yes.
An executive with Alexander & Baldwin, Matson’s corporate parent, said recently that a grand jury had subpoenaed Matson “for documents relating to water carriage in connection” with Justice’s probe.
“Matson understands that while the investigation currently is focused on the Puerto Rico trade, it also includes pricing practices in connection with all domestic trades, including the Alaska, Hawaii and Guam trades,” says Meredith Ching, A&B’s senior vice president of government and community relations, who added that the carrier would “cooperate fully” with Justice.
The mainland U.S.–Puerto Rico carriers under investigation are Crowley, Horizon Lines and Sea Star Line. In addition, they and Trailer Bridge face class-action suits over the price-fixing allegations.
Crowley, Horizon and Sea Star have said they would cooperate with Justice. Horizon also stated it has placed six employees on administrative leave and that two of them had resigned.
What will ultimately come of all this? It’s too early to tell.
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