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U.S. Domestic Shipping Looks Ahead
Thursday, 02 July 2009 00:00

Consumer market’s tight, budgets are trimmed, but U.S. operators look to opportunities ahead.

With consumers tightening up on discretionary purchases such as cars and home electronics, shipping lines in the U.S. domestic trades are reporting drops in cargo volumes to the non-contiguous states and territories, and they’re trimming costs to keep pace with the resulting revenue declines.

One of the bright spots is Guam, where a massive military build-up promises a boost for Matson
Navigation Co. and Horizon Lines, the only container carriers in the trade linking that island and Hawaii with the mainland.

In Alaska, a pair of consortia aims to build pipelines that will move natural gas from the North Slope to the U.S. Midwest via southwestern Canada starting in 2018.

Puerto Rico wrestles with recession, statehood

Puerto Rico’s recession predates the mainland’s by two years, the result of partisan bickering between then-Gov. Aníbal Acevedo Vilá and the commonwealth’s legislature that prevented some economic programs from moving forward, said Rob Grune, senior vice president and general manager of Puerto Rico and Caribbean operations for Crowley Maritime Corp. (one of a handful of ocean carriers active in the mainland-Puerto Rico trade).

Vilá belongs to the Popular Democratic Party, which opposes statehood. He lost last November—amid graft accusations on which he was ultimately acquitted—to Luis Fortuño of the pro-statehood New Progressive Party.

With the legislative and executive branches controlled by the same party, “there are some chances things will get accomplished,” though there is scant hope of a major turnaround this year, Grune said.

Numerous challenges persist, including 16 percent unemployment, 11 percent inflation and a projected budget deficit of $3.5 billion that could force some 30,000 layoffs by the commonwealth government in July, he said. During the Vilá administration, a six-week shutdown of the government threw 100,000 employees permanently out of work, he said.

Puerto Rico gets 75 percent of its merchandise volume from the mainland, he said. Grocery items are moving steadily; in fact, grocers are faring reasonably well because consumers are dining out less than usual, he said. Traffic in department store merchandise and consumer goods such as TV sets and handheld electronic devices is down, and new-auto shipments have plunged 85 percent during the past three years, he said.

The next Alaska pipeline

Similarly, Alaska “is not immune from the economic downturn that the world is experiencing,” said a wellplaced source who spoke on condition of anonymity. Officials with shipping lines active in the mainland-Alaska trade could not be reached for comment. The source said consumer staples traffic was “steadystate” and that the volume of discretionary purchase items was “softer” than that of the staples.

The pipeline projects are in the procedural and marketing stages; the consortia are going after funding and permits, and expect to begin soliciting customers in 2010.

One, comprising BP and Conoco-Phillips, intends to rely entirely on private funding sources. The other consortium plans to use a combination of private and public funding, the latter under the Alaska Gasline Inducement Act (AGIA). Its participants are TransCanada Alaska Co. and Foothills Pipe Lines Ltd., both wholly owned subsidiaries of TransCanada Corp.

If all goes according to plan, BP-CP will start construction of its pipeline “2015-ish” and will pump “first gas” three years later, consortium spokesman David MacDowell said. Trans-Canada Alaska expects to begin construction in 2016 and to start delivering gas in 2018, according to a report that the consortium released last April 30.

Military buildup in Guam attracts cargo

While commercial cargo volumes to Hawaii and Guam are down, carriers serving the latter island stand to benefit from traffic growth to Guam stemming from an expanding military presence there, Matson spokesman Jeff Hull said.

Besides hauling military supplies and equipment, the shipping lines are carrying personal effects and household items such as furniture and appliances as troops and their families move between the island and the mainland, he said.

Fingers crossed that Hawaiian market’s at bottom

Matson, which moves autos and containerized goods, posted a $500,000 operating loss during the first quarter of this year after gaining $15.9 million a year earlier, according to its corporate parent, Alexander & Baldwin, Inc. The carrier saw its container and auto totals in the Hawaii trade drop during the period, respectively to 32,500 from 37,900 and to 14,400 from 25,600. Container traffic to and from Guam held steady at 3,400.

Pasha Hawaii Transport Lines, which vies with Matson in the auto sector, “is keeping its fingers crossed that the market has bottomed out and will improve in the coming months,” company spokeswoman Joelle Vossbrink said.

“There has been an uptick in requests for its services, and the company continues to diversify its cargo and customer mix,” she said. Pasha’s ship Jean Anne, which carries cars, trucks and other rolling stock, “is ideally suited to carry military cargoes—from personally owned vehicles to household goods to large rolling stock. The Jean Anne also carries equipment and supplies that support the construction industry—a bright spot in the local economy in Hawaii at the moment,” Vossbrink said.

Steering towards brighter Horizon?

For Horizon, the only carrier to ply all three domestic ocean trades, the first-quarter operating result tumbled to an $800,000 loss this year from an $11.6 million gain in 2008, but the weakened economy wasn’t the only culprit. The recent quarter’s loss reflected expenses of $4.4 million in legal costs stemming from an antitrust investigation and $800,000 related to a restructuring, the company said in its quarterly report issued last April 24.

Shipping lines are taking various steps to trim their operating costs, mindful that they need to continue meeting their customers’ needs, Crowley’s Grune said.

Crowley has introduced fuel-saving measures such as installing new “work-wheel” propellers and fuelinjection systems, and coating its vessels with new anti-fouling agents that reduce drag during sailing, he said.

“We have had some schedule changes,” i.e., service frequency reductions, he said.

The anonymous source said that notwithstanding current difficulties, the carriers in the Alaska trade “are in it for the long term.”

Horizon “received a revenue-per-container rate increase of 3.3 percent, net of fuel, helping to partially offset the soft volume and contractual expense increases,” chief executive Chuck Raymond said in a news release that accompanied the quarterly report. “As we look forward, we expect continued modest container rate increases, lower fuel prices and other cost reductions to help offset anticipated slight volume declines for the year,” he said.

Cargo Business News, 7/2009