Not included in our annual Who’s Making Money report this month is Matson—but it is not for lack of making money.
Our report is limited to 16 of the 20 largest container carriers for which public information about revenue and earnings is available. Matson is considerably smaller, with a fleet of 22 ships and aggregate capacity of 36,194 TEUs, compared to Wan Hai’s 227,851-TEU fleet, the 20th largest container carrier in the world.
Matson is also primarily a domestic carrier serving shippers in Hawaii and Guam, and now Alaska.
The company purchased the remains of Horizon Lines and its Alaska service in May after Horizon sold its Hawaii service to Pasha and ended its service to Puerto Rico at the end of 2014.
The Horizon Alaska business “is a rare opportunity to substantially grow our Jones Act operations and represents a natural geographic extension of our ocean transportation platform,” Matt Cox, president of Matson, told shareholders in the company’s annual report.
Matson has had a very good run in recent years after being separated from Alexander and Baldwin in 2012.
Its operating income has grown from $96.7 million in 2012 to $140 million in 2014, and net income from $45.9 million to $70.8 million in the same period, while revenue increased from $1.56 billion to $1.71 billion.
That good performance continued in the first quarter of 2015, with operating income of $44.9 million and net income of $25 million on revenue of $398.2 million.
The Horizon Alaska business had revenue of around $300 million and Matson says it will have synergy with its Hawaii business since the two states have many common shippers, including retailers and the U.S. government.
In the domestic trade Matson faces a smaller universe of competitors than most container carriers. They now include Pasha (formerly Horizon) in the Hawaii trade, and Totem Ocean Trailer Express in the Alaska trade, as well as seagoing barge carriers.
Matson does have limited involvement in international trade through a string that, after calling Honolulu and Guam, continues on to China to pick up containers for an eastbound transpacific service to Long Beach, Calif. The service makes calls at three Chinese ports—Xiamen, Ningbo and Shanghai—before offering a speedy 10-day transit back to Long Beach.
Matson said its premium expedited service offering from China is expected to remain in high demand and it is well positioned to deliver 2015 operating results moderately higher than those achieved last year.
“Matson is an anomaly in container shipping—an independent niche carrier that is thriving in a highly competitive east-west trade,” noted Drewry in a May issue of its Container Insight Weekly.
Other companies have tried similar services in the transpacific only to discontinue them, Drewry noted—the Containership Company and Horizon Lines in 2011 and Grand China Shipping and Hainan PO in 2013. Matson itself tried, but then folded a second transpacific loop in 2011.
Michael Hanson, president of the Hawaii Shippers Council, noted at the time Horizon discontinued its service that it had used a string of five U.S.-flag, foreign-built containerships operating on a transpacific loop that bypassed Honolulu because the foreign-built ships were not eligible to carry domestic cargo there, but called Guam only on its westbound voyages.
“Although switching to newer and cheaper foreign-built ships allowed Horizon to modernize and continue their U.S.-flag service to Guam, they had to forgo the lucrative Jones Act cargo on the U.S. West Coast-Honolulu leg and lost their priority for higher paying U.S. preference cargo. The cost savings derived from operating new foreign-built containerships could not make up for the lost westbound head-haul revenue leading Horizon to terminate their restructured transpacific service in 2011 after sustaining significant losses,” Hanson explained.
How can Matson make its transpacific service work, especially when it’s using small containerships—four with 2,890 TEUs of capacity and one with 2,019 TEUs of capacity—to compete against carriers with ships four-times larger and enjoy substantial economies of scale?
“Unlike any other carriers, we have two head-haul voyage legs. We transport goods from the U.S. West Coast to Hawaii and Guam, and then return from China fully laden with expedited cargo back to the U.S. West Coast,” Cox explained.
Matson’s other international services include feeder ships between Guam and Micronesia and service to many islands in the South Pacific.
Last year, Matson carried 138,300 containers in the Hawaii trade, 62,000 between China and the U.S. West Coast, 24,600 in its Guam service, and 14,800 in Micronesia and the South Pacific.
Cox told securities analysts in May that Matson will continue to look for ways to grow its China service, but none appears viable at the moment. For now, its China service is capacity constrained.
Matson has two 3,600-TEU ships on order at the Aker Philadelphia Shipyard, which are expected to be delivered during the third and fourth quarters of 2018.
Cox said the company expects to use those ships in services from the West Coast that turnaround in Hawaii. In addition to the transpacific loop, Matson currently has two loops that transit between the West Coast and Hawaii. They employ one 1,702-TEU ship and three 3,027-TEU ships, according to Bluewater Reporting.
The company believes that bringing the new, larger ships into the Hawaii trade could allow it to operate fewer Jones Act ships.
This commentary was published in the July 2015 issue of American Shipper.
