© Khunaspix Dreamstime.

The fallout from the demise of debt-ridden US domestic carrier Horizon Lines comes under the microscope of Alphaliner this week, along with the restrictions of a 1920 US law that was designed to protect the US maritime industry, but seems to have had a big hand in its fate.

The analyst said that Horizon’s exit will leave six carriers operating liner trades under the US Jones Act – a law requiring that all goods transported by water between US ports are carried on US-built and flagged ships crewed by US citizens.

Horizon Lines announced at the end of last week that subject to regulatory approval it intends to sell its business to rival Matson, including its Alaska operations, and its Hawaii service to the Pasha Group – a California-based transport and logistics company that currently operates a ro/ro service to Hawaii.

The Alaska deal will see three 1987-built, 1660teu vessels transferred to Matson, which the company is to retrofit with scrubbers to comply with forthcoming low-sulphur regulations.

Pasha will acquire four vessels in the 2,400-2,600teu range, which entered service from 1979 to 1981.

Separately, Horizon announced that it will close its loss-making Puerto Rico service by the end of December – thereby bringing to a close a 56-year chapter in the history of the company that was originally the domestic shipping arm of container transportation pioneer SeaLand.

Horizon’s Puerto Rico operation never recovered from the $15m price-fixing fine handed down from the US Department of Justice in 2011, and later in the same year it was forced to refinance to avoid bankruptcy.

Its departure from the trade will leave four Jones Act carriers providing connections between San Juan and the US Gulf and east coast, and this will no doubt assist to firm up rates on the route.

Moreover, Alphaliner said that two of these carriers, Tote-subsidiary Sea Star Line and Crowley, will receive purpose-built LNG-powered containerships within the next two years to be deployed on the Puerto Rico trade, mitigating the cost impact of the low-sulphur fuel ECAs coming into force from January next year.

Horizon Lines – the largest Jones Act containership operator – has a fleet of ancient fuel-guzzling ships and was unable to afford to upgrade its vessels due to the Jones Act restrictions prohibiting construction in overseas yards.

For example: a pair of 3,600teu ships ordered by Matson from the Aker Philadelphia Shipyard are reported to be costing the carrier $210m a unit – more than double the price that could be enjoyed from Asian yards.

Indeed, Horizon has just sold the oldest container ship in the world for scrap. At 46-years-old the 1,442teu Horizon Discovery is at least twice the current average age for container ship scrapping –  many boxships below 20-years are being despatched to breakers yards as they are no longer economically competitive.

Meanwhile, calls continue for the Jones Act – designed to protect the US maritime industry from competition – to be relaxed on the basis that the 1920 legislation actually harms business and the US economy.

In fact a 2013 report by the World Economic Forum described the Jones Act as “the most restrictive of global cabotage laws and an anomaly in an otherwise open market like the United States”.

Comment on this article

You must be logged in to post a comment.
  • Jeff

    November 18, 2014 at 5:24 pm

    The author blames the demise of Horizon Lines (HL) on two things: the anti-trust fine and the Jones Act. A simple review of their annual reports spell a different picture. HL started life in 2005 after an IPO with assets of $927m and debt of $530m and they lost $23m that year. Over the next three years, they made $72m, $28m and $3m respectively. After re-stating the 2008 profit of $3m into a $2.5M loss, they incurred losses of $31, $57m, $229m and $94 in ’09, ’10, ’11 and ’12.The 2012 report shows earnings (EBITDA) from 2008 to 2012 on a steady glide slope down from $115m to $39m. IMHO the economic collapse in 2008 sealed the company’s fate, certainly not the Jones Act or the $15m fine.

  • Mike Wackett

    November 18, 2014 at 6:10 pm

    Agree with you Jeff that the anti-trust fine and the restrictions of the Jones Act were only contributory factors in Horizon’s malaise.
    Poor financial management was the main cause – a situation that we see repeated over and over again in the container liner industry today.
    Of course the fine did not help and if you recall it was orginally $45m but reduced because of the danger that Horizon would be pushed over the edge at that time.
    And with a fleet of old expensive to run ships, the ECAs kicking in and Jones Act restrictions on newbuilds they probably couldn’t see any light at the end of the tunnel.

  • BarryP

    November 18, 2014 at 8:36 pm

    Also worth noting is the involvement of not one but two private equity funds in propping up Horizon Lines circa 2003 thru 2006- and leaving it with lots of debt after successful exit via IPO. Jones Act has little to do with the problems since it does not seem to stop Crowley, Tote and Matson- for that matter.

  • Mike Wackett

    November 18, 2014 at 10:21 pm

    Yes noted BarryP, its peers have been judicious in gaining a business advantage from their specially protected status, whereas Horizon gambled it away.
    And ultimately the Jones Act left Horizon with no viable economic option for essential vessel upgrades.