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Sunday, April 29, 2012
Will Horizon Lines go down with the Jones Act?
By Michael Hansen @ 11:35 PM :: 6452 Views :: Jones Act

by Michael Hansen, President, Hawaii Shippers Council

Horizon Lines issued a press release on April 27, 2012, affirming their unalloyed support for the Jones Act. The statement seemed odd because of Horizon’s poor financial condition and acute need to replace an ageing fleet of containerships, which the U.S.-build requirement of the Jones Act puts out of their reach. One editor suggests that Horizon Lines had "pledged to go to the bottom with the Jones Act."

Jones Act companies routinely make these generic boilerplate statements to assure investors that the company is completely protected by the Jones Act from almost any form of competition and encourage the impression that investors face little risk. This of course is not true, witness the last set of Horizon Lines stockholders who were completely wiped out earlier this year during the company’s restructuring. And Horizon bond holders took a haircut at the same time. A similar restructuring took place this year with Trailer Bridge Inc., a Jones Act common carrier in the Puerto Rico trade, with the same results for its former investors.

Another reason for the timing of Horizon’s release may be to divert investor attention from their inability to replace their old fleet – very simply they can’t afford to build new ships in the U.S. as required by the Jones Act. The average age of Horizon’s fleet is 35 years as compared to 28 years for all Jones Act noncontiguous trade containerships, and 12 years in the international fleet. It’s understandable that Horizon doesn’t want to discuss fleet replacement – their failure to acquire new ships will doom the company.

In response to a paper I wrote concerning the U.S.-build requirement of the Jones Act, the curmudgeonly Tim Colton, a respected expert in U.S. shipbuilding and supporter of the Jones Act, recently wrote, “The real problem is Horizon Lines, with 15 dreadful old clunkers and not enough financial capability to build a new outhouse.”

Surprisingly, the reorganized Horizon has admitted to having no plans to renew their fleet. Stephen Fraser, interim president and chief executive officer of Horizon told American Shipper on April 16, 2012, the “transactions announced last week to further deleverage the company leave it better positioned for sustained investment in our business and future profitability.”

“Though the 15 remaining Horizon ships were built between 1968 and 1987,” Fraser said the company believes its fleet is "adequate for our needs now and for the foreseeable future. We are going to be very focused on expanding and strengthening our existing Jones Act services."

Mr. Fraser’s statement regarding their old ships can’t possibly be true; without new modern ships, Horizon will cease to exist as an operating company.

Given their circumstances, the proverbial visitor from Mars would assume Horizon, of all the common carriers operating containerships in domestic trades, would support the Hawaii Shippers Council’s noncontiguous trades Jones Act reform (NTJAR) proposal. That would allow Horizon to build modern ships in other industrial countries at less than a third the cost of U.S. construction. In fact, it is just the life line Horizon needs to survive.

However, Horizon like the other Jones Act operators has a myopic view of their problems. Former American Feeder Lines CEO Tobias Koenig, a successful German shipowner, said to the American Shipper on April 26, 2012, "There is an iron curtain around the Jones Act industry and all participants are too scared of the outside world to put gates into it or even take it down.”

Continuing, Mr. Koenig stated, “U.S. shipbuilding is in the 'Stone Age' and needs to come a long way to make it into the real world and be competitive. Today, there is not one commercial shipyard interested in building containerships at reasonable prices.” Because of these Jones Act impediments, Mr. Koenig and his partners in American Feeder Lines recently shut down their company.

At the end of the day, perhaps Horizon’s statement is in response to the Hawaii Shippers Council proposal, and Horizon wishes to assure the Jones Act industry of its fidelity and that it will not succumb to the siren call of Jones Act reform even if that means it will never have a chance to rationally renew its fleet of dreadful old clunkers.

---30---

Horizon Lines States the Obvious

From Tim Colton’s Maritime Memo April 30, 2012

The CEO of Horizon Lines has put out a press release asserting the company's support for the Jones Act. Read it here. Well, duh. Horizon Lines wouldn't exist without the Jones Act. Indeed, Horizon Lines, an embarrassment to all of us in the U.S. maritime industry, is the single best argument the abolitionists have for doing away with the Jones Act. So, sit down and shut up, please, Horizon. What's the point of this press release? Maybe it's a reaction to the collapse of American Feeder Lines, anticipating a new assault on the Jones Act resulting from that. Or maybe it's a response to the continued attacks on the Jones Act in the Hawaiian press: read the latest in the Honolulu Star-Advertiser here.

P.S. It has been suggested to me that this statement might be a response to pressure from other Jones Act operators who are said to be seriously ticked off at reports of Horizon looking for waivers of the Build-American provisions of the Act.

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