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Storm clouds on the horizon line in Puerto Rico, Hawaii and Alaska

Storm clouds on the horizon line in Puerto Rico, Hawaii and Alaska
Since product tankers have occupied much of the ink, bytes and talking time devoted to Jones Act matters, a new BB&T Capital Markets analysis of the Jones Act container shipping markets makes for fascinating reading.

The report, authored by Kevin Sterling and his team of analysts, based on Richmond, Va, looks carefully at the dynamics of these trades. At the highest level, Horizon Lines has an enormous debt load, at more than $500m, and operating lease obligations of nearly $140m, compared to BB&T’s valuation of the company’s fleet at $215m. The authors conclude: “If Horizon Lines cannot refinance their debt obligations, which come due in 2016, we believe the balance of supply and demand will tip in favor of the remaining vessel operators.”

The competitors’ gains are not spread equally among Horizon’s three markets. Emerging from the analysis is a view that the fortunes of competitors in the Hawaii and Alaska trades might be bolstered if Horizon Lines finally throws in the towel and begins to sell off assets. The Puerto Rico trade, where Horizon competes against four other companies, is viewed as way over-tonnaged.

Though Horizon Lines has made some news, in recent months, with their plans to plans for engine modifications, there are miles to go before the companies can reap the benefits of LNG fuelling. Indeed, in a key take-away in the report, Sterling and his team point out: “Any way you slice it, Horizon Lines is looking at a significant capex spend the next couple of years just to bring all of the company’s vessels into compliance with current environmental laws….”

The analysts also note that: “The company’s Alaska vessels have been converted from steam to diesel but are still not in compliance with the 0.1% sulphur content requirement beginning in January, 2015.” Additionally, ten of the company’s 13 vessels are steam powered, and the BB&T analysts also bring up the numerous uncertainties surrounding the “Steam Exemption”, good until 2020 for trading in US waters.

Another ominous sign is the departure, in late June, of Sam Woodward, who has now resigned as president and ceo with a year still remaining on his contract. The picture for this carrier, formed in the early 2000’s from what had been SeaLand’s US fleet, is full of dark clouds.

 

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