The failure late last month of American Feeder Lines and its 9-month-old service in the U.S. Northeast marks the latest body blow to short-sea shipping.
The end of the AFL service from Halifax to Portland, Maine, and Boston is likely to throw cold water for years to come on the Maritime Administration’s plans to establish the Marine Highway Program.
AFL was seeking a temporary exemption of the Jones Act to allow foreign-built ships into U.S. domestic maritime service, as the company tried to attract investment to domestic short-sea shipping. The company faced a major obstacle in getting its operation off the ground: a shortage of suitable U.S.-built ships. The Jones Act requires domestic shipping operators to use U.S.-built ships crewed by Americans.
The executives behind AFL hoped the feeder service would pick up enough cargo moving between Canada and the U.S. to turn a profit and set the stage for launching other domestic U.S. services using 10 ships linking up to 18 East and Gulf Coast ports.
It seemed like a natural to German investors backing the company. “Our thesis is simple: Build, own and operate the first fully compliant Jones Act short-sea/feedering container liner service in the United States,” the company’s mission statement said. “AFL will build ships based on proven European designs and deploy its vessels into a fully integrated container short-sea/feedering operation based on systems now in operation in Europe, Asia and South America.”
The concept attracted investment by German investors including majority owner Tobias Konig, founder of Konig & Cie., a company with dozens of ship finance deals; and Johannes Bitter-Suerman, former senior vice president at HSH Nordbank, Germany’s biggest ship finance bank. The company named Rudy Mack, former president of Hapag-Lloyd’s Americas operations, as its chief operating officer.
The AFL service was designed to fill the gap left by the 2008 end of Eimskip’s weekly container ship service between the three ports. Columbia Coastal Transport continued to operate an on-again, off-again weekly container-on-barge service between Portland and Boston. That service, however, was suspended several years ago, leaving Portland — the only U.S. container port north of Boston — without regular container service.
The AFL service would pick up international cargoes delivered to Halifax and transshipped to Boston for the U.S. market. It also would pick up container loads of Maine paper and pulp and bottled waters at Portland and relay them to Halifax for transshipment to overseas markets.
“It offered competitive service via Halifax for inbound and outbound cargo, better than through any other port,” Mack said. “It offered very competitive advantages for lower-value eastbound commodities, because the service via Halifax was cheaper than hauling those export commodities via truck to New York.”
But the feeder service couldn’t build cargo volume fast enough to offset costs. “We had to pull the plug because there was not enough volume on the service,” Mack said. “You need a certain cash flow to run this service. We don’t have it today. We won’t have it tomorrow.”
Mack said AFL had kept the service running in the face of mounting losses while it continued to talk to the investors, but they were no longer willing to subsidize the money-losing operation. “So we decided to close it. Otherwise it would be irresponsible to bleed money away without the hope to break even within the near future.”
Mack still thinks short-sea shipping offers the best solution to moving containers from port to port in North America, because of highway congestion, mounting truck costs and the lack of drivers. “Local service via water is the best solution, but it is not easy to convince the shippers involved to do that, and also financing right now in shipping is hard because everyone reads in the newspapers about the lines losing money.”
The end of the feeder service and the closing down of AFL is sure to discourage further investment in short-sea shipping. “It will close that door for some time to come,” Mack said. “No one will jump through the door right now and take that risk.”