Food, Clothing, Shelter Dominates Jones Act Trade

Food, Clothing, Shelter Dominates Jones Act Trade

Shipping lines serving the non-contiguous states of Alaska and Hawaii provide more than just a commercial service to the local residents. They carry the basic cargoes without which the state economies could not survive.

“We ship the essentials of life — food, clothing and shelter,” said Brian Taylor, executive vice president and chief operating officer at Horizon Lines.

In that respect, Horizon, Matson Navigation and Totem Ocean Trailer Express are guaranteed a steady base of cargo from the U.S. mainland to Alaska and Hawaii. Any significant bump in cargo volume depends upon a surge in economic activity due to factors such as tourism, construction or energy exploration and production.

Currently, cargoes that are the essentials of life are what carriers are carrying in the U.S. trades to Alaska and Hawaii.

Hawaii’s economy for the remainder of 2012 and most likely through 2013 will be in a recovery mode, said Dave Hoppes, senior vice president of ocean services at Matson. The island’s economy is based upon tourism, replenishment of military operations and construction.

Tourism is doing fine; in fact, tourist activity this year could return to the peak level of 2006 in terms of visitors to the island and industry revenue. The rebound in tourism guarantees a steady stream of westbound cargoes such as food and consumer merchandise.

Because there is no significant expansion scheduled in the military sector, the movement of household goods for servicemen and repositioning of automobiles for military personnel are expected to remain steady through next year, Taylor said. Horizon does not anticipate any noticeable increase in that sector.

The Hawaiian trade is usually only on fast-forward when residential and commercial construction are hot, but that is not the case this year, and 2013 is expected to be much the same.

Building and construction materials regularly account for 8 to 10 percent of the westbound cargo to Hawaii, and during surges, the construction industry can account for as much as 20 percent of the cargo base, Hoppes said. Forecasts for the next 15 months call for slow growth from a depressed base, he said.

The construction industry is important in its own right for generating the movement of building materials and home improvement merchandise, but also for the multiplier effect the industry has on job production throughout Hawaii, Taylor said. “We really do need construction activity,” he said.

The ocean trade between the lower 48 states and Alaska is marked by similar economic conditions. “In general, the trade is flat,” said John Parrott, president of Totem Ocean Trailer Express.

Alaska last year experienced a severe winter, with temperatures reaching minus-60 degrees on the North Slope. Anchorage, where much of the population lives, had a record snowfall, impacting economic activity.

Alaska is back to normal now, and its largest-volume shipment to the U.S. mainland — seafood — is doing well. Tourism has also returned to normal.

The volume of southbound trade from Alaska equals only about 10 percent of the northbound trade. Just like the Hawaii trade, carriers depend upon the shipment of all types of consumer goods from the mainland to Alaska for the bulk of their revenue.

In the past, northbound shipments increased noticeably with the expansion of big box retailers in Alaska. As the retailers built more stores, demand was created for more building materials and consumer merchandise of all types. “There’s none of that now,” said Taylor of Horizon Lines, which also operates in the Alaska trade.

Alaska’s economy is heavily dependent upon the extraction of oil and gas. In recent years, activity in the energy sector slowed down as oil companies protested what they consider to be an unfair taxation regime, Parrott said. Oil directly affects the entire economy of the state, so carriers are waiting to see if the tax issue will be resolved, he said.

Also, because Alaska is a large producer of natural gas, and Asian demand for natural gas is soaring, development of gas reserves would give a boost to the economy, Taylor said.

Ocean carrier service to Alaska has remained fairly stable, with TOTE, Horizon and some barge operators handling the traffic. Matson is not involved in the Alaska trade, but the company has stated publicly that under the right conditions it would like to serve Alaska.

Matson has made it clear, however, that it does not want to add new capacity to the trade. Rather, it would prefer to enter the Alaska trade through the purchase of an existing participant. Neither Horizon nor TOTE are especially interested in seeing that scenario develop. “Right now, I see the trade staying the way it is,” Parrott said.

As for the trans-Pacific, Horizon served Guam for 25 years in addition to Hawaii, but at the end of 2011 discontinued its Guam service, leaving Matson as the only U.S.-flag carrier between Guam and the U.S.

Taylor said it was a difficult decision for the carrier to make, but now Horizon is more nimble in its Hawaii operations. Horizon has a “laser focus” on customer service, as exemplified by maintaining its customer service offices on the island rather than centralizing them somewhere else, he said. 

Contact Bill Mongelluzzo at bmongelluzzo@joc.com. Follow him on Twitter @billmongelluzzo.