Factory closure fears fuel Matson Chinese import spike

Factory closure fears fuel Matson Chinese import spike

Matson faces growing competition in its core markets of Hawaii and US territories in the western Pacific Ocean.
Photo credit: Shutterstock

Uncertainty over the scale of Chinese factories closures spurred US importers to tap Matson’s expedited services, fueling a nearly 12 percent rise in Chinese imports in the third quarter amid broader pricing increases.

In reporting a profit jump of 34.7 percent of $34.1 million in the quarter, Matson raised concerns during an earnings call over Mediterranean Shipping Co. and CMA CGM’s ordering of 20 22,000-TEU ships. The orders “may ultimately undermine efforts to better match supply and demand,” Matson CEO and chairman Matt Cox said. The global market is at an inflection point, and whether carriers can remain profitable and realize the projected $5 billion in profits this year depends on if they continue to demonstrate the capacity discipline they have since last year, when orders and deliveries plummeted, according to maritime analyst Drewry.

To tap demand for rushed orders from China as the country cracked down on manufacturers that refuse to follow increasingly strict environmental regulations, the company was able to take advantage of a one-time extra sailing when a ship that was in dry dock in China returned to service.

“The end product is still needed as of a definitive date, and there is a little more uncertainty in the market around production capacity; that is playing right into our sweet spot.”

Although China was a bright spot — “our China vessel saw record eastbound volume in September and higher rates versus third quarter 2016,” Cox said — the company noted difficulties in the Jones Act trade.

Matson faced headwinds in Guam, where it faces fresh competition from APL that led to a 22.6 percent year-over-year decline in traffic, and also Hawaii, where home construction activity is slowing and volumes fell 6.4 percent year over year in the quarter. Matson expects lower full-year volumes to both locations.

Traffic from Alaska went in the opposite direction, rising 8.2 percent, but Matson expects full-year volumes to be flat following an above-average fish harvest in the third quarter.

Matson’s revenue rose 8.7 percent to $543.9 million, and ocean transportation operating income was up 26.4 percent to $54.6 million as revenue increased 5.3 percent to $419.2 million.

In addition to falling Hawaii volume, Matson addressed the order of two ships by TOTE Maritime and its plans to begin serving the Pacific island chain.

Although TOTE has ordered two vessels to haul containers to and from Hawaii for delivery in 2020 and 2021, it will not have anywhere to load or unload those containers until 2022 or 2023, when operations begin at the Kapalama Container Terminal (KCT), Cox said.

This is because the only place TOTE could work vessels in Hawaii is at the Pasha terminals, but Pasha has said publicly that there is no room to consolidate cargo and take on new customers until KCT is operational, he said.

“This timing is a clear inconsistency with the stated timing of TOTE’s potential new vessel deliveries in 2020 and 2021. Further, after piers one and two are made available to TOTE in 2022 or 2023, we believe that it would be difficult to operate mobile cranes while TOTE is renovating the piers to install modern gantry cranes and improving the terminal yard for larger-scale operations.

“Lastly, we continue to believe that adding incremental vessel capacity to a market well served by existing capacity is not economic.”

Contact Dustin Braden at dustin.braden@ihsmarkit.com and follow him on Twitter: @dustin_joc.