Horizon and The Container Company are a new study in contrasts
Too much attention is being paid to rates and (lack of) capacity on the trans Pacific route and not enough to the intriguing possibilities, and perhaps tussle, being opened up between two new entrants on the route, The Container Company (TCC) and Horizon Lines.
Of the two, TCC has the better chance of long-term success. Starting operations at the bottom of the market, a no-frills service, moving between two ports only and a team of only 20 people (although this could include only logistics staff and not admin/accounts).
Horizon is counting on just one advantage, the Jones Act. The rotation will probably be Los Angeles/Oakland, Hawaii, Guam and two Chinese ports. Brian Taylor, VP for international services, said in an interview with International Freight Weekly, "We have our contracts with the military, so we have to provide reliable, rapid services to meet our commitments there." Those contracts are probably dependant on one project – the $100 million (my estimate) expansion of the military base on the island, largely due to thousands of personnel moving from Okinawa.
At the risk of telling a professional how to do his job, it is quite likely that Mr. Taylor has got his facts the wrong way round. While the military often excels at logistics, the phrase "Hurry up and wait" suits the institution perfectly. Orders get changed and shipping times moved around – particularly when politicians are involved in the process.
It's not the military he should be fretting about but the commercial customers, which depend on absolutely reliable delivery times to stay in business. The moment there's a hitch with a military shipment, everyone down the line will be in trouble.
Horizon is confident it has the leg between the West Coast and Guam locked up because of its Jones Act status. That's fine – but examine the distances. By my reckoning, West Coast to China is anything between 5,600 miles and 6,500 miles. Going via Hawaii and Guam adds at least 3,000 miles (Hawaii to Guam is 3,800 alone). Bunker costs going up 10 percent will add a huge load to the break-even point.
Switch to slow steaming, perhaps. Mr. Taylor again. "Based on some of the models, direct ocean transits versus slow-steaming can realize savings of anywhere from two to four days." Horizon HAS TO steam at speed because its whole appeal is built on that.
TCC has worked out its sums carefully. Horizon has ditched Maersk and hopes to piggyback commercial freight onto military contracts. There could be some anguish involved.