The losses on the various routes make analysts wince
The Propellor Club throughout the world is an august body of serious maritime professionals. Federal Maritime Commissioners have been members, as have naval commanders, not to mention executives of container lines and ports.
So, speeches and statements made to the meetings are not idle chit chat. The audience knows a red herring when it sees one.
On May 25 Matson Navigation president Matt Cox told the L.A. club that everything was going swimmingly with the two trans-Pacific services and went so far as to say, “They said we’d be eaten alive," as well as "effectively, it's a head haul in both directions."
On August 8, the line said it was closing down the direct service between Long Beach and China, blaming "sustained high fuel prices, rate volatility and overcapacity in the Asia market." The CLX2 service had an operating loss of $17.7 million in the second quarter ($11 million after taxes), and the service has had operating losses of $49.7 million since being launched last September. The company said it would incur another $20 million to $25 million in after-tax losses related by the decision to end the CLX2, mostly in the third quarter.
Cox was not talking through his hat when he spoke to the Propellorites. He was convinced the service was profitable – but he and others ignored the warning signs of over capacity and fuel prices.
Then, we get the other usual suspect in the form of Horizon. This is in all sorts of trouble and Horizon Lines has posted a US$7 million loss for its second quarter 2011, compared with a $4.1 million profit last year, a performance impacted by losses on its new China services and rising fuel prices.
Followed by Trailer Bridge -- $3.6 million loss in the second quarter, compared with an $897,000 profit in the previous comparable quarter – and Sea Star, which has dropped the Philadelphia - Puerto Rico service.
An intriguing possibility has arisen. All these Jones Act lines could end up dropping virtually all their protected routes, simply because they are not savvy enough. As CompAir Data says: "Matson thought it could take on the big boys with smaller, faster ships, as did TCC with low cost charters, and CSAV [the Chilean carrier] was wise enough to get out as rates plummeted." In other words, they are getting pummeled around so heavily, they might be unable to get off the canvas the next time – because the lenders will say enough is enough.
This will provide a poser for the Federal Maritime Commission—and Congress will jump in with both feet.