Matson Sails Fast Boats to China
Matson’s big gamble in global shipping pays off
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Photo: Courtesy of Matson
Full steam ahead
Since 2008, A&B’s three main business lines – agriculture, shipping and real estate – have felt the pain of high oil prices, lower demand for retail products and the real-estate slowdown. In 2009, A&B posted a record $30 million loss for its agricultural businesses as a result of a devastating drought on Maui; 2007 and 2008 were the driest back-to-back years in A&B’s history, Kuriyama says, which impacted 2009 revenue.
Net income for the first three quarters of 2009 was $24.1 million. That figure spiked to $71.9 million for the same period in 2010.
“There’s no question, Matson’s CLX1 has been instrumental in A&B’s recovery in 2010 over 2009,” Kuriyama says. “When you compare the two year’s (shipping) performances, you basically see flat, stable volumes in Hawaii and in Guam, but we saw a significant increase in rates and volume from China.”
In 2009, A&B’s operating profit for its ocean transportation division in the third quarter was $24.2 million. The same quarter the following year, it jumped to $40.4 million – a 67 percent increase – and Kuriyama has but one explanation: “China.” He says the company is in a strong financial position with a solid balance sheet and available lines of credit, which will allow for future growth.
“Our stock has been doing pretty well more recently but we did take a big plunge early in (2010),” Kuriyama says. “The market was in turmoil and there was a huge uncertainty in all lines of business, but as our performance improved over the year, so did our stock-price performance.”
Cris Borden, partner and chief investment officer for Kobo Wealth Conservancy, says he’s somewhat surprised that A&B’s stock wasn’t hit harder because of the nature of its business lines – sectors that all saw steep declines. In 2008, Borden says, the shipping industry was down 56 percent while A&B was down 49 percent, “so they did better than the overall shipping industry,” he says. “For A&B, their shipping is so critical to the security of Hawaii, which is probably why it did a little better than other shippers around the world.”
Borden says A&B’s China strategy and presence has probably helped its stock price. “They have a young shipping fleet, which apparently gives them better operating margins, so I think that’s helped them as well.
“A&B is representative of the overall Hawaii economy, so their stock price is probably a good indication of where Hawaii is heading, in terms of the economy.”
Globally, Borden says there are about 70 other publicly traded shipping companies. “It’s difficult to say how Matson measures up to the competition because A&B’s market capitalization includes all of its subsidiaries,” he explains. But, he says, investors are confident that A&B will continue to be profitable in 2011.
“According to industry experts, shipping rates should remain depressed over the near term, but A&B’s service out of China should mitigate their downside risk. … A&B is older, they’re well established, they have good cash flow and they’re a mature company, so you normally don’t see major volatility in stocks like that.”
Matson expects its CLX2 service to double its China capacity. The route is a direct loop between Long Beach and Southern China, without stops in Hawaii or Guam. The challenge now is to find more paid cargo to be shipped from the West Coast to China.
In December, Horizon Lines kicked off its own service from China to Long Beach, called Five Star Express, which offers an 11-day transit time. Both Horizon and Matson hope to accommodate an expanding military presence in Guam.
“We certainly feel in some way flattered that (Horizon Lines) is going to try to copy the trail that Matson’s blazed and we wish them well,” Cox says. “By the other token, they’re just one of 20 competitors in the China trade. We aren’t overly worried about them and we’re going to continue to focus on what we’ve built on in the last five years.”
The Port of Long Beach’s Art Wong says China is the manufacturing center of the world and the largest market for containerized shipments, so there’s plenty in China to keep all of the major international shippers busy.
“It could get interesting but it’ll all come down to who can provide the best service,” he says. “And, right now, there are definite advantages to shipping with Matson.”
Kuriyama says A&B is poised for recovery as Hawaii’s economy strengthens and the company will continue to look at new ways and places to grow within its core businesses.
“For us, this is a long-term story that we’re trying to tell. And even though we’re expanding to China and that route has been successful, it’s important to remember that we’re still a Hawaii company, so no matter where we do business, this will always be our focus. Hawaii will always be our home.”
CLX1 vessels (the Hawaii ships): Each can carry about 1,000, 40-foot containers.
CLX2 vessels: Each can carry about 1,500 containers.
Typical cargo: Higher-value goods, such as electronics, fashion garments for major retailers, and high-end furniture.
Volume in 2009:
Hawaii-bound containers: 136,100
Hawaii-bound automobiles: 83,400
Guam-bound containers: 14,100
China-to-West-Coast containers: 46,600
Volume in 2008:
Hawaii-bound containers: 152,700
Hawaii-bound automobiles: 86,300
Guam-bound containers: 13,900
China-to-West-Coast containers: 47,800
Matson’s CLX1/Hawaii fleet:
MV Manulani (at right)
MV R.J. Pfeiffer
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