Waterborne carriers in the U.S. domestic Jones Act trades move a variety of cargoes around and through the entire country, including minerals carried in huge self-unloading ships on the Great Lakes; barges carrying agricultural, mineral and chemical products on the nation’s inland and coastal waterways; petroleum product moving in tankers on the West Coast; and container-trailer commodities moving via ships and tugs-barges to and from Alaska, Hawaii, Guam and Puerto Rico.

Marine Digest spoke with some of the heads of the container-trailer shipping group for this first installment of our look at the U.S. Jones Act market for carriers. Future issues will delve into the other carrier groups listed above.

The domestic carrier group has been trying to weather its own economies of scale, hot and cold domestic markets and rates, higher fuel costs, off and on attacks against the Jones Act itself, and being tied to a U.S. shipbuilding industry that is finding it increasingly difficult to competitively price itself against the world market. Thrown into this mix is the specter of President Bush’s efforts to eliminate the Title XI Maritime Guarantee Loan Subsidy Program, which several domestic commercial shipbuilding projects have relied heavily upon since 1993.

That said, investment into new Jones Act equipment has done anything but abate.

"If you look at the industry in the last few years, the investments into the Jones Act fleet have been amazing — there has been a lot of newbuilding going on that will serve to solidify the Jones Act," said Mark Tabbutt, president of Saltchuk Resources, the parent company to Totem Ocean Trailer Express, Foss Maritime, AMNAV, Young Brothers/Hawaiian Tug & Barge and the Sea Star service in Puerto Rico – a partnership with Matson Navigation.

Tabbutt is right: over $3 billion worth of new construction is currently on the books, including: two new diesel electric ships for TOTE, costing over $300 million, under construction at San Diego’s NASSCO yard; two car carriers for Pasha under construction at Halter; five millennium class crude carriers for Philips Petroleum’s Polar Tanker fleet being built at Litton-Avondale (with options for two more); three double-hull tankers for BP under contract with NASSCO; four 40,000 dwt tankers for Keystone are to be built at Philadelphia’s Kvaerner yard; two cruiseships for American Classic Voyages under construction at Ingalls Shipbuilding; and at least one 2,600 TEU containership under construction at Kvaerner for an undisclosed operator. In addition, two other Saltchuk companies — Foss and AMNAV — are expecting new ship-assist tugs from Halter for deployment in the Southern and Northern California shipping markets, and Crowley’s Vessel Management Services has an articulated tug-barge contract at Halter, plus a new escort tug to be built at MARCO in Seattle.

"By 2004, 2005, the average age of ships in the Alaska trade will be two years old," said Robert Magee, president and CEO of Seattle-based Totem Ocean Trailer Express. "In addition to that, the CSX ships (TOTE’s primary competitor in that market) were delivered in 1986; they’re not that old. You also have the rail belt market, with Lynden Transport putting rail barges into service (see Rail Barge article page 32), plus the new Alaska Marine Highway ferries," he said.

TOTE’s new shipbuilding progress is pricey, to say the least, but Magee said the ship-service upgrade between the Port of Tacoma and the Port of Anchorage is due to the existing need for better service.

"We’re not building new ships because there’s a boom coming (he projected TOTE’s compounded growth to be between one and one and a half percent in 2001), but because we need to serve our existing customer base better. The new vessels bring some economies of scale with them (see Marine Digest, Jan. 2000). They’re larger, can move more freight per voyage, are more maintenance and repair efficient. They’ll be easier to stevedore and there will be less damage, translating to lower insurance rates," he said.

Magee outlined the changes in trailer size regarding the need for new ships with different capacity. "Thirty years ago you would have seen nothing but 40-foot trailers on the highway. Now you see trailers getting larger and smaller. In some states you can do tandem and triple tows. You see a lot more of the 53-foot trailers, in fact, I’d say most moving vans are 53 feet. This size is a problem for our existing ships," he said.

Magee said TOTE serves 80 percent of a 625,000-population base in Alaska, with the cargo mix consisting of groceries, department store merchandise, all types of vehicles, project freight and military cargo.

"Alaska growth is good this year," said Charles "Chuck" Raymond, president and CEO of CSX Lines. "We’ll see three to four percent growth…there’s quite a bit of development on the North Slope, a lot of construction. The downstream economic impact will mean more jobs and more disposable income," he said, referring to Alaska’s potential for greatly expanding its energy-based economy with still-untapped crude, natural gas and zinc deposit production.

CSX Lines has probably been forced to make the strongest adjustment to working within the parameters of the Jones Act. Formerly the domestic unit of SeaLand, in late 1999, CSX Corp., then-parent of SeaLand, sold off its international liner division to the Danish carrier, Maersk (now Maersk Sealand). The domestic shipping division, which currently consists of a 16-ship fleet, was re-structured under the CSX Lines banner, and is based in Charlotte, North Carolina.

CSX Lines also offers service to Hawaii, Guam and Puerto Rico.

"We’re still going through the work of right-sizing ourselves," said Raymond. "Our financial results will improve after the second quarter this year," he said. Yet, despite the strong outlook on Alaska, Raymond said other CSX markets are currently not quite as rosy. 

"Hawaii will be a flat market for us this year, and Guam will be, too" said Raymond. "Tourism [in Hawaii] was on a slide for several years, particularly Japanese tourism. But despite the fact the yen has devalued substantially (17 to 18 percent this year), there is renewed interest by the Japanese. We watch occupancy levels at hotels and length-of-stays are getting back [to previous levels]. Long term, Hawaii will be fine," he said.

Late last year, CSX enhanced its containerized service to Hawaii, introducing its Midweek Express (MWX) — a fortnightly service with sailings from Southern California, in addition to service from Honolulu to Tacoma and intercoastal service from Tacoma to Long Beach. The service enhancement brought CSX Lines’ Hawaii fleet to eight vessels.

CSX’s primary competitor in the Hawaii trade and a venerable name in the U.S.-Hawaii market is Matson Navigation. Aside from beefing up its fleet to eight vessels in the trade, Matson is also investing in a $31.5 million terminal improvement project to its Sand Island facility. In addition, the carrier, owned by Alexander & Baldwin, turned the management of its container terminals in Seattle, Oakland and Los Angeles over to Stevedoring Services of America Terminals (SSAT), is growing its Matson Logistics operation, an alliance with air freight forwarder Commodity Forwarders, Inc., and has started a coastal intermodal service with BNSF that runs between Los Angeles and Seattle.

"We want our customers to know we can handle any type of shipment to and from anywhere in the U.S.," said Brad Mulholland, president and CEO of Matson. "With our terminal improvement project in Honolulu, the goal is threefold: to provide world class service to our customers and the trucking community that uses the terminal, to have the most efficient terminal operation for any similar sized terminal in the U.S. and to accommodate projected growth through the year 2020," he said.

A newcomer is scheduled to enter the auto-carrying trade between the U.S West Coast and Hawaii — Pasha Hawaii Transport Lines LLC, a joint venture of the Pasha Group and Van Ommeren Shipping. Two 579-foot, 13,000 dwt ton Pure Car and Truck Carrier vessels have been ordered from Gulfport, Miss.-based Halter Marine Inc. The ships, priced at $69 million each, and based on an existing European design, have been slow-going getting into the early construction phase due to the financial woes of Halter’s parent company, Friede Goldman, affecting the shipyard’s stability.

"It’s inconceivable how anyone can have lower rates," said Saltchuk’s Tabbutt, of the U.S.-Puerto Rico shipping market. "Customers are taking great advantage of the rate structure," said TOTE’s Magee, referring to his company’s involvement there with Matson in Sea Star. Chuck Raymond thinks no carrier will be able to re-invest until that market picks itself back up. "I think there will be some consolidation in that trade and carriers will need to become more efficient with less steel in the water," he said.

Behind market leader Crowley, the Puerto Rican financial waters are getting murkier, with the Naveiras/NPR line filing for Chapter 11 and Trailer Bridge suffering from a $5.4 million first quarter loss in the trade.

In terms of fresh tonnage in the trade, Raymond said some of the tugs and barges are relatively new, and despite older containerships, other types of vessels could be used, like CSX’s lash vessels, which will become Jones Act ships in a few years.

The scheduled entry of Pasha’s ships into the Hawaii market, as with TOTE’s vessels into the Alaska trade, begs the question of how much investment can be justified in certain markets by domestic carriers, and whether building new vessels "Thirty years ago, an ocean carrier with an aging fleet had only one option: build new ships.  Since that time, our business has changed; the maritime environment has changed; and customers’ expectations have changed," said Matson’s Mulholland.

"Matson is studying its various fleet replacement options. In order to sell a vessel acquisition program to our board of directors, we need to be able to confidently tell them that Matson can generate better returns investing in ships than putting the money in T-bills and earning a risk-free six percent. We were able to do that in 1996, when Matson handed APL a check for $160 million for six of their container-ships. However, going forward, we need to explain how these vessels fit in our overall transportation and logistics services strategy," he said.

Mulholland said new build options are being studied and that a "fleet replacement program will likely encompass more than simply constructing an entire new fleet of vessels from the keel up. Chartering or purchasing existing vessels qualified to operate in domestic trades may be a better option. Building on current alliances with other carriers is also a possibility."

One program being looked at is the "lease financing" (see facing page). Lease financing would allow financial institutions to keep ownership of vessels leased through bareboat charter to operators, with the payments eventually covering the financial institution’s investment in the vessel with interest. The USCG is pursuing how this Congressional amendment to U.S. vessel documentation law could keep foreign financial institutions out of the loop.

Mulholland said Matson, along with other U.S.-flag carriers, are strongly supporting this effort.

"The provisions set forth in 1996 were not intended to repeal the basic U.S. citizenship ownership requirement. They were designed to help American carriers reduce their borrowing costs for vessels operated in domestic trades… the intent of Congress was not to permit tax-advantaged foreign maritime interests to own and control vessels used in U.S. domestic commerce," he said. 

"Our position is that Jones Act ships are under full control of American owners," said CSX’s Raymond.

In other legislative agendas on the Hill, and as reported in this issue’s Legal Lookout, Representative Nick Smith (R-MI) has re-introduced a Jones Act reform bill to Congress, termed the Coastal Shipping Competition Act (H.R. 2406). The bill would allow foreign-built, qualified vessels to operate between American ports if they obtain a certificate from the U.S. Secretary of Transportation.

Is this just another failed run at the Jones Act, and are domestic carriers paying attention?

"We collectively take these issues very seriously," said Bob Magee. "If some segment in our economy and infrastructure thinks there’s a problem, we take note." Magee said he believes those harboring recent beefs with the Jones Act have tended to aim at domestic transportation sectors out of the coastal container-trailer shipping lines’ purview.

"Chrysler, Sears, GM, Fred Myers… they’re not complaining. They can talk to all of us and bargain the best possible rates for themselves," he said.

At Matson, Mulholland thinks the latest bill is another round to nowhere. "This is virtually the same bill Representative Smith introduced about five years ago, which went nowhere in the House. At this time, it appears to be another dead-end Jones Act reform bill."

Whether or not foreign competition is ever allowed into the U.S. coastal shipping trades, there has been more talk in the industry and trade press on the future growth potential of this business.

On the U.S. West Coast, the high price of waterfront labor has proven cost-prohibitive in stimulating more port-to-port commercial shipping activity.

"We have been running from Seattle to L.A., and ILWU wages are on both ends of the hook there," said Raymond. However, he said, "There is a need for coastwise services taking containers up and down the West and East coasts," he said. There already exists a successful container-on-barge service on the U.S. East Coast via New Jersey-based Columbia Coastal Transport (see Marine Digest Feb. 2001). Columbia Coastal has been operating 16 U.S.-flag barges in regularly scheduled feeder services between the Atlantic Coast ports as well as Freeport, Bahamas.

"This is a tremendous growth opportunity for CSX Lines. Rail is going to have to augment the capacity, especially on the East Coast. Can the country afford not to put it on the water? The railroad can have two levels of service — one by rail, one by water," he said.

"Other countries use their water well, like in China and Europe. The U.S. has a wonderful highway system, but it’s becoming more congested and expensive. We’ve got to use the water more effectively," said Raymond.