The domestic shipping business that is Hawaii’s main lifeline for goods is reverting to a duopoly next year after nearly a decade of three-way competition, though local consumers and businesses are not expected to see significant price or service changes.
Horizon Lines LLC, the second-biggest ocean cargo carrier serving Hawaii, announced Tuesday that it made a deal to sell its Hawaii operations to smaller competitor The Pasha Group for $141.5 million.
That sale is hitched to Matson Inc., Hawaii’s largest ocean cargo carrier, acquiring Horizon’s operations in Alaska for $456.1 million in a deal that will give Honolulu-based Matson a major new market to serve after years of eyeing the Alaska trade, which like Hawaii is heavily dependent on ocean cargo transportation.
Both transactions are expected to close next year, subject to regulatory approval and customary sale conditions.
Leroy Laney, a professor of economics and finance at Hawaii Pacific University, said the impact from Horizon being absorbed by Pasha in Hawaii should be relatively small, though generally any time competition is reduced it’s not good for consumers.
"This is going to eliminate one competitor," he said. "It’s a small one but it’s one competitor. It further concentrates what is a concentrated market to begin with."
Laney estimated that Matson has about a 70 percent market share in domestic shipping to Hawaii, with most of the balance held by Horizon and a bit by Pasha.
Hawaii businesses and consumers rely heavily on the three carriers, as about 80 percent of all goods that are consumed in Hawaii are imported, of which 98 percent is brought by ship, according to state estimates.
Pasha, a California-based firm, began serving Hawaii in 2005 with one ship designed to compete with Matson and Horizon mainly in automobile shipments. A second Pasha ship with container and automobile capacity is scheduled to be put into Hawaii service early next year.
In a written statement, Pasha touted its part of the Horizon acquisition as benefiting competition and consumers because the sale will fold Horizon’s container shipping service into Pasha’s service concentrated on vehicles, heavy machinery and other cargo that can be wheeled onto ships.
"By adding Horizon’s Hawaii containerized cargo assets to Pasha’s established roll-on/roll-off cargo service, Pasha will be able to provide customers a more attractive and wider offering of high-quality services," the company said. "This transaction is good for competition and good for consumers."
Matt Cox, president and CEO of Matson, told stock market analysts on a Tuesday conference call that container and roll-on/roll-off service are different market segments that won’t shift significantly with Pasha taking on the segment served by Horizon, which does not bring that type of cargo to Hawaii.
"Our expectation is that the competitive landscape would remain relatively unchanged," he said on the call.
One thing that is somewhat uncertain is how Pasha will integrate Horizon’s Hawaii operations, which include four ships and a terminal at Honolulu Harbor leased from the state.
"It’s not clear, if Pasha simply takes over the (Horizon) vessels and runs them alongside its one existing vessel and one incipient new vessel, what would change and by how much," said local economist Paul Brewbaker of TZ Economics. "I wouldn’t be looking for consumers in Hawaii to feel much difference."
Emily Sinclair, a spokeswoman for Pasha, would not say how Horizon would be integrated if the sale is completed, including the impact on Horizon employees and whether the Horizon name will be replaced.
Sinclair did not reveal how many employees Pasha has in Hawaii. The company has 1,000 employees overall.
Horizon, which is based in North Carolina and had 1,621 employees last year, did not respond to a question Tuesday about how many employees it has in Hawaii and how they might be affected by the pending sale to Pasha.
For Matson, its piece of the Horizon acquisition is expected to generate an additional roughly $330 million a year in revenue. The company said it expects to achieve a savings on operating costs by eliminating some systems and personnel overlaps.
Last year, Matson had $1.6 billion in revenue from operations that include cargo service reaching China, Guam and the South Pacific in addition to Hawaii.
In Alaska, Matson is acquiring Horizon’s service that uses three ships that run between Tacoma, Wash., and three Alaska ports: Anchorage, Kodiak and Dutch Harbor. By comparison, Matson operates nine ships in its Hawaii service.
Matson has been looking at expanding to Alaska for years, though the market was viewed as tough to break into, with well-established competitors and relatively small volume. Like Hawaii, Alaska is subject to the Jones Act, a federal law requiring that cargo shipped between two U.S. ports be served by ships built in the United States and crewed by U.S. citizens.
Horizon has about a 50 percent market share in the Alaska ocean cargo market. Totem Ocean Trailer Express has the other half.
Horizon also operates in Puerto Rico, but will shut down that service by the end of the year. After selling its other pieces, Horizon effectively will cease as a publicly owned corporation. It has seen its shares battered on the stock market in recent years.
Shares of Horizon traded at about $160 in 2010 but plummeted to under $2 in 2011. Since June, shares have traded at about 40 cents. Selling the company’s assets will pay Horizon stockholders 72 cents per share.
Steve Rubin, Horizon’s president and CEO, said in a statement that the deal with Matson and Pasha provides value for shareholders while upholding the company’s financial commitments.
Of Matson’s $456.1 million purchase price, $69.2 million will go to shareholders, and the rest will pay off Horizon debt. The $141.5 million from Pasha will be used to pay off Horizon debt.
