Hawaii’s lifeline for most consumer and business goods — ocean cargo — looked headed for a shake-up in 2020 with a third competitor entering the market. But new doubt over that service is surfacing.

An investment banking firm’s chief maritime researcher, the CEO of Hawaii’s dominant container carrier and a local industry analyst all are questioning the plan by TOTE Inc. to launch service three years from now.

The doubt surrounds an announcement the state Department of Transportation made in September, saying it would accommodate TOTE with dock and container handling space at Honolulu Harbor as part of a more than $500 million cargo terminal expansion slated to start next month.

TOTE insists that it can start service in 2020 with two ships. But rival carrier Pasha Hawaii Transport Lines claims that it can’t vacate space intended for TOTE at Piers 1 and 2 until 2022 or 2023 after the state finishes new cargo terminal space for Pasha at the harbor’s Ewa end.

“This timing is a clear inconsistency,” Matt Cox, CEO of Matson Inc., Hawaii’s dominant cargo carrier, said in a conference call with stock analysts earlier this month.

Mike Hansen, a local shipping industry watcher who heads a group called the Hawaii Shippers Council, has previously expressed skepticism. He estimates that TOTE wouldn’t be able to start using Piers 1 and 2 until 2024 or 2025, given the time it would take the state to improve those piers after Pasha moves and for TOTE to install cranes and other equipment.

“TOTE would not be able to inaugurate an interstate container service until Piers 1 and 2 become available because no other container terminal is available in Honolulu Harbor,” Hansen said in a written analysis.

Anthony Chiarello, president and CEO of TOTE, declined through a spokesman to say how the company expects to use Honolulu Harbor in 2020.

“TOTE remains committed to Hawaii and we look forward to launching service to the islands in 2020 under the agreement we’ve reached with the Department of Transportation,” he said in a statement.

Duopoly thought likely

Ben Nolan, a managing director and senior maritime research analyst at St. Louis-based investment banking firm Stifel Financial Corp., gives a more than 50 percent chance of TOTE failing to acquire two new ships and starting Hawaii service.

However, Nolan, who made a range of predictions involving TOTE in a recent research report, gives a 25 to 50 percent chance that TOTE merges with Pasha and adds two ships to replace two he says Pasha will likely retire. That would leave Hawaii’s domestic shipping market with two competitors and no additional ship capacity.

Nolan noted that TOTE, a subsidiary of Seattle-based Saltchuk and sister company to interisland cargo carrier Young Brothers Ltd. and Aloha Air Cargo, had tried to enter the Hawaii market before by acquiring assets of Horizon Lines but lost that acquisition to Pasha.

Nolan stated that he has met with senior management of Pasha, TOTE and Matson who agree that only two players will exist in the market, thereby maintaining a duopoly.

Three carriers have been touted as introducing new competition that would benefit consumers. But adding even two new container ships would flood the market with capacity that experts say can’t be financially sustained by all the carriers. TOTE’s plan is to start with two ships in 2020, followed by another two in 2021.

“We expect Hawaiian container shipping capacity to remain largely unchanged for the next decade,” Nolan’s report said. “There is simply not enough cargo moving from the U.S. West Coast to justify even one additional net ship without overwhelming the marketplace.”

The report said TOTE’s plan stems from “desperate measures” initiated by a Philadelphia shipbuilder at risk of shutting down if it can’t land a new order.

That builder, Philly Shipyard Inc., announced in June that it was starting work on the first of four container ships for a then-unnamed major U.S. shipping operator that turned out to be TOTE.

‘No assurance’

Philly Shipyard has a letter of intent, or LOI, from TOTE to buy the first two ships and an option for two more — but no firm order.

The shipyard said in a Nov. 2 financial report that it has ordered the main engines and other parts requiring long lead times, and that full production on the first hull is planned for the first quarter of next year.

“However, full production start is dependent upon finalizing the definitive agreements contemplated by the LOI with TOTE Maritime and the satisfaction of certain customary contingencies, including arranging construction financing for this vessel,” the company’s report said. “There can be no assurance these contingencies will be satisfied.”

Philly Shipyard also said it would be challenging to continue operations after finishing a ship slated for delivery in early 2019 if it can’t obtain an order.

Nolan’s report said it’s an untenable problem for Philly Shipyard’s survival if Honolulu Harbor can’t accommodate TOTE until 2022 or later.

The analyst said the market for U.S.-built ship orders is depressed and that Philly Shipyard’s plan to build four ships for TOTE appeared to be a response to Pasha selecting Texas shipyard Keppel AmFELS to build two new ships to replace two older ships in its Hawaii service.

“The clear intent was to force Pasha to not move forward with their Keppel order,” Nolan’s report said.

But that didn’t happen. Pasha spokeswoman Emily Sinclair said last week that contracts have been signed with Keppel for the new vessels and that construction is underway on the first ship, to be named M/V George III.

Nolan expects something to give soon. “We suspect TOTE could withdraw their LOI from Philly Shipyard or make more overt merger pursuits with Pasha,” his report said.