Horizon Lines takes vessels out of transpacific

In a move signaling future rate pressure in the nation’s most robust ocean cargo trade lane, Horizon Lines, Inc. announced it will discontinue its Five Star Express (FSX) trans-Pacific container shipping service between the U.S. West Coast, Guam and China.

Horizon is implementing an orderly transition plan, beginning October 31, 2011, and will work aggressively to mitigate any supply chain disruptions for its customers. Discontinuation of the FSX Guam and China services will have no impact on the company’s domestic ocean services in Alaska, Hawaii, or Puerto Rico.

The move comes in the wake of Matson’s announcement that it would eliminate one of two deployment strings in the transpacific.

“This has been a very difficult decision in light of the tremendous contributions from our associates, and our organized labor and vendor partners, who have worked so hard to make the FSX service a success,” said Stephen H. Fraser, president and CEO. “Our decision to exit this highly volatile market will allow Horizon to focus on our core domestic ocean shipping services, and provide the opportunity to produce a more profitable and stable financial performance over time.”

Shippers told LM that they expect the rate structure in the trade lane to remain stable, and with fewer players to choose from, that may be the likely scenario.

Tom Brossart, director of global logistics and trade compliance for W.R. Grace & Co. – a leading global supplier of catalysts and other products to petroleum refiners –  told LM that shippers would have to realize that capacity can be withdrawn at any moment.

“That’s why companies like ours have different shipping and sourcing strategies in place,” he said.
The last voyage of the FSX service from China is scheduled to depart Shanghai on November 2, 2011. Horizon Lines also will suspend ocean services to Guam and surrounding islands effective with the last sailing from the U.S. West Coast on November 10, 2011.

The company expects to cease all operations related to the FSX service during the fourth quarter and does not expect to have significant continuing involvement in the operations after the termination. Therefore, the company will classify the FSX service as discontinued operations and as a result, expects to record a pretax restructuring charge of between $105 million and $110 million in fiscal fourth quarter 2011. The charge includes estimated costs to return excess rolling stock equipment, facility closures, severance, and vessel charter expense, net of estimated sub-charter income. Losses associated with the FSX service produced a negative adjusted EBITDA impact of approximately $43.7 million for the nine months ended September 25, 2011, with additional losses expected through the end of the year.

Following their last voyages, the five Hunter-Class D-8 vessels operating in the FSX service are currently planned to be laid up, after dry-docking of the remaining four vessels. The vessels are leased from Ship Finance International Limited through 2018 to 2019. Horizon Lines is exploring sub-chartering the vessels and other solutions to partially mitigate ongoing charter expense and maintenance costs.