Philly Shipyard Begins Construction of Modern Containership Fleet to Support Development of New Cargo Liner Service for the Hawaii Trade

From Philly Shipyard,  June 8, 2017

Highlights

• Philly Shipyard is in advanced talks with a leading Jones Act operator to establish a new shipping service in the Hawaii containership trade with up to four new, state-of-the-art, cost-effective and environment-friendly vessels
• Philly Shipyard is building on its tradition of promoting new vessel owners in the Jones Act market
• Indicative terms have been issued by a maritime leasing company for a bareboat charter structure to finance the purchase of these vessels
• Former senior executives familiar with the Hawaii containership trade have been engaged to support this project
• These vessels are a continuation of the series of similar containerships currently under construction at Philly Shipyard for the Hawaii trade-lane
• Long-lead items have been ordered to support optimum delivery dates

Philly Shipyard, Inc. (PSI), a wholly-owned subsidiary of Philly Shipyard ASA (Oslo: PHLY), is pleased to announce that it has initiated construction of up to four new, cost-effective and environmentally friendly containerships with deliveries in 2020 and 2021, and is actively promoting the formation of a new entrant into the containership trade between the U.S. mainland and Hawaii to operate these vessels.  Presently, this trade route is serviced by only two carriers and is reliant in part on a group of near end-of-life steamships.

In line with its business strategy, PSI has a successful track record of promoting the formation of new vessel owners in the Jones Act market, such as American Shipping Company and Philly Tankers.

PSI is presently engaged in advanced discussions with a major U.S. shipping operator about establishing a new, financially strong carrier with a fleet of modern vessels to be built by PSI to support commerce between the U.S. West Coast and Hawaii.  Several prominent investors and lenders in the U.S. shipping market have expressed interest in taking part in this opportunity. In addition, a highly regarded maritime leasing company has issued an indicative offer with preliminary terms for a bareboat charter structure.

“We are excited to get started on building a new fleet of containerships for a new carrier in the Hawaii trade and are pleased to have received such positive feedback from well-known U.S. marine players and financing sources,” remarked Steinar Nerbovik, Philly Shipyard’s President & CEO. “Philly Shipyard has a strong track-record of building quality vessels for this trade, and we believe local communities can benefit greatly from the safe and reliable service provided by our modern, efficient and ‘green’ ships.”

PSI has retained former senior U.S. shipping executives with significant experience in the Hawaii containership trade to assist with the initiative.  These executives include John Keenan, who served in various key leadership roles at Horizon Lines, including as President and Chief Operating Officer from 2007-2011.

When strict MARPOL/ECA emissions regulations take effect in 2020, several of the older steam powered vessels serving the Hawaii trade route today will be out of compliance without substantial, costly modifications.  Even if these aging steamships are modified, they would be less reliable and carry significantly higher operating costs than modern vessels in areas such as fuel consumption and manning and maintenance requirements.

PSI believes these circumstances create a unique opportunity for a new Jones Act carrier to enter the Hawaii containership trade with a fleet of cost-efficient and eco-friendly container vessels built by PSI. Furthermore, unless these new ships enter the Hawaii trade route starting in 2020, local commerce may be adversely impacted by the new emissions standards.

For these reasons, PSI has begun construction of a new fleet of containerships, with planned delivery dates for the first pair in 2020 and the second pair in 2021.  In order to support this timetable, PSI has commenced design work and procurement activities.  The vessels are being designed to address the present market trends for larger sized containers, faster transit times and LNG fuel.  PSI has initiated placing orders and making financial commitments on long-lead items.

These modern containerships will be the direct continuation of the series of two similar 3,600 TEU Aloha class containerships with expected deliveries in 2018 and 2019 that PSI is presently constructing for the Hawaii containership trade.  PSI believes that the operational benefits offered by series production with familiar ships, coupled with its historical access to vessel financing, places PSI in an advantageous position to build vessels for a new cargo liner service between the U.S. mainland and Hawaii.

  *   *   *   *   *

Hansen discounts shipyard announcement of a third carrier to Hawaii

by Michael Hansen, Hawaii Shippers Council, June 9, 2017

The Honolulu Star Advertiser published on June 9, 2017, the news article, “New shipping service said to be headed to isles,” reporting that the domestic Philly Shipyard Inc. announced plans to build four Jones Act containerships on speculation and intended for the Hawaii trade.

The author of the Star Advertiser article quoted Mike Hansen extensively offering an alternative explanation of the Philly Shipyard announcement.

Key excerpts:

Philly Shipyard Inc. announced Thursday that it has started to build the first of up to four new ships for the service, which is expected to be run by a “major U.S. shipping operator” that the shipyard would not name because negotiations are active.

Two ships could be ready for delivery in 2020, and another two in 2021, Philly Shipyard said.

If launched, a new shipping line would establish competition for Matson Inc. and Pasha Hawaii with regularly scheduled service on the route, which is restricted to ships built in the United States, owned by a U.S. entity and crewed by U.S. citizens under a federal regulation called the Jones Act.

Matson said in a written response that it has been the primary ocean cargo carrier serving Hawaii for 135 years and that it has four new ships being built to maintain its position.
In response to Philly Shipyard’s announcement, Pasha spokeswoman Laurie LaGrange issued a short statement: “Our number one focus is on our customers and continuing to do our best to serve them and ensure their ocean transportation needs are met.”

Mike Hansen, a local shipping industry observer who heads a group that has tried to relax Jones Act regulations, said Philly Shipyard’s announcement appears largely aimed at Pasha and could be leverage to get the company, or even Matson, to buy or lease the ships it is building so there is no new competition.

Hansen said there isn’t room for terminal operations of a third major carrier at Honolulu Harbor, and said Philly Shipyard’s announcement reminded him of a situation about a decade ago with the same shipyard and a potential new competitor in the Hawaii market.

In late 2004 a retired Matson CEO, Brad Mulholland, formed a company called OceanBlue Express and held discussions about buying two ships that were already being built by Kvaerner Philadelphia Shipyard, another predecessor of Philly Shipyard. But then in early 2005 Matson ended up buying the two ships for use in Guam and China.

Kvaerner’s then-President Dave Meehan said at the time that OceanBlue, which had expressed intent to serve Hawaii from California, had run into difficulties.

“We started building these ships on speculation and worked for some time with startup company OceanBlue Express,” he said in a statement in 2005. “As it became apparent that OceanBlue Express was experiencing difficulties in removing contingencies relative to our preliminary agreement, we escalated our sales efforts. We are very happy that we have now concluded a contract with our old customer Matson.”

Hansen said he doubts there will be a third carrier serving Hawaii from the West Coast due to Philly Shipyard’s effort. “My best guess is that they are seeking a buyer for four containerships with this ploy,” he said in an email. “This current Philly Shipyard move may be to either get Matson and/or Pasha to purchase the containerships.”

  *   *   *   *   *

Hawaii Shippers Council head doubtful about entrance of third Hawaii shipping operator

PBN: …Hansen said in an email the announcement that the shipyard is already in talks with an operator is probably a “red herring.”

“My best guess is that Philly Shipyard is proposing to build the four ships on speculation, but would not probably truly carry out that threat,” he said. “My best guess is that they are seeking a buyer for four containerships with this ploy.”

Hansen told Pacific Business News he thinks the only likely customer “with the financial wherewithal” to purchase the four containerships would be Crowley Maritime.

“However, I don’t get the sense Crowley is behind this,” he added. “This current Philly Shipyard move may be to either get Matson and/or Pasha to purchase the containerships.”…..

HSC: Hansen casts doubt on shipyard announcement

read … Hawaii Shippers Council head doubtful about entrance of third Hawaii shipping operator

  *   *   *   *   *

May 4, 2017: Matson, Philly Shipyard Mark “Aloha Class” Ship Construction Milestone with Dock-Mounting Ceremony