Matson Jones Act containership returns from Chinese shipyard

by Michael Hansen, Hawaii Shippers Council, May 17, 2017

Five different publications posted on May 16, 2017 virtually the same article, “Matson completes upgrade of Alaska fleet,” which was obviously copied directly from a corporate press release announcing the Jones Act containership MATSON ANCHORAGE had returned to service after refit in shipyard.

However, Matson did not post their press release on their website (which they typically do) and the press release didn’t mention that their Jones Act ships were refitted at a foreign shipyard in China.

Matson CEO Matt Cox revealed during the company’s first quarter 2017 conference call on May 3, 2017, in reference to their China service, “We also had an additional voyage in the first quarter this year as we were able to load one of our vessels with eastbound cargo on its return voyage from dry-docking in China.”

The ship reporting service, Ship Spotting, reports that MATSON ANCHORAGE was out of Alaska service for approximately 39 days. Between port calls at Tacoma, Washington, on March 22, 2017 and April 20, 2017, which was presumably the time (29 days) the ship was away to shipyard in China. It appears the ship remained in Tacoma through the end of April 2017 (sailing on May 2nd) presumably to complete the refit in the U.S. so as to not violate the Jones Act foreign rebuilding rules.

Matson’s three cellular containerships employed in their Alaska service – ANCHORAGE, KODIAK and TACOMA – were built in 1987 by the Bay Shipbuilding Corp. of Sturgeon Bay, Wisconsin, for Sea Land Service inc. The Sea Land domestic services were sold in succession to the CSX Corporation and the Carlyle Group, whom spun-off the operation as Horizon Line LLC through an IPO. Matson acquired the Alaska service from Horizon Lines in 2015. The ships are now 30 years old.

The reason for the refit of the three Matson containerships in a Chinese shipyard was to comply with emissions regulations, which comes into force in 2 ½ years. The international convention known as MARPOL Annex VI which came into force on May 19, 2005, regulates nitrous oxides (NOx), Sulfur Oxides (SOx) and particulate matter in ships’ emissions. MARPOL Annex VI was revised in 2008 establishing a global cap of 0.5% for the content of SOx in marine fuels (using the mass by mass method), which comes into force on January 1, 2020.

The U.S. Coast Guard (USCG) and the U.S. Environmental Protection Agency (EPA) enforce these MARPOL regulations on U.S. flag ships and on foreign flag ships in U.S. ports and in the North American Emissions Control Area (NA ECA). The voyages of Matson’s Alaska service ships are virtually all within the NA ECA.

Instead of purchasing extremely expensive marine fuels complying with the global caps, Matson chose the alternative to fit their three motor ships in Alaska service with exhaust gas cleaning (EGC) equipment also known as “scrubbers” to remove the sulfur and particulate matter from the flue gases.

This is in comparison to Pasha Hawaii Transport Line LLC. They recently announced their two proposed newbuild containerships for Hawaii service will be designed and built to burn liquid natural gas (LNG), which will virtually eliminate NOx, SOx and particulate matter in their emissions.

When arranging foreign shipyard work for a Jones Act eligible vessel, the ship owner must restrict the extent of the work to comply with what is known as the “Second Proviso of the Jones Act” (Public Law 84-714, July 14, 1956 codified at 46 USC 12101 (a) and 12132 (b)). That provision denies coastwise privileges to a previously Jones Act compliant vessels if the work performed in a foreign place is sufficiently extensive for the vessel is determined to have been “rebuilt” according to a set of technical rules enforced by the USCG.

In addition, the owners must pay a 50% ad valorem tariff on all work performed on a U.S. flag vessel in a foreign place (Section 466 of the Tariff Act of 1930 also known as the Smoot–Hawley Tariff codified at 19 U.S.C. 1466).

Matson obviously found it was more advantageous to reposition their three Alaska ships across the Pacific to refit them in a Chinese shipyard and pay the duty on the foreign repairs instead of accomplishing the work at a shipyard on the U.S. West Coast. This again indicates how uncompetitive U.S. shipyards are in terms of cost and technical competency, and the extent to which U.S. ship owners depend on foreign shipyards to design, construct and modify their ships.

It also speaks to the hypocrisy of the U.S. maritime industry’s categorical defense of Jones Act cabotage, in particular the U.S. build requirement.

Key excerpts:

Matson has welcomed Matson Anchorage back to Alaska following three months of work to upgrade the vessel, including the installation of new equipment that virtually eliminates particulate matter and sulfur from engine exhaust, making it one of the cleanest ships operating in Alaska.

Matson Anchorage was the last of Matson's three D7 Class containerships serving Alaska to receive the new equipment. Sister ships Matson Kodiak and Matson Tacoma underwent the same upgrade work and were returned to service last year.

The state-of-the-art hybrid "wet scrubber" exhaust gas cleaning (EGC) technology now operating in Matson's Alaska fleet is unlike any other on a U.S. flagged vessel. When operating within 12 miles of the coastline, it uses a closed loop system which sprays fresh water treated with sodium hydroxide into the vessel's exhaust system and then collects and treats the wash water to neutralize harmful compounds.

Matson, Inc. acquired the Alaska operations of Horizon Lines, Inc. in 2015 for $469 million with a commitment to continuing the company's 50-year operating history in Alaska. Matson retained Horizon personnel, maintained its operations at port terminals in Anchorage, Kodiak and Dutch Harbor, and continues to provide two weekly sailings from Tacoma to Anchorage and Kodiak, and a weekly sailing to Dutch Harbor.

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Related: Insolvent Horizon refits old Jones Act ships in foreign shipyards