Matson's prelude of full year 2017 results at national conference

by Michael Hansen, Hawaii Shippers Council, February 13, 2018

Matson Inc. (NTSE: MATX) participated at the annual Stifel Transportation & Logistics Conference making its “Investor Presentation – February 2018,” on February 13, 2018 ahead of releasing of their 2017 annual results and earnings conference call scheduled at 4:30 p.m., February 20, 2018 Eastern Standard Time (EST).

The conference was held February 13-14, 2018, at the Fontainebleau Miami Beach, Florida. Matson’s presentation made by its Senior Vice President and CFO, Joel Wine, at 10:00 a.m., Tuesday, February 13, 2018.

Stifel Financial Corp. (NYSE: SF), is a financial services holding company headquartered in St. Louis, Missouri, and organizes the annual transportation conference through its Transportation and Logistics Group. The conference is typically held during February in Florida, and Matson regularly participates.

Wine’s 16 slide presentation, based upon facts known to management as of February 13, 2018, revealed several aspects regarding their operations that will interest investors.

Matson stated they have made “nearly $700 million in investments for Alaska entry over last 3 years,” that is since their acquisition of the Alaska service from the dissolution of Horizon Lines Inc. on May 31, 2015. This would have included Matson fitting the three former Horizon containerships ships employed in the Alaska trade with scrubbers and other upgrades, and new equipment for the three Alaska terminals.

In addition, Matson is “investing approximately $1 billion in Hawaii fleet renewal and supporting infrastructure.” That will largely be $939 million for four (4) new Jones Act containerships, with the balance of about $60 million for upgrades at their Honolulu terminal on Sand Island.

The presentation indicated changes in Matson’s fleet saying they currently have a “10-ship fleet deployment’ with “5 weekly USWC departures” in the Hawaii trade. This is a reduction from their earlier 11 ship deployment (as late as November 2, 2017) and previously a 12 ship deployment shortly after the Horizon acquisition.

(Matson doesn’t really have five ships leaving the United States West Coast (USWC) each week, but rather 3½ with two of the ships calling at two ports per voyage thus producing 5 “departures.”)

It would seem to indicate that Matson’s primary competitor in the Hawaii trade, Pasha Hawaii Transport Line LLC (Pasha Hawaii), may have improved after a shaky start in mid-2015 and recovered some share of the cargo volume once carried by their predecessor Horizon.

Matson confirmed the delivery schedule for the four newbuild Jones Act containerships currently under construction on the U.S. mainland. Two Aloha Class containerships (3600 TEU) from Philly Shipyard Inc., the first in third quarter 2018 and the second in the first quarter 2019 at a contract price of $209 million apiece. Two Kanaloa Class container-Roll-on/Roll-off ships (2750 TEU / 500 autos) known as ConRo ships from General Dynamics NASSCO shipyard in San Diego with delivery in fourth quarter of 2019 and second quarter of 2020 at a contract price of $255.5 million each.

Wine said “Guam is a critical link in Matson’s network configuration,” stating “approximately 75% of Guam cargo is sourced from the U.S.,” recognized their “competitor launched a bi-weekly U.S. flagged service with a single vessel to Guam at beginning of 2016 and added a 2nd vessel in December 2016 to provide a weekly service,” and noted their “direct service is 5 to 8 days faster.”

Although not named, Matson’s competitor at Guam is APL Inc., which operates an indirect service for U.S. cargo bound for Guam by transshipment at Yokohama, Japan. However, Wine didn’t indicate Matson’s current market share in the domestic Guam trade, which would have revealed the state of competition between the two carriers.

Finally, Wine addressed the recent and now abandoned TOTE Inc. proposal to operate a competitive USWC-Hawaii service with four newbuild containerships to be built by Philly Shipyard.

He noted the TOTE plans depended upon “securing space at Kapalama Container Terminal (KCT) [as] a critical step in making the new service a reality.” However, that was not to be, as Pasha secured a “KCT lease” from the Hawaii State Harbors Division and “anticipates launch of KCT between 2022 and 2023.” In the meantime, he noted, “Pasha stated [its] not possible to consolidate customer cargo until the construction of KCT is completed,” which might have allowed TOTE to operate in Honolulu Harbor.

Importantly, Wine stated Pasha’s relocation to KCT will enable “Matson . . . [to] expand into Pasha’s existing site at Pier 51A on Sand Island for a contiguous terminal of 130 acres,” which is a critical part of Matson’s modernization plans going forward.

The last piece of the TOTE proposal is what will Philly Shipyard do with the planned four containerships they intended to build for TOTE’s proposed Hawaii service?

Wine noted, Philly Shipyard stated “the project to build Hulls 031-034 as containerships is being put on hold.” However, he did not address the fact that Philly Shipyard ordered many long lead items for the first two containerships (Hulls Nos. 031 and 032), which may lead their construction on speculation.

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Matson: Investor Presentation – February 2018