Matson recycles containership KAUAI in Texas

by Michael Hansen, Hawaii Shippers Council, April 9, 2020

TradeWinds Towing LLC posted to their FaceBook company page on April 6, 2020, an update announcing their ocean towing tug RACHEL departed San Francisco Bay with the Matson Inc. containership KAUAI under tow and bound for Brownsville, Texas, where the ship will be recycled (i.e., scrapped) in a domestic breaking yard.

The tug RACHEL with the KAUAI departed Oakland, California, on April 6, 2020 and is currently enroute to Balboa, Panama, with an estimated time of arrival (ETA) of May 1, 2020. The vessels will transit the Panama Canal and then sail from Cristobal at the Atlantic terminus of the canal for Brownsville.

TradeWinds is a New Orleans, Louisiana-based company operating seven secondhand oceangoing Jones Act eligible towing tugs built between 1970 and 1982. Their tugs are employed in the domestic coastwise trade and in the foreign trade throughout the Caribbean Basin. The Tug RACHEL (formerly CHALLENGER) was built in 1976 (is now 44 years old) has a length over all (LOA) of 110 feet and is rated at 3,800 horsepower.

A Jones Act eligible tug was required for the tow of the KAUAI between domestic the points of Oakland and Brownsville by the Towing Statute of 1940 (46 U.S.C. 55111), one of the coastwise laws of the U.S.

The Jones Act eligible KAUAI was built in 1980 (40 years old), is a gearless containership of 720 feet LOA, with a capacity of 2,000 twenty-foot equivalent units (TEU), and steam-powered (i.e. a steamship). As steamships can no longer be used in trade, Matson is disposing of theirs.

The International Maritime Organization (IMO), a specialized agency of the United Nations, issued worldwide ship emissions regulations that became effective on January 1, 2020, and are commonly and collectively known as the “IMO Global Sulfur Cap 2020” and the shortened form “IMO 2020.”  This terminated the steamship exemption, which was part of the IMO’s previous emissions regulations.

After their acquisition of Horizon Lines Inc. completed in May 2015, Matson initiated a ship recycling project involving 23 aging steamships (total from both the Horizon and Matson fleets). By the end of 2018, Matson had eight steam-powered containerships and now appears to have just two remaining (after disposal of the KAUAI) in their inactive fleet; namely, the LIHUE (Built 1971) and MATSONIA (built 1973). Presumably these two steamships are also slated for recycling.

To replace these aging steamships, Matson embarked on a four-ship newbuilding program. Two Aloha Class containerships – the DANIEL K INOUYE and KAIMANA HILA -- were delivered by Philly Shipyard Inc. in 2018 and 2019 respectively. Two Kanaloa Class combination container / Roll-on Roll-off ships (Con/Ro ships) the new LURLINE delivered in 2019 and new MATSONIA to be delivered in late 2020 by General Dynamic’s NASSCO Shipbuilding yard in San Diego.

In the past, the U.S Government and commercial ship operators would sell their ships to traders who would purchase the ship hulks where laying in U.S. ports and employ foreign flag ocean towing tugs to tow the ships to the breaking yards typically in South Asia including Bangladesh, India and Pakistan. This practice would maximize the sale value for shipowners disposing their aging vessels at the end of the their useful lives (as opposed to selling earlier in the ships life on the second-hand market) and has long been considered an important source of revenue for shipowners.

However, this practice changed after widespread public outcry against the unsafe working conditions and environmental pollution caused by the shipbreaking techniques used in South Asia. That resulted in the IMO Guidelines on Ship Recycling issued by the Basel Convention on December 5, 2003, which established safety and environmental conditions for recycling ships. As the shipbreaking yards in South Asia have not meet the IMO Guidelines, political, social and regulatory pressure has been placed on shipowners, especially those domiciled in developed countries, to use complying shipbreaking yards largely in the developed countries.

The U.S. Maritime Administration (MARAD) has had the responsibility of disposing of U.S. government owned ships since 1949 and since 2001 the requirements for the recycling of U.S. government ships have established safety and environmental standards, which have largely meant the recycling would be accomplished domestically.

These changed practices caused the process of disposing ships to be much more expensive and less compensatory to U.S. shipowners both government and private. The Basel Convention-qualifying shipbreakers in the developed countries with significantly higher operating costs pay far less for a hulk (on a U.S. Dollars per light displacement ton – LDT -- basis) and in some instances require a shipowner to contribute to the cost of recycling (akin to a tipping toll).

South Asian prices for large oceangoing ships delivered to the breaking yard has been in the range of approximately U.S. $330 to 350 per LDT for the first quarter 2020. However, all South Asian shipbreaking yards are currently shutdown, due to the novel corona virus (COVID-19) pandemic, through April and not making offers.

Meanwhile, the shipowner bears the cost of preparing the ship (especially removal of hazardous materials) and delivering it to the breakers (whether directly or through a trader). In the instance of the KAUAI, this included for Matson, the cost of chartering a Jones Act tug to tow the ship from California to Texas and the costs associated with transiting the Panama Canal.

Since the change in U.S. government ship disposal policy in 2001 and the Basil Convention of 2003, Brownsville, Texas, has become the primary center for the recycling of large oceangoing ships in the U.S. due the availability of lower cost Hispanic labor and proximity to scrap metal markets in Mexico.

Matson’s policy in regards to the scrapping of their ships has not been without its problems.

The American Shipper magazine published in September 2015 an article “Matson praised for pledging not to scrap ships in South Asia,” reporting that, “Two environmental group are praising Matson Line for a pledge to no longer recycle their ships in South Asia. The group Basel Action Network (BAN), which seeks to end trade in toxic materials, said in a press release that Matson had released a statement saying, ‘Because of concerns with recycling practices in South Asia, Matson has decided to expressly prohibit recycling of its vessels in this region going forward.’ ”

In contravention of that policy, The Tradewnds Newspaper published January 25, 2016, a news article “Horizon Trader beached in India” reporting that a ship Matson sold for scrap ended up with the shipbreakers in Alang, India.

The Tradewinds article reported, “An old boxship which was initially sold for recycling in the US has been beached at a controversial shipbreaking facility in India. Environmental group Basel Action Network (BAN) said the 2,139-teu Horizon Trader (built 1973) reached the Alang shipbreaking facilities earlier this month. The vessel was acquired by Matson when the company took over Horizon Lines and was later sold to Texas-based All Star Metals. BAN said the vessel was offloaded to All Star Metals in order to be internally scrapped, but it was later found out that the ship was heading to India, without the consent of Matson. Matson has pledged to stay away from South Asian shipbreaking facilities throughout its ship recycling project of 23 vessels.”

Presumably All Star Metals acquired the HORIZON TRADER from Matson at a pricing level assuming domestic demolition and actually sold the ship at far greater compensation to the breakers in India and delivered the ship with a lower cost foreign flag ocean towing tug (as opposed to employing a Jones Act tug to a domestic destination).

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