HORIZON Lines says it will discontinue its Five Star
Express (FSX) trans-Pacific container shipping service between the U.S. West
Coast, Guam and China and is implementing an orderly transition plan starting
from the end of October to mitigate any supply chain disruptions for its
customers.
The company said the last voyage of the FSX service from
China is scheduled to depart Shanghai on 2 November 2011 adding that the
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.
Horizon Lines will also suspend ocean services to Guam
and surrounding islands effective with the last sailing from the U.S. West
Coast on 10 November.
"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."
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
US$105 million and US$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 US$43.7 million for the nine months ended 25
September, with additional losses expected through the end of the year.
Horizon Lines launched the FSX service in December 2010,
following expiration of a long-term space charter agreement with Maersk Line.
Since early in the year, the FSX service met volume and vessel utilization
expectations, winning cargo from customers attracted to the schedule
reliability, rapid ocean transit and seamless intermodal rail links to inland
U.S. cities.
However, the Shanghai Container Freight Index cites eastbound
freight rates from China to the United States have fallen more than 37 per cent
in the past 12 months, from US$2,400 per 40-foot container in October 2010 to
approximately US$1,500 in October this year, the lowest level since the
worldwide recession of 2008-2009. At the same time, the average price of bunker
fuel has climbed more than 40 per cent since the launch of the service.
"We do not expect any measurable improvements in
fuel prices, the freight-rate environment or in this tradelane for the
foreseeable future," said Brian Taylor, executive vice president and chief
operating officer. "Growing capacity continues to outpace demand and the
forecast for 2012 calls for more of the same."
In Guam, the expected growth in cargo driven by
infrastructure improvements associated with the military redeployment from
Okinawa has been further delayed due to the budget crises in Japan and the
U.S., as well as revised Japanese priorities in the wake of the earthquake and
tsunami earlier this year. This has made the Guam trade no longer financially
viable for Horizon Lines, without an eastbound return voyage from China.
"Given current market conditions and foreseeable
future expectations, discontinuing the FSX service is the appropriate decision
for the company," said Mr Taylor. "It will allow us to focus all of
our resources on serving customers in the very solid domestic ocean markets in
Alaska, Hawaii and Puerto Rico.
Source : HKSG, 28.10.11.
The UK-based Security Association for the Maritime
Industry (SAMI) has selected Britain's National Security Inspectorate (NSI) as
its independent assessor of maritime security companies.
