Farewell Horizon Lines, Hello Less Competition in Shipping for Hawaii
The impact of a reduction in competition in domestic freight transport on Hawaii’s high cost of living remains to be seen.
Healthy competition is important in an isolated, small-market state like Hawaii. It can bring down prices and drive innovation in a place where 80 percent of all goods, about 90 percent of food and 95 percent of energy resources are transported here.
The majority of those goods arrive on domestic ocean-faring vessels run by just three companies — Matson Inc., Pasha Hawaii and Horizon Lines. As of Friday, we are down to two. Horizon Lines has left the islands.
The Pasha Group issued a statement Friday to say that its purchase of Horizon Lines’ trade-lane business to Hawaii — which includes several ships and a terminal at Honolulu Harbor — is complete. The price tag on the deal inked in December was $141.5 million.
With the completion of the sale of Horizon Lines, just two domestic freight carriers, Matson Inc., and Pasha Hawaii, are set to dominate domestic ocean freight shipments to the islands.
Flickr: rjones0856
Matson Navigation Co., which is Pasha’s much larger competitor in the islands, took over Horizon Line’s Alaska service.
Pasha and Matson had until the end of 2015 to complete their respective acquisitions, but by finishing early and taking control of a company that has been operating at a loss, they have replaced liability for Horizon Lines’ management with their own.
In Puerto Rico, Horizon Lines didn’t sell; and then sold its terminal and other assets there.
Since Hawaii still does not have a definitive, objective study on the impact of the Jones Act on prices in the islands, it is far from certain consumers would be able to trace price increases back to diminished competition.
On a practical level in Honolulu, the deal means that the Pasha Group, which has been running container ships for vehicles and machinery, now has Horizon Lines’ containerized cargo assets too.
George Pasha IV, who is the president and CEO of his eponymous company, said that three of the newly acquired company’s vessels will work alongside two large domestic vessels Pasha Hawaii already used. Collectively, they will serve Honolulu, Los Angeles, Oakland and San Diego, with connecting service to the Pacific Northwest. (The company plans to hold back a sixth vessel in reserve for when repairs or maintenance are necessary.)
Those vessels are in compliance with the Jones Act, which offers Pasha — as well as Matson — a huge competitive advantage in the Hawaii-mainland market.
The Jones Act is a controversial 95-year-old piece of legislation requiring that cargo shipped between domestic ports be on a U.S.-built and U.S.-owned vessel where at least 75 percent of the crew is American.
The legislation was put into place following World War I on economic and national security grounds, but many people in Hawaii — including some politicians — believe that the federal law is responsible for a substantial portion of Hawaii’s outsized cost of living.
A Civil Beat investigation found that shipping increases the cost of goods in the islands by less than 7.5 percent — and perhaps far less. The maximum possible impact of the Jones Act on retail prices is almost certainly less than 5 percent, according to several economists Civil Beat spoke with.
While the Jones Act likely increases prices for residents and visitors to the islands, it offers great benefits to domestic freight transporters by limiting competition.
Basically, if a new freight transporter wants to take on Matson and Pasha in the islands now, it will likely have to purchase vessels at top-dollar U.S.-shipbuilding prices just to enter the market and then claw its way toward profitability against companies with long histories here.
The world’s main shipbuilders — South Korea, Japan and China — produce large cargo vessels for a fraction of the price of U.S. shipyards, but the Jones Act prohibits such vessels from picking up goods in one U.S. port and delivering them to another.
Pasha asserts that the Horizon Lines deal will be good for customers and employees, and U.S. antitrust regulators green-lighted both deals in April despite the decrease in freight competition in the Hawaii and Alaska markets.
Some economists and regulators question industry consolidation that reduces already limited competition over concerns that it will ultimately result in higher prices.
In this case, since Hawaii still does not have a definitive, objective study on the impact of the Jones Act on prices in the islands, it is far from certain consumers — or their elected representatives — would be able to trace price increases back to diminished competition.
So, while the future will tell us whether two companies makes for vital competition, we may never know the answer.
To continue the broader conversation and discuss practical and political solutions to the state’s high prices, please join Civil Beat’s in Hawaii.
