Niche activity is not always successful: Hawaii-based shipping company Matson has reported a 22% net income decline for 2016. The outlook for 2017 is two-sided as some of the served niches might see lower volumes.
In times of huge tonnage overcapacity on the global routes, expert[ds_preview]s often argue that the carriers finding themselves a niche might have better prospects than others. But as always, it depends on what niches you take, and how many other players do that.
This can be seen in the balance sheet of shipping and logistics company Matson from Honolulu. For the full year 2016, Matson reported net income of $80.5 million, compared with $103.0 million in 2015. Results were negatively impacted by $29.6 million of additional selling, general and administrative expenses related the Company‘s acquisition of Horizon Lines, Inc. and by $13.3 million for the Company‘s settlement with the State of Hawaii to resolve all of the State‘s claims arising from the discharge of molasses into Honolulu Harbor in September 2013. Consolidated revenue for the full year 2016 was $1,941.6 million, compared with $1,884.9 million in 2015.
»Matson‘s core businesses performed largely as expected in the fourth quarter; however, the quarter was negatively impacted by the increase in bunker fuel prices from mid-November through December. While our full year 2016 financial results failed to match the exceptional results achieved in 2015, when we benefitted from record rates in our expedited China service and volume gains in Hawaii as our primary competitor suffered operational difficulties, 2016 was a year in which we made critical investments for our future. We finalized our Hawaii fleet renewal program by ordering two new Kanaloa Class vessels and we expanded our Logistics platform into Alaska with the acquisition of Span Alaska. Both of these investments are expected to enhance our market leading positions and drive increased profitability and cash flow generation in the years ahead.«
Matt Cox, Matson‘s President and Chief Executive Officer
Ocean Transportation operating income decreased $46.5 million, or 24.8 percent, during the year ended December 31, 2016 compared with the year ended December 31, 2015. The decrease was primarily due to lower freight rates in the Company‘s China service, higher vessel operating expenses related to the deployment of additional vessels in the Hawaii trade in the first half of 2016, unfavorable timing of fuel surcharge collections, higher terminal handling expenses, and higher vessel dry-docking amortization.
Mr. Cox added, »For 2017, we expect to see modest improvement in each of our core businesses with the exception of Guam where we expect further competitive losses due to the launch of a competitor‘s second ship. As a result, we expect Matson‘s 2017 operating income to be lower than it was in 2016.«
Following the lull in market volumes during the third quarter 2016, the Hawaii trade resumed modest westbound market growth in the fourth quarter 2016 but, as expected, the company‘s container volume was lower than the fourth quarter 2015, which benefitted from volume gains associated with a competitor‘s service reconfiguration and related issues that continued into the first quarter of 2016. Matson expects ongoing modest market growth in 2017 supported by the general Hawaii economy, the level of construction activity, and a stable market position. As a result, for the full year 2017, the Hawaii container volume is supposed to achieve the level of 2016.
According to the statement, in China, the container volume in the fourth quarter 2016 was 27.3 %Â higher year-over-year due to stronger demand following the bankruptcy of Hanjin and an additional sailing attributable to 2016 having a 53rd week. The Company realized a sizeable rate premium in the fourth quarter 2016, but as expected, average freight rates were lower than the fourth quarter 2015.
In Guam, »as expected«, the container volume in the fourth quarter 2016 was modestly lower on a year-over-year basis, the result of competitive losses to a competitor‘s U.S. flagged containership bi-weekly service that commenced in January 2016. »For the full year 2017, the Company expects a heightened competitive environment and lower volume due to the addition of a second vessel by that competitor which increased its service frequency to weekly in December 2016«, Matson said.
The volumes in Alaska trades for the fourth quarter 2016 were modestly higher year-over-year, primarily the result of 2016 having a 53rd week, partially offset by the continued energy sector related economic contraction. This year, a modestly lower volume is forecasted based on declining northbound freight due to ongoing contraction of Alaska‘s energy-based economy, partially offset by improved southbound seafood volume. In addition, with the installation of exhaust gas scrubbers on its three diesel vessels serving Alaska now complete, the carrier does not expect to regularly deploy its less efficient steamship reserve vessel in 2017, resulting in lower expected vessel operating and dry-dock relief expenses.
All in all, Matson expects Ocean Transportation operating income in 2017 to be lower than the $141.3 million achieved in 2016. Ocean Transportation revenue increased $43.1 million, or 2.9 percent, during the year ended December 31, 2016 compared with the year ended December 31, 2015. This increase was primarily due to the inclusion of revenue from the Company‘s acquired Alaska service for the full year period, partially offset by lower freight rates in the Company‘s China service and lower fuel surcharge revenue.
