Horizon Lines Plans to Sell Off Operations

By Daniel P. Bearth, Staff Writer

This story appears in the Dec. 1 print edition of Transport Topics.

Horizon Lines Inc., a U.S.-flagged ocean carrier whose founder invented the concept of shipping goods in containers, is winding down its operations after agreeing to sell the bulk of its business to Matson Inc. and The Pasha Group for nearly $600 million.

The firm had the grandest of pedigrees in intermodal shipping, given the ingenuity of the late Malcom McLean, the transport entrepreneur hailed as the “father of containerization” for developing the metal shipping box and launching the first containerized shipping service.

“It’s not what we had hoped for,” Horizon Lines Chief Financial Officer Mike Avara said in an interview with Transport Topics last week. But, after failing to secure a deal with investors to refinance hundreds of millions of dollars in long-term debt and facing a huge tab for retrofitting ships to meet new emission standards, he said, the decision to cease operations was the only viable solution.

Horizon Lines is the successor to Sea-Land Service, McLean’s 1956 venture. He was the first to get cargo to ports in rigid, rectangular boxes, ship them over the ocean and then transport them over land to the consignee — thereby speeding up the process at the ports of departure and arrival.

The Charlotte, North Carolina-based company provided service to Alaska, Hawaii and Puerto Rico, as well as other mainland ports.

But on Nov. 11, the company announced that all outstanding shares will be acquired by

Honolulu-based Matson for $69 million, or 72 cents each, and that San Rafael, California-based Pasha will acquire the Hawaii trade lane business, prior to closing of the Matson agreement, for about $141.5 million in cash.

Both agreements have been unanimously approved by Horizon’s board of directors, according to a statement by the company that noted “the two transactions taken together are valued at approximately $598 million.”

Both deals are expected to be ompleted by the end of 2015.

Also, Horizon Lines announced that it will shut down its Puerto Rico domestic liner service — a decision it said was independent of the Matson and Pasha transactions.

“We faced insurmountable odds” and even saw a few instances of “divine intervention,” Avara said of efforts to keep the company afloat in recent years.

McLean sold his McLean Trucking Co., then one of the nation’s largest trucking companies, to get into ocean shipping. He sold Sea-Land to R.J. Reynolds Tobacco Co. in 1967, and the tobacco giant’s division grew to become one of the world’s largest ocean shipping firms. It was spun off to shareholders in 1984 and two years later was acquired by railroad CSX Corp. In 1999, CSX sold off Sea-Land’s international shipping business to A.P. Moeller-Maersk. The remaining business was sold to a succession of private equity firms before going public as Horizon.

Earlier this year, Maersk said it would bring back the Sea-Land name for a new containerized freight service in North and South America.

Horizon’s troubles began in 2008 as freight volume declined during the global economic downturn, which made it difficult to service its heavy debt load. The company stabilized its finances in 2011 when the Justice Department agreed to reduce the amount of a fine in an antitrust settlement case to avoid triggering redemption of $330 million in debt obligations.

The company was able to exchange some of its debt for equity, and business slowly recovered. However, the company still faced the need to spend millions of dollars to convert all of its ships from using low-grade bunker fuel to higher-cost, low-sulfur fuel to meet new federal emission requirements.

Rather than spend money on replacement ships, Avara said the company had planned to install exhaust gas scrubbers on its ships to control emissions.

“We were taking the poor man’s solution.” he said.

By ending service to Puerto Rico, Horizon Lines avoided the need to spend an estimated $30 million to upgrade its dry dock and ship repair facility in that country, which still is experiencing a deep recession and a decline in population as residents move from the island to seek employment opportunities, Avara said.

“The acquisition of Horizon’s Alaska operations is a rare opportunity to substantially grow our business,” Matson President Matt Cox said.

“We are also encouraged by the long-term prospects of the Alaska market, which mirrors Hawaii in many operational ways, despite different underlying economic drivers. Both markets depend on reliable, superior and timely container cargo service as part of vital supply lifelines,” he said.

Pasha’s $141.5 million for the Hawaii trade lane business includes four ships. The company operates two vessels and contracts with other carriers for ocean freight service.

CEO George Pasha said the additional vessels will allow the company to offer expanded service for containers, refrigerated shipments and a variety of roll-on, roll-off cargoes.

At a glance

Horizon Lines

Provided container shipping and port services for goods moving from the U.S. mainland to Alaska, Hawaii and Puerto Rico.

• Ticker Symbol: HRZL on Over-the-Counter QB Market
• Headquarters: Charlotte, N.C.
• Chairman: David Weinstein
• CEO: Steve Rubin
• Revenue: $1.07 billion (12 months ended Sept. 21)
• Net Loss: $32.5 million (12 months ended Sept. 21)
• Shareholders’ Deficiency: $62.2 million (on Sept. 21)
• Fleet: 13 vessels