Horizon Lines, Inc. was the largest Jones Act maritime shipping and logistics company in the United States. During its corporate lifetime, it was responsible for about 37% of all U.S. container shipments linking the continental United States to Alaska, Hawaii and Puerto Rico.
Under the terms of the Jones Act, maritime shipments between U.S. ports are restricted to U.S.-built, owned, and flagged vessels that are operated by crews that are predominantly U.S. citizens.
Headquartered in Charlotte, North Carolina, Horizon traced its roots to the domestic liner operations of Sea-Land Service, Inc. Sea-Land Service was the original container service company started by Malcom McLean, who pioneered the use of containers in the early 1950s. (To read more about McLean, read this FreightWaves Classics article.)
The Sea-Land Service operations were sold in 2003; thereafter the company operated under the name Horizon Lines. In addition to being the largest Jones Act container carrier, Horizon Lines was also the only domestic carrier with container liner services to Alaska, Hawaii and Puerto Rico. In 2005, Horizon became a publicly traded company.
Less than 10 years later (in November 2014), Horizon announced that it was being sold to two companies and the sale would close in 2015. Matson Line acquired the company’s Alaska business; The Pasha Group acquired Horizon’s Hawaii business. (To read a FreightWaves Classics profile of Matson Lines, follow this link.) As reported by FreightWaves’ American Shipper at that time, Horizon also announced that it would “cease providing liner service between the U.S. and Puerto Rico by the end of 2014 due to continuing losses without the prospect of future profitability.”
Scope of operations
Prior to its sale, Horizon owned a fleet of 13 Jones Act container ships in 2014, as well as approximately 31,000 cargo containers. The company operated cargo terminals in Alaska, Hawaii and Puerto Rico. At the Port of Tacoma, Horizon Lines ships made nearly 150 port calls annually for service to either Alaska or Hawaii. The Port of Tacoma is now part of the Northwest Seaport Alliance (NWSA) with the Port of Seattle; a FreightWaves Classics article about the NWSA can be found here. Horizon Lines also operated trans-Pacific service to Guam and China until November 2011.
The company also contracted for terminal services at seven ports in the continental United States. Its primary customers were consumer and industrial products companies, as well as several agencies of the U.S. government (including the Department of Defense and the U.S. Postal Service). It also shipped vehicles and household belongings.
Issues during its life as a publicly traded company
Horizon was criticized because of the age of some of its vessels. At that time, most container ships were sold for scrap when they were between 25 and 30 years old. Horizon was still using steam-powered vessels, including the SS Horizon Discovery (which had been built in 1968) and was well over 40 years old.
Perhaps more critical were a number of issues that took place in 2011 and then continued during the remainder of Horizon’s time as an independent company.
The U.S. Department of Justice fined the company $15 million (originally $45 million) after Horizon pled guilty to price fixing in the Puerto Rico market in April/May 2011. The fine was reduced because of the possibility that Horizon would declare bankruptcy after losing a contract with Maersk Line.
In October 2011, the company completed a $653 million refinancing to avoid bankruptcy. Later that same month the New York Stock Exchange suspended trading of Horizon’s stock; it had fallen below its “$15 million continued listing standard for average global market capitalization over a consecutive 30-day trading period.” Afterward, the company stock was traded in the over-the-counter market.
In November 2011, Horizon Line settled with shippers that had opted out of the “Puerto Rico direct purchaser antitrust class action settlement” for $13.75 million.
In late January 2012, Horizon Lines agreed to a deal with the U.S. Department of Justice to plead guilty to “two counts of providing falsified oil record-keeping documents from a vessel in the U.S. West Coast-Hawaii service.” Horizon paid a $1 million fine, and also donated $500,000 to the National Fish & Wildlife Foundation. The company also was placed on probation for three years and agreed to an environmental compliance plan.
Sale of the company sale and end of operations
Continued losses, difficulties operating and maintaining its aging fleet and pending environmental regulations led to the company’s dissolution. As noted above, Horizon Lines announced in November 2014 that it had reached formal agreements to sell the company. Its Alaska operations were bought by Matson, Inc. for $469 million. Its Hawaii trade-lane business was acquired by The Pasha Group for $141.5 million. Both acquisitions were subject to regulatory approval.
In addition, Horizon’s Puerto Rican operations ended in December 2014. The company had previously reduced its service to Puerto Rico in an effort to cut costs.
At the time of the acquisition, Matt Cox, Chief Executive Officer of Matson (and now also its Chairman of the Board), stated, “The acquisition of Horizon’s Alaska operations is a rare opportunity to substantially grow our Jones Act business. Horizon’s Alaska business represents a natural geographic extension of our platform as a leader serving our customers in the Pacific. We expect this transaction to deliver immediate shareholder value through earnings and cash flow accretion via significant cost and operating synergies.”
Kevin Sterling, who at the time of the sale was a managing director at BB&T Capital Markets (and is now Vice President of Strategy at XPO Logistics, Inc.), said Matson and Pasha were paying reasonable amounts for the Horizon businesses. “In my opinion, Matson is getting the jewel of the Horizon franchise, which is Alaska.” He also noted at that time that Matson will acquire Horizon’s three youngest vessels and said, “I think there is good customer overlap and synergies.”
Mike Hansen, who was then (and still is) president of the Hawaii Shippers’ Council, said the deal was not unexpected given Horizon’s financial condition. He was quoted in American Shipper at that time, stating, “It was really only a matter of time before this kind of action would have to be taken. Horizon’s primary problem was operating very old containerships in the non-contiguous trades of Alaska, Hawaii and Puerto Rico. With the cost of U.S. newbuildings now five times that of constructing comparable ships in South Korea and Japan, Horizon could not afford to build new Jones Act ships to continue as an operating company. This will reduce the level of competition in the non-contiguous container trades and clearly demonstrates the disproportionate burden of the domestic build requirement of the Jones Act on the non-contiguous jurisdictions.”