Tuesday, November 23, 2010

Alaska and Hawaii: Emerging from Recession

By Jim Shaw

The economies of Alaska and Hawaii continue to be dampened by the current economic slowdown, which has affected both cruise and cargo traffic, but there are some bright spots beginning to emerge.

After a rather dismal year for cruising, which saw some ships leave the Alaska trade entirely and one small operator go out of business, several companies, including the well known Disney Cruise Line, have announced they will be sending ships north in 2011. In addition, Alaska’s rollback of its cruise tax on passengers may help stimulate additional traffic.

On the cargo front, a number of new tugs and barges are being built to serve the 49th state’s more remote coastal and river locations. At the same time, there are plans to extend the rail network of the Alaska Railroad, including a new line that would help develop Point MacKenzie, located across Cook Inlet from Anchorage, as a deepwater port. This could bode well for future cargo operations in the state, particularly for its growing mining industry.

Hawaii, on the other hand, which is still highly dependent upon tourism, is not seeing as much economic growth. According to economists, while there has been a 5 percent increase in jobs in the state’s retail sector this year, that level of growth has not been replicated anywhere else in the economy, and true economic recovery is not projected to take place until late 2012 or even into early 2013.

Tight cargo loadings have already pitted long-established interisland cargo operator Young Bros. Ltd. against recent arrival Pasha Hawaii Transport Lines LLC.

Interisland Battle
While Hawaiian residents are hoping the new television series “Hawaii Five-0” may help breathe a little life into the state’s struggling hotel and tourist trade, cargo interests have been closely watching the Young Bros. and Pasha fight shape up. In September, the state’s Public Utilities Commission gave Pasha authorization to carry “wheeled” cargo in the interisland trade until December 31, 2013. The authorization has been made to test if Hawaii is a “natural monopoly,” where one company can provide service at a lower cost, or if two competing carriers can better serve customers.

Pasha’s entry into the trade, to take place over the next several weeks employing the firm’s 579-foot car carrier Jean Anne, will be the first time since statehood that shipping between the islands has been open to competition. California-based Pasha launched cargo service between San Diego and Hawaii in 2005 and plans to employ its American-built ship on a Honolulu-Kahului-Hilo rotation, with calls at Nawiliwili Harbor, Kalaeloa Harbor and Pearl Harbor on inducement.

Young Brothers, which has asked the regulatory agency to reconsider the impact of its ruling, currently operates 12 round-trip sailings a week out of Honolulu to the neighboring islands using a fleet of eight tugs and barges. This provides calls three times a week at Maui, once a week at Lanai and twice a week at the islands of Kauai and Molokai. Four stops a week are made on the Big Island and are divided between the harbors of Hilo and Kawaihae. The company noted that it is already struggling to maintain profits in a weak economy and that its profit margin last year was only 0.94 percent. Company president Glenn Hong said that “if competition is the goal,” then perhaps regulation of Hawaii’s interisland shipping business “should be eliminated.”

Matson Makes for China
Leaving Young Bros. and Pasha to fight it out for the Hawaiian interisland trade, Matson Navigation is putting more of its emphasis on China and has chartered in five foreign-flag container ships to open up a new transpacific string that by-passes the island state entirely. The ships, all obtained through Cyprus Maritime of Greece under one-year charter contracts, have been given the Matson names Kailua, Kaimoku, Kainalu, Kalani and Kohala, with Kaimoku, ex-CSL Stefanie, making the new service’s maiden call at Hong Kong this past summer.

The expanded transpacific rotation offers a 10-day transit time between Shanghai and Long Beach, with calls at Hong Kong and Shenzen, and complements the company’s existing service to northern China operated by US-flag tonnage. This service also calls at Hawaii and Guam westbound.

Stanley M. Kuriyana, president and CEO of Matson’s parent company, Alexander & Baldwin, noted that “higher rates and a surge in volume from China” has produced good profits for Matson and that the trend is expected to continue. “Trans-Pacific market dynamics are very favorable, as the combination of strong US demand and tighter shipping capacity has contributed to full utilization and improved pricing on our China service vessels, said Kuriyana. “We expect this favorable environment to continue through 2010 and into 2011.”

Cruise Contraction
In the cruise sector, Hawaii’s interisland cruise industry has shrunk to a single US-flag vessel operated by Norwegian Cruise Lines (NCL) but a growing number of foreign-flag ships are calling in the islands after first satisfying US cabotage regulations by making a call at either a Canadian or Mexican port. This same situation exists in the Alaska trade where foreign-flag ships must either embark passengers in a Canadian gateway or call at a Canadian port as part of an Alaskan cruise.

The largest company operating US-flag vessels in the Alaska trade, Seattle-based Cruise West, went out of business this year after suffering severe financial problems, in part caused by its one foreign-flag ship, the 120-passenger Spirit of Oceanus. In September this vessel was sold to a Danish investment company halfway through its round-the-world cruise (see Pacific Maritime Magazine, October 2010). Formed by well-known Alaska tour operator Chuck West in 1973, Cruise West operated nine small US-flagged coastal vessels with passenger capacities ranging from 78 to 148 persons.

Moving in to offer a similar Alaska program to Cruise West is the recently formed InnerSea Discoveries and its sister company, American Safari Cruises, both headed by Capt Dan Blanchard, a former Cruise West master. InnerSea will operate the 49-passenger twins Wilderness Discoverer (ex-Mayan Prince) and Wilderness Adventurer (ex-Caribbean Prince) in Alaska next year after purchasing the vessels from JP Morgan Chase in a deal brokered by Marcon International. At the same time, American Safari Cruises will operate the small 36-passenger Safari Explorer, 22-passenger Safari Quest and 12-passenger Safari Spirit in Alaskan waters featuring roundtrips out of Juneau.

Big Ship Expansion
Although big ship cruising in Alaska suffered a severe drop this past season, 2011 is expected to see at least one cruise line return to the state after a long absence, and two new companies debut vessels. Los Angeles-based Crystal Cruises will return to the Alaska trade for the first time since 2005 by offering a series of seven 12-day itineraries sailing round-trip from San Francisco and calling at Vancouver, Victoria, Sitka, Juneau, Skagway and Ketchikan. Eight of the trips will feature visits to Glacier Bay while one will visit Hubbard Glacier. Another ship sailing from San Francisco will be the 684-passenger Oceania Regatta operated by Miami-based Oceania Cruises.

Established only eight years ago, Oceania will offer a series of Alaska cruises departing from both San Francisco and Vancouver, BC on four different itineraries. On May 12 the ship will depart California on a 14-night cruise with stops in Victoria, Vancouver, Sitka, Hoonah, Skagway, Juneau, Ketchikan and Astoria, an itinerary that will be repeated on August 26. On May 26 the ship will depart San Francisco on a shorter 12-night voyage that will call at Astoria, Victoria, Wrangell, Juneau, Hoonah, Sitka and Ketchikan, a trip to be repeated on August 14. In between these cruises the vessel will operate two 10-night voyages from Vancouver calling at Sitka, Hoonah, Kodiak, Wrangell and Ketchikan, and four 12-night “Glacial Wilderness” trips between Vancouver and Anchorage with stops at Ketchikan, Wrangell, Juneau, Hoonah, Skagway, Sitka, Seward and Homer.

Oceania Chairman and CEO Frank Del Rio said the decision by Alaska’s legislature to roll back taxes on cruise passengers (see Pacific Maritime Magazine, July 2010) was an “important consideration” in Oceania’s decision to position its ship into the trade.

Disney Heads North
It’s not known if the tax roll-back played any part in Disney Cruise Line’s decision to position its Disney Wonder to Alaska in 2011 but the move is being highly anticipated by both the cruising public and Alaska’s tourist industry. The 1999-built ship is expected to make 18 seven-night sailings from Vancouver starting May 3 featuring a transit of Tracy Arm and stops at Skagway, Juneau and Ketchikan. To adapt the ship to the Alaskan climate it is being outfitted with a 2,500-square-foot cafe, with floor-to-ceiling curved glass viewing windows, where passengers can watch for wildlife and take in the scenery. To be known as the “Outlook Café,” the new public room will be connected with the ship’s existing Cove Café, located one deck below, by a spiral staircase.

Rates for Disney’s Alaska cruises will start at $939 per person for a standard inside stateroom based on double occupancy. Before and after the ship’s 2011 Alaska season it will operate a series of seven-night Mexican Riviera cruises from Los Angeles calling at Cabo San Lucas, Mazatlan and Puerto Vallarta.

“We’re excited to offer this incredible choice of itineraries for 2011,” said Disney Cruise Line President Karl Holz. “The unique advantage of Disney Cruise Line is that we offer a customized ship experience that brings families together, while still catering to the personalized vacation needs of every guest who sails with us.”

ATBs for Microgen
The fleet of new cruise ships heading to Alaska will be matched somewhat by a number of new cargo vessels, although all on a very much smaller scale. Sneed Shipbuilding in Texas is building two miniature articulated tug/barge sets for Microgen Inc., a subsidiary of Alaska Village Electric Cooperative, for coastal employment. Sneed is constructing the vessels at its Orange and Channelview facilities in Texas, with both to be operational by next summer. Jensen Maritime Consultants of Seattle designed the units.

One barge will measure 200 feet by 50 feet while the second will be slightly shorter, at 189 feet. Both units, as well as the twin 76-foot by 32-foot triple-screw pushtugs, will have an operational draft of 4 feet. The tugs will each be powered by three 600-hp Caterpillar C18 diesels driving 40-inch propellers set in Rice nozzles. The barges will carry diesel fuel and gasoline in internal tanks and general cargo on reinforced decks designed to withstand a weight of between 2,000 and 3,000 lbs. per square foot. Both ATBs will be chartered and operated by Vitus Marine of Anchorage.

According to Vitus Marine CEO Mark Smith, the ATB configuration, which will make use of Japanese-made Articouple coupling pins, was chosen over the traditional barge-and-tug towing set-up because of better efficiencies through speed plus the fact that the units will be better able to do unprotected coastal and river landings. For the latter maneuver each barge is being equipped with a spud held in a long tube on the bow that, once dropped, will relieve the amount of work needed by the tug to keep the barge in position. The ATBs will also be highly self-sufficient. “The boats will be set up to operate autonomously for the better part of six months,” said Smith. “With just 150 days to deliver during the ice-free season, extra efficiency makes a huge difference.”

Barges for Crowley
Also ordering new barges for Alaska employment is Crowley Maritime, which has contracted with Dakota Creek Industries of Anacortes, Washington to build two 165-foot by 52-foot double-hulled, combination deck cargo and tank units. The barges, scheduled to be delivered in April and May of next year as DBL 165-1 and DBL 165-2, will be capable of shallow draft operations, including beach landings, and will be used to transport fuel and cargo to remote communities in western Alaska from Crowley’s base at Nome. Each barge will have a total tank capacity of 272,270 gallons (6,482 bbls.) at 95 percent load, with the ability to achieve a draft of less than four feet while carrying approximately 90,000 gallons (2,142 bbls.). The decks have been designed to accommodate loadings of up to 3,000 pounds per square foot. To be classed by the American Bureau of Shipping, both barges will be certified by the Coast Guard to carry Grade A petroleum products.

“Our reputation rests on our service to Western Alaska and along the Arctic Coast, and we’re making the commitment to protect Alaska’s environment by choosing to build double-hull barges versus single hulls,” said Crowley’s Vice President of Alaska Operations, Craig Tornga. Once the newbuilds are in service Tornga said Crowley plans to retire some of its older western Alaskan units. Last year the company had the twin shallow draft tugs Nachik and Sesok completed by Portland’s Diversified Marine for Alaska employment.