New Kanaloa-class vessels are part of US$1Bn in capital spending
Two new container roro vessels being added to the fleet of US flag carrier Matson are forecast to save up to US$40M in costs next year.
Lurline went into service in January this year while its sister ship Matsonia is due for delivery in Q4 this year, although this might be extended because of the coronavirus.
Each is dual-fuel capable (diesel and LNG) with a single Man 6G90ME-C10.5-Gl engine, direct drive and fixed pitch propeller. Auxiliary engines are medium-speed, dual-fuel diesel generators.
Officially titled Kanaloa-class vessels, the two ships are built on a 3,500-TEU vessel platform – 265 m long, 34.7 m beam, with a deep draft of 11.5 m. They each displace 50,000 tonnes.
The contract with the construction yard General Dynamics NASSCO in San Diego was signed in August 2016 and specified 2,750 TEU being loaded.
The price at contract signing was US$278M for Lurline including a spare shaft and propeller, and US$233M for Matsonia. They are being operated by Matson Navigation, a subsidiary of parent Matson Inc.
State-of-the-art green tech
Both vessels have an enclosed garage space for 500 vehicles, plus ample space for rolling stock and breakbulk cargo, state-of-the-art green technology features including a fuel efficient hull design, environmentally safe double-hull fuel tanks, fresh water ballast systems and dual-fuel engines. They will be able to operate at speeds up to 23 knots on either conventional fuel oils or liquefied natural gas (LNG) with some adaptation for LNG.
These are the largest conro ships yet built in the United States.
The garage for the vehicles posed a major technical challenge. The superstructure had to be very light and the garage deck had to be completely flat and level to prevent vehicles bouncing and hitting the overhead roof as they were driven onto the ship. The light superstructure used very thin steel of about 6 mm, while NASSCO’s minimum at the time was 10 mm. Technology and processes used by German and Dutch shipbuilders was introduced.
The garage has four decks for cars, two decks for trailers and a stern quartering ramp. Decks can accommodate up to 800 cars.
These are the first Matson ships built specially for roro work and the first to have their own vehicle ramps. This allows the ships to go to ports that do not have ramps.
Although the engines are dual fuel, industry observers say the adaptation for LNG is still some way in the future, with no tanks and associated equipment yet installed.
While new low-sulphur fuels designed to meet the new IMO emissions standard have been in development for years there is still uncertainty about their cost and availability. LNG is an alternative, but the infrastructure for production and distribution currently remains insufficient to support Matson’s operations in the Pacific.
The main engines are built partly to IMO Tier II specifications, but are Tier III compliant with scrubbers installed. MAN says in its technical documentation, "The Tier III NOx requirements can be met by exhaust gas recirculation, a method which directly affects the combustion process by lowering the generation of NOx. Alternatively, the required NOx level could be met by installing selective catalytic reaction, an after treatment system that reduces the emission of NOx already generated in the combustion process."
Matson is revamping its fleet to comply with IMO regulations, fitting six vessels with exhaust gas cleaning scrubbers. Matson senior vice president and chief commercial officer John Lauer said in 2019, "Because of unpredictability in the way fuel markets may develop over the next few years, Matson’s IMO compliance strategy retains the flexibility to implement the most economical solution as conditions evolve."
Both ships will be fully used in Jones Act trade. Matson chief executive Matt Cox emphasised the importance of the law at Lurline’s launching. "The construction of this ship requires 150,000 man hours to complete. It is over a year’s work for about 2,000 professionals here at NASSCO.
"And over its expected lifespan, this ship will generate approximately 4.5M man hours of work opportunity for the US mariners who will operate it, " said Mr Cox, "not to mention all the dock workers and terminal personnel that move the cargo on and off our ships, and all the people who produced the materials used to build this ship that are sourced here in the US like the steel that came from Iowa and Alabama."
“In California alone, there are more than 51,000 jobs tied to the American maritime industry,” said Mr Cox, “providing over US3.6Bn in labor income with a total economic impact in the state of more than US$12Bn.”
A Hawaii congressman has introduced a bill in Washington to exempt the islands from the Jones Act. Matson vigorously defends the law and says hanging Hawaii’s higher costs of living on shipping ignores what local economists and journalists have consistently found over the years, that shipping costs are just one of many cost factors that go into local pricing of consumer goods, and represent a small fraction of price differences between Hawaii and the mainland.
It is important to homeland security, national defence and the security of service to remote communities like Hawaii and Alaska from an economic standpoint. The importance of being able to rely on critical supply line transportation is easy to take for granted but hard to overstate says Matson.
The strict conditions of the law have been slightly relaxed in recent years and NASSCO partnered with Daewoo Ship Engineering Company, a subsidiary of Daewoo Shipbuilding & Marine Engineering, to design the conros. The shipyard says the partnership goes back 10 years on multiple tanker and container ship designs for five separate owners.
The expected delivery date of Q4 this year for Matsonia has been thrown into doubt because of the coronavirus pandemic. However any delay will not be significant, possibly until Q1 2021.
Coupled with the new ships is a terminal upgrade in Honolulu. Three 65-tonne gantry cranes have been installed at the Sand Island terminal, another 35 acres are being brought into service and three other cranes are being modernised. Together with the Kanaloa-class and Aloha-class ships, Matson is spending almost US$1Bn on capital development.
Worries about the state of the US economy are leading to predictions that force majeure clauses could start being invoked in some industries, including shipbuilding. This is discounted for operations such as NASSCO, which is regarded as having an effective management and workforce and are taking precautions against the coronavirus.
But the pandemic is affecting business and Matson is withdrawing its financial outlook for 2020. "Our top financial priority is to enhance our liquidity position as the US economy enters an increasingly challenging period," says Matson chairman and chief executive Matt Cox. "Matson expects Q1 2020 consolidated operating income to be higher than our expectations with operating income for ocean transportation of US$6.5M to US$9.0M and logistics operating income of US$4.5M to US$5.5M. He says Q1 net income was US$2M-US$5M but Hawaii, Guam and Alaska tradelanes "face the challenge of dramatically reduced tourism" in Q2.
“As we face the uncertainties brought on by the Covid-19 pandemic, we decided to enhance our liquidity and available borrowing capacity under our existing US$650M committed bank revolving credit facility by increasing the allowable leverage ratio under all of our applicable debt agreements,” says Matson senior vice president and chief financial officer Joel Wine. The company is strengthening its credit lines and increasing total debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation), to between four and five times in each of the next seven quarters through 30 December 2021. The interest on its bank credit facility will be increased, as will coupon payments on private lender notes.
In March, Matson hired California-based Blume Assets, a subsidiary of logistics consultants Blume Global, to study how to improve the efficiency of using its 700 16-m containers.
Matson’s logistics division earned US$536M in operating income in 2019, while the transport business brought in US$1.6Bn. Net income for the company was US$82M.
When both vessels are in service, Matson will be able to shed an older vessel on the Hawaii lane and is retiring others. According to shipping financial analyst The Benchmark Company’s managing director Kevin Sterling, Matson will save US$30M in costs in 2020 and US$40M in 2021 before EBITDA.
"They are also going to be helped by the drop in fuel prices. But frankly, no one knows what the year will bring for anyone. I have never known a situation like this before."
Stephens Inc analyst Jack Atkins says a combination of the drastic drop in tourism in Hawaii due to Covid-19 and the decline in energy prices negatively impacting economic activity in Alaska will be difficult for Matson to overcome in 2020. He says the Hawaiian and Alaskan trade lanes may be slow to recover, and the company could have difficulty reducing its costs without disrupting services.
As Mr Cox said when announcing the withdrawal of the year’s forecast. "Our top operational priorities in this rapidly deteriorating environment are to safeguard the health and safety of our employees and to maintain our best-in-class vessel on-time performance to serve our customers and the communities that continue to rely on us during this difficult time."