Comment on the Maritime News

January-March 2003

   OIL AND SHIPPING HAVE LESS INFLUENCE IN EUROPE THAN IN THE U.S.  The EU is in the process of eliminating all single-hull tankers from European waters by 2010, only six years from now.  By contrast, the influence of the oil and shipping industries in Washington ensured that the Oil Pollution Act of 1990 (OPA90) allowed them 25 years to do the same thing.  As a result, single-hull tankers looking for a market will still be trading to the U.S. after they can no longer trade to Europe.  Note also that OPA90 does not apply to tankers calling at LOOP or lightering in the Gulf, with the result that the largest single-hull tankers in the world still come to the U.S. daily and will continue so to do indefinitely.  OPA90 also doesn't apply to vessels under 5,000 GT and the Europeans will include small vessels in their phase-out.  Tim Colton, March 28, 2003.

   GD CONTINUED TO OUTPERFORM NG IN 2002.  The "big two" both published their results for 2002 on March 24.  The figures for their shipbuilding operations are summarized below.  The reason for the big jump in the NG figures in 2002 is that 2001 didn't include the full value of the acquisition of either Litton or Newport News.  There are no new surprises in the management discussion: GD was unhappy with the TOTE contract, NG with the Polar Tankers contract.  No revelations concerning the outcome of the American Classic Voyages fiasco, either: I guess we're never going to be told the full story.

Not much comment is needed.  GD is clearly doing better than NG - higher profit margin, higher revenue per employee, higher asset turnover.  It's interesting that NG has almost twice the assets per employee that GD has but still only generates about 72% of the revenue per employee.  And now NG is hurling more and more CapEx money at both Ingalls and Avondale, telling Mississippi legislators that it needs to do this to stay competitive with GD.  One of these years they may work out that it's not the facilities that are the problem, it's the management.  Tim Colton, March 27, 2003.

   INGALLS' UNIONS GOT A PRETTY GOOD DEAL.  Under the new four-year agreement between Ingalls Shipbuilding and its unions the current journeyman rate goes from $16.37 to $18.32 in three increments - $0.55 now, $0.65 after 16 months and $0.75 after a second 16 months.  In addition, every employee will get a single lump-sum payment of $3,000 now.  The health care plan has been improved in a number of ways, with increases in employee contributions that are equivalent to about $0.21 an hour now, another $0.21 after the first 16 months and another $0.16 after the second 16 months.

According to Census data, the average wage for the whole shipbuilding industry is now over $17.00, so this deal puts Ingalls just about at the average level.  But, Mississippi has the lowest cost of living of any state in the Union: shipyard workers in other regions might well expect to get paid more than those in Mississippi.  So does this contract create a problem for other unionized shipbuilders?  Tim Colton, March 15, 2003.

   HORIZON LINES' HORIZON SEEMS TO BE PRETTY CLOSE.  A discussion of the Carlyle Group's acquisition of CSX Lines can be found in the Position Papers section.  Click here.  Tim Colton, March 13, 2003, extensively amended March 14, 2003.

   TEXT OF MATSON ANNOUNCEMENT.  Following is the complete text of the memo dated February 28, 2003, "To All Matson Employees" from Jin Andresick, President, and Brad Mulholland, Vice Chairman, of Matson Navigation.  Tim Colton, March 12, 2003.

Operating Cost Factors Cause Matson to Reconsider Investment in New Vessels

During the mid to late 1990s Matson adopted a vessel operating practice called "continue to operate" (CTO), which, as the words suggest, was primarily a "stay the course" strategy until the company could justify a vessel replacement program.  The economic value of such a program had to overcome continuing lackluster performance of the Hawaii economy, ever increasing expenses across all segments without productivity offsets, and eroding profitability in the Hawaii service due to increased competition.  As a consequence of running older tonnage, Matson's Hawaii service levels gradually began to deteriorate and it was felt that Matson could no longer push off the use of new vessels.

Primarily because of price and delivery consideration, Matson selected Kvaerner Philadelphia Shipyard, Inc., (KPSI), to begin its fleet replacement program.  Even though this investment in two new ships was marginal from a financial perspective, after several months of presentations it was recommended to Matson's Board that we move forward with the understanding that alternatives of either vessel ownership and operation, or time charters, would remain open until delivery.

The cost model for the proposed operation of the Kvaerner vessels contained many assumptions, but justification was driven primarily by operating cost savings.  During a series of meetings with representatives of our offshore unions beginning in 2001, these assumptions were discussed; however, labor cost savings vital to the project were not achieved and the investment no longer can be financially justified.

Changes since the original cost model was developed have raised the labor costs even higher.  Clearly, the project to acquire and operate new ships is now even more uneconomic and can no longer be viewed as a reasonable investment.  The company has, therefore, determined that the ships are not affordable under the present cost model and has requested that Kvaerner seek another buyer.  This allows Matson the option to time-charter the ships, which lends itself to several, lower cost crewing options.

Matson cannot afford to make investments that do not return its cost of capital.  We will take all prudent steps to ensure that we best position our company for the future.  We will be communicating our efforts in this area to you as we proceed but wanted to share with you where we are at currently.  we appreciate your understanding as we position our company for the future.

   FELS FINANCES ANOTHER JACK-UP FOR ENSCO.  There's no doubt that FELS builds a fine jack-up: they are the world leader in this sector.  ENSCO's decision to buy from FELS must have been made easier, however, by the unusual financing provided by FELS.  The shipbuilder, or, presumably some related entity in the Keppel Group, will own 75% of the $105mm rig: ENSCO has until two years after delivery, i.e., about four years from now, to buy them out.  And if they need to take a bit longer, what would be the problem?

Given that FELS' parent, Keppel Group, is 51% owned by the Government of Singapore, does this arrangement constitute a subsidy?  It certainly un-levels the playing field: what other rigbuilder could offer a deal like this?  Tim Colton, March 7, 2003.

   TEXT OF THE CAPPS BILL.  Following is the complete text of H.R. 880, which would, among other things, accelerate the phase-out of single-hull tankers.  Tim Colton, March 6, 2003.

To amend title 46, United States Code, to accelerate to 2007 the application of the requirement that a tanker that carries oil in bulk as cargo must be equipped with a double hull, and for other purposes.

February 25, 2003

Mrs. CAPPS (for herself, Mr. FARR, Mr. ALLEN, Ms. SOLIS, Mr. BLUMENAUER, Mrs. DAVIS of California, Mr. BROWN of Ohio, Ms. WOOLSEY, Mr. SCHIFF, Mr. TOWNS, Mr. ENGEL, Mr. THOMPSON of California, Ms. NORTON, Ms. MCCARTHY of Missouri, Mr. SANDERS, Ms. LEE, Mr. STARK, and Mr. GRIJALVA) introduced the following bill; which was referred to the Committee on Transportation and Infrastructure, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

   WHAT'S AN X-CRAFT?  No, the Navy's not going to start building 3-man submarines.  Today's X-Craft is a 50-knot sealift ship that can cross the Atlantic if it slows down to 20 knots.  If you hadn't heard about it until this week's announcement of a $60mm contract award to Titan Corp. and Nichols Brother Boatbuilders, there's an effective short briefing on the ASNE web site - find it at  http://www.navalengineers.org/Sections/Flagship/xcraft.pdf .  Tim Colton, February 27, 2003.

   ENSCO'S OSV FLEET.  Listed below, by type and horsepower, is the OSV fleet that Tidewater just bought from ENSCO.  The average age of ENSCO's fleet is 20 years, so Tidewater just increased the average age of its fleet.  Why is Tidewater buying a bunch of old boats instead of building new ones, apart, of course, from the fact that, at less than $3mm each, these boats were cheap?  Tim Colton, February 20, 2003.