Dim Days: Puerto Rico's Woes Continue Monday, October 22, 2007 The news for carriers from Puerto Rico is mostly bad and the carriers in the trade have responded with resilience, restructuring, reallocating resources and expanding beyond San Juan into the Eastern Caribbean. Things are looking pretty dark these days in Puerto Rico, and the consensus suggests that there is little prospect for improvement until next year’s elections. The credit crisis and the high cost of fuel, plus increased taxes and unemployment have weighed on the Puerto Rican economy, resulting in reduced consumer spending and, for some citizens, a feeling of desperation. In August, a gang of desperados seeking to earn quick cash by selling valuable copper climbed the power poles feeding the San Juan suburb of Toa Alta. At the risk of being fried by the high voltage, the thieves sliced the hot wires, rolled them up and fled, leaving the community of 20,000 without power. Despite the obvious evidence of a darkened town and a giant roll of thick copper wire, no arrests were made. Little sun Four container carriers serve the island commonwealth. Trade with the U.S. mainland is restricted by the Jones Act to U.S.-built, U.S.-flag vessels that are owned and crewed by Americans. Horizon Lines and Sea Star Line operate self-propelled ships. Crowley Liner Services and Trailer Bridge operate tugs towing multideck, roll-on, roll-off barges. All four lines use Jacksonville, Fla., as their port of departure for San Juan, with Crowley also operating a weekly service from Pennsauken, N.J., across the Delaware River from Philadelphia. In addition, CMA CGM began calling at San Juan late last year direct from Asia through the Panama Canal with containers filled with consumer goods. The economy was in gridlock in January, causing container volumes from Jacksonville to plunge 8 to 12 percent. Vehicle shipments — a mainstay of the trade — had declined even more sharply. Looking forward at that time, Leach found the outlook for 2007 “slightly brighter but clouded by the lingering hangover from last year’s economic turmoil.” “The worst is probably over,” Rob Grune, Crowley’s senior vice president for Puerto Rico and the Caribbean island services, said at the time. “We had a pretty good November and December 2006 in the sense that it picked up from previous months. That leads us to think that this year will be better. All the smart people say they are expecting 1 to 2 percent growth in Puerto Rico in 2007. I would say it’s likely to be closer to 1 percent.” Onward and inward Frank Peake, president of Sea Star, called it “almost like a perfect storm.” Interviewed in early October, he said the U.S. mainland economy and high fuel prices have dragged down the island economy, which responded with increased taxes and a dramatic reduction in consumer spending for imported goods. He said the taxes on used cars were a major blow to Sea Star, which carried far more used than new cars to the islands. “Because of the downturn in the economy and the taxes, the car rental companies have changed strategies,” Peake said. “They import new cars to rent but they don’t return them to the states as they once did. Now they sell them on the island. And that is a big loss of business for us. “About the only thing I see to improve the economy of Puerto Rico is the election next year,” Peake said. “There always seems to be an economic spike during and election year.” Sea Star also carries consumer goods to San Juan, and those volumes continue to decline, according to Peake. “It is difficult when 96 percent of earnings come from that one economy. I have made more sales calls this year than in the three previous years,” he said. Sea Star and the other Jones Act carriers, confronted with the dim Puerto Rico future but committed to remain in the lane have improvised, internalized and expanded. Sea Star shifts south The service began on July 24. It connects with the carrier’s Monday departure from Port Everglades, Fla., and its Tuesday departure from Jacksonville. Peake announced he has appointed Phil Bates to expand project-cargo operations for Sea Star. “With the resources of SaltChuck, we have a lot of assets to do a lot of different things a lot of other guys can’t do,” Peake said. SaltChuk Resources is the owner of Totem Ocean Trailer Express and 90 percent owner of Sea Star Line. Taino Star owns the other 10 percent of Sea Star Line. American Shipping Group, a unit of SaltChuk Resources, manages Sea Star Line and Totem Ocean Trailer Express, which uses roll-on, roll-off vessels to haul freight between Washington state and Alaska. Peake said Sea Star anticipates long-term strategic expansion domestically and beyond Puerto Rico. To improve the performance of the company’s trucking operation and other land-based assets, Sea Star created Spectrum Logistics as a wholly owned subsidiary, Peake said. John Emery was selected to lead Spectrum Logistics. He previously served as an assistant vice president for yield management, then as head of the company’s agency in San Juan. The new position of vice president and general manager of Puerto Rico was filled by Ned LaGoy, a Sea-Land alum who also worked for Hyundai Merchant Marine and Horizon. LaGoy’s responsibilities include sales, operations, customer service and administration. Carl Fox was recruited from U.S. Lines to head information technology, then promoted to senior vice president of sales, marketing and customer service, reporting directly to Peake. Fox had previously led the planning and new business development operations at Crowley Maritime Corp. Neil Perlmutter, senior vice president for finance, took up the information tasks from Fox. He joined Sea Star in 2004 with a resume that included key financial roles at Sea-Land, CSX Lines and Horizon Lines. Horizon opts for short-sea But Chuck Raymond, the Jones Act carrier’s chief executive, has begun a radical change of course, committing the vessels instead to short-sea shipping when Congress passes two pieces of legislation. One would remove the Harbor Maintenance Tax on cargoes transshipped between U.S. ports, and the other would replenish the Title XI loan-guarantee program for building ships in the U.S. Raymond said the new Horizon Lines services initially would use two or three of the five older, U.S.-built vessels that the company was able to free up from its Guam service when it deployed five new vessels in that trade this year. The carrier has not completed the details of the new short-sea services. “We still haven’t selected the port combinations, but we are talking to various international carriers about their service needs and about what rates we would have to charge in order to make that work,” Raymond said. “They are all interested in the concept because they all realize that the larger liner vessels can only go into a couple of deep-water ports such as New York and Portsmouth, so they are looking for ways to move cargo up and down the coast. We will probably use two or three of our surplus vessels,” he said. He said the concept makes sense because it offers a great opportunity for the carrier to use its older ships to augment its other services. Before Horizon implements its planned services, it is “waiting to see what happens with the Harbor Maintenance Tax and with the legislation that provides $100 million for guarantee programs to replace the tonnage going forward,” Raymond said. There are three bills at various stages of consideration by the House that would repeal the Harbor Maintenance Tax on cargoes transshipped from one U.S. port to another. Meanwhile, in August, Horizon Lines acquired Aero Logistics, a full-service, third-party logistics provider based in San Francisco. The acquisition came shortly after Horizon Lines, based in Charlotte, N.C., split its business into two wholly-owned subsidiaries, forming Horizon Logistics LLC to manage its growing integrated logistics services business. Horizon Lines LLC will continue to operate the ocean container shipping services between the United States, including Alaska and Hawaii, and Guam, Micronesia and Puerto Rico. Aero Logistics designs and manages custom shipping and special handling programs for customers in service-sensitive industries, including high-tech, health care, energy, mining, retail and apparel. Aero also operates a fleet of global positioning system-equipped trailers under the direction of its Aero Transportation division, which provides expedited less-than-truckload and full-truckload services throughout North America and Mexico. Brian Taylor, senior vice president of sales and marketing for Horizon Lines LLC, was named to head Horizon Logistics as its president. Crowley targets Eastern Caribbean Each week, one of the service’s 600-TEU ships departs Jacksonville on Tuesday, Port Everglades on Thursday, and calls at St. Thomas every Sunday, with subsequent calls at St. Croix, Trinidad, Barbados and St. Vincent. Moreover, Crowley provides service to the islands of Anguilla, Montserrat, Nevis, Saba, St. Barts, St. Eustatius, St. John, St. Kitts, St. Maarten, Tortola, Virgin Gorda, Bermuda, Canouan, Guadeloupe, Martinique and Tobago via relay service. That worked well enough that in October, Crowley added two new container ships to its Caribbean islands service that are bigger and faster than the ships they replaced, allowing Crowley to call at St. Thomas on the northbound leg. The two new ships, the Eclips and the Ocean, each have about 200 more TEUs of capacity and twice the number of reefer plugs, about 160, than the old Sea Gale and Sea Cloud. The new rotation remains the weekly, fixed-day and includes calls at Jacksonville on Tuesdays, Port Everglades on Thursdays, St. Thomas on Sundays, St. Croix on Mondays, Trinidad on Tuesdays, St. Vincent and Barbados on Thursdays and St. Thomas northbound on Fridays. According to Rudy Leming, Crowley’s vice president of Caribbean islands services, the speed of the vessels “will allow us to provide improved schedule integrity with earlier southbound arrivals in St. Thomas and St. Croix. Plus we’re able to add a northbound stop at St. Thomas to offload Trinidad and Barbados cargoes.” The Trailer Bridge plan The new service utilizes one of Trailer Bridge’s five Triplestack Box Carrier vessels, the Brooklyn Bridge, the first class of vessels built exclusively to handle high-cube 53-foot containers. The vessel has capacity to carry 281, 53-foot boxes, or 752 TEUs. The carrier has ordered 1,000 new 53-foot containers and 850 new chassis in preparation for the expansion. John McCown, the company’s chairman and chief executive, said that by launching its biweekly service to Santo Domingo from San Juan, Trailer Bridge increased its total deployment 21 percent. “We will start slow and then build from there,” McCown said. “Unlike Puerto Rico, the Dominican market is real vibrant. Eventually, because of the way we’re deploying it, we expect to get even more revenue per vessel than we would on just straight deployment to Puerto Rico.”
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