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The Honolulu Advertiser
Posted on: Friday, October 12, 2001

Matson may cut cargo runs

By Frank Cho
Advertiser Staff Writer

Citing increased costs and dramatically lower demand for cargo since the Sept. 11 terrorist attacks, Matson Navigation Co. said yesterday it is considering cutting its shipping service to Hawai'i to reduce expenses.

Matson, the state's biggest maritime transportation company, is looking at cutting one vessel from its eight-ship container fleet serving Hawai'i. The move would help offset higher fuel and insurance costs and lower revenue from its cargo business.

CSX Lines, Matson's primary competitor in the Hawai'i market, said it has also seen a decline in cargo demand but has no immediate plans to cut service.

"Tourism-related goods is a fairly large component of our business. And as Hawai'i's tourism industry has been hit by this, we have also experienced a noticeable decline in cargo volume," said Jeff Hull, a spokesman for Matson in San Francisco.

Hull declined to reveal specifics about how far cargo demand has fallen since Sept. 11. Matson ships, which arrive in Honolulu four times a week, carry 70 percent of the goods shipped into the state.

Cargo demand and volume to Hawai'i often is seen as a barometer of the state's economic health. Only last year did Matson increase its fleet from six to eight vessels because of increasing demand fueled by a stronger tourist industry and growing economy.

But the Sept. 11 attacks have jolted Hawai'i's fragile economy and led some of the state's biggest employers, many of them in tourism-

related businesses, to lay off or reduce work hours for more than 11,000 employees to date.

"Everybody in freight forwarding feels the crunch when their freight volume drops," said Kelly Thomas, general manager for DHX, a Honolulu freight-forwarding, trucking and warehousing firm with more than 7,000 customers statewide.

"We still have the same frequency (of orders), but less volume. I believe Matson will still need to perform. If they reduce (service), there shouldn't be a problem as long as they are supplying us timely," Thomas said.

Hull said Matson is trying to cut expenses internally first by reducing such expenses as business travel and eliminating other nonessential expenditures.

But depending on how long the cargo slump lasts, Hull said, the company could tie up at least one ship until cargo demand returns.

"We have in the past resized our fleet to meet the market's demand. At this time we are still looking at a lot of different cost initiatives," Hull said.

Matson reduced its eight-ship fleet to six in 1998 because of the state's slow economy. It brought a seventh ship back in May 2000 and the eighth ship back five months later.

CSX also is keeping a close eye on its expenses as demand falls.

"All of the security measures do have an impact on costs, fuel and manning for security at the gates," said Brian Taylor, vice president and general manager for CSX Lines Hawaii-Guam. "But at the moment, there are no plans for any deployment changes."

Taylor said CSX is trying to be optimistic. Even before Sept. 11, the company had launched an effort to reduce costs and none of those plans called for a reduction in service.

But a month after the attacks, cargo volume is starting to slide, he said.

"Many companies order inventories three or four weeks in advance. After that we expected to see the drop-off in volume and that is what we are starting to see now," Taylor said.

Ships from Matson and CSX both have been traveling faster to make up for extra time required for increased security checks at ports. That has increased fuel costs for both carriers, though neither has passed those costs along to customers yet.

"It would be difficult, given Hawai'i's current economic environment," Hull said. "We are all wondering how long this will last and specifically what the impact will be on Hawai'i tourism."

Reach Frank Cho at 525-8088 or at fcho@honoluluadvertiser.com.