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Back Island Stir On monopolies and the Horizon pullout

On monopolies and the Horizon pullout

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THE big business news of the week, probably even of the year, was Horizon Lines’ announcement that it was pulling out of the Guam market.
To be sure, this was not really unexpected. The carrier has been saddled by almost half a billion dollars in debt and had even contemplated declaring bankruptcy at one point.

With Horizon hard-pressed to cut costs on all its operations, it was inevitable that it would let go of its Guam service, which has not really been that profitable for them, since its competitor on Guam, Matson Navigation, handles the bulk of the cargo containers coming here.

At the same time, the average price of bunker fuel has climbed more than 40 percent since the launch of the service. This is the reason why Horizon’s pullout announcement was so quick and sudden. The prohibitive price of bunker oil simply prevents any prolonged farewell as far as Horizon is concerned.

Horizon also stressed that the delay in the Guam buildup has made the Guam trade no longer financially viable for the company. This just proves that the delay in the Guam buildup has truly affected the business sector tremendously, with many companies’ plans put on hold because of all the uncertainty.

Will Horizon’s abrupt pullout affect the island’s retailers, at least those who ship with Horizon? Remember that Guam’s retailers have to deal with a long turnaround time because of the island’s long distance from the mainland. Let’s hope there won’t be any major disruption, otherwise it may be a meager holiday season for all of us in terms of buying choices.

Horizon’s departure now leaves Matson Navigation as the only carrier servicing the Guam trade. And it is not just Guam that is affected by this, but the neighboring islands as well because they get all their cargo using Guam as the transshipment point.

In a statement issued immediately after Horizon’s announcement, Matson assured customers that it has the vessel capacity and necessary equipment to handle the additional volume.

Dave Hoppes, Matson senior vice president, ocean services, said this commitment extends to the Commonwealth of the Northern Mariana Islands, the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands as well.

Perhaps it is just as well that only one carrier remains to service Guam and the neighboring islands at this point in time. As Horizon’s announcement stated, shipping capacity for our part of the world “continues to outpace demand.” This simply means that the Guam market is not that attractive, profit-wise.

Even when Horizon was operating, both Horizon and Matson ships seldom got full loads. Matson has acknowledged this, saying it can maintain existing levels of service without requiring any new fleet deployments.

And remember that Matson itself is not exactly in the pink of health and it is only lately that the company has begun to recover from its own financial problems. That, plus the fact that it too has to deal with the increase in bunker fuel prices, the downturn in Chinese freight, and the delay in the military buildup, which the company had been relying on to boost revenues.

Still, Matson is now truly a monopoly in the Guam trade and the thing with monopolies is that despite their best intentions, there is still that temptation to arbitrarily raise prices and change services without a by-your-leave. Also, we’ll no longer have any alternative in case a Matson ship breaks down or the company suffers from a labor strike in the West Coast.

Here’s hoping that another carrier picks up from where Horizon left off so that shipping competition remains in our part of the world.

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