Horizon shows the flaws in the policy
Horizon Lines could be on the way to becoming a maritime version of Detroit's carmakers, following its dismal results for the first quarter.
Boss Chuck Raymond calls the $13 million loss (up from $10 million the previous year) "a slow start" but expects some improvement later, with the full year's outcome being similar to the $31 million loss in 2009.
A big sigh, accompanied by winks and nudges, was the industry reaction to this assertion. Everyone has heard it so often.
Not too many people are rushing to invest, preferring to wait and see how the China route, due to begin at the end of the year, works out. And therein lies the rub. Because, if the service fails, the line's cash flow and reservoir of funds and balance sheet (not being a financial professional, I don't know the exact terms) will be in serious trouble.
That brings a tricky situation into play because Horizon and Matson Navigation are the only two Jones Act carriers on the Pacific routes (Sea Star, Crowley and Trailer Bridge operate in the Caribbean).
If Horizon overreaches itself, it will have to scale down the Pacific services – which would leave Matson as a monopoly, which in turn would send the Federal Maritime Commission and Congress into a tizzy.
That will mean that a lifeline of some sort will have to be thrown, which the banks could well be unwilling to provide without solid guarantees of repayment, or allowing another of the carriers to operate.
Either way, it means that artificial help will have to be given, most probably in the same form that the politicians gave to the Detroit Three.
This is a very uncomfortable situation for the authorities, in their anxiety to avoid direct subsidies and yet keep US-owned ocean commerce alive. But they run smack into the investigation into anti-trust activities, which have dogged Horizon and Matson for the last 18 months. (The first quarter of this year included $1.2 million for legal expenses over those accusations, compared with $5.3 million in legal fees and restructuring charges in 2009.)
All in all, it throws up the absurdity and highlights the contradiction in terms of anti-trust laws of government sponsorship of a duopoly.
If the FMC charges against the two lines are upheld, the fines are likely to be horrendous and will lead to the departure – forced or voluntary – of seasoned executives. No need to spell out the consequences of that.