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Rising fuel costs, delay in military buildup cited

By Therese Hart HAGÅTÑA, Guam (Marianas Variety, Oct. 26, 2011) – Horizon Lines Inc. yesterday announced on its website that it will discontinue its Five Star Express (FSX) trans-Pacific container shipping service between the U.S. West Coast, Guam and China because of the rise in fuel costs and the delay in the Guam military buildup.

The last voyage of the FSX service from China is scheduled to depart Shanghai on Nov. 2. Horizon Lines also will suspend ocean services to Guam and the surrounding islands, effective with the last sailing from the U.S. West Coast on Nov. 10.

In response to Horizon Lines’ announcement that it will be discontinuing its Guam service, Matson issued a statement, reassuring the Guam/Commonwealth of the Northern Mariana Islands (CNMI)/Palau/Republic of the Marshall Islands (RMI)/Federated States of Micronesia (FSM) business communities that it has the vessel capacity and necessary equipment to handle the additional volume and maintain existing levels of service without requiring any new fleet deployments.

In Guam, Horizon said the expected growth in cargo driven by infrastructure improvements associated with the military redeployment from Okinawa has been further delayed, due to the budget crises in Japan and the U.S., coupled with revised Japanese priorities in the wake of the earthquake and tsunami earlier this year. Without an eastbound return voyage from China, this has made the Guam trade no longer financially viable for Horizon Lines, according to the company’s website.

Horizon Lines launched the FSX service in December 2010, following the expiration of a long-term space charter agreement with Maersk Line. The FSX service offers rapid eastbound transit between Ningbo and Shanghai in China and Los Angeles and Oakland on the U.S. West Coast. The westbound leg of the FSX service provides transit between the U.S. West Coast, Guam, Micronesia, and the Northern Mariana Islands.

Beginning on Oct. 31, Horizon will implement a transition plan and work aggressively to mitigate any supply-chain disruptions for its customers. Discontinuation of the FSX Guam and China services will have no impact on the company’s domestic ocean services in Alaska, Hawaii, or Puerto Rico.

"We do not expect any measurable improvements in fuel prices, the freight-rate environment or in this trade lane for the foreseeable future," said Brian Taylor, Horizon executive vice president and chief operating officer. "Growing capacity continues to outpace demand, and the forecast for 2012 calls for more of the same.

"Given current market conditions and foreseeable future expectations, discontinuing the FSX service is the appropriate decision for the company. It will allow us to focus all of our resources on serving customers in the very solid domestic ocean markets in Alaska, Hawaii, and Puerto Rico. This has been a very difficult decision in light of the tremendous contributions from our associates and our organized labor and vendor partners, who have worked so hard to make the FSX service a success," said Stephen H. Fraser, president and chief executive officer of Horizon Lines. "Our decision to exit this highly volatile market will allow Horizon to focus on our core domestic ocean shipping services, and provide the opportunity to produce a more profitable and stable financial performance over time."

Following their last voyages, the five Hunter-Class D-8 vessels operating in the FSX service are currently planned to be laid up after the dry-docking of the remaining four vessels. The vessels are leased from Ship Finance International Limited through 2018 to 2019. Horizon Lines is exploring sub-chartering the vessels and other solutions to partially mitigate ongoing charter expense and maintenance costs, according to the site.

Since early in the year, the FSX service met volume and vessel utilization expectations, winning cargo from customers attracted to the schedule reliability, rapid ocean transit, and seamless intermodal rail links to inland U.S. cities. However, the Shanghai Container Freight Index cites eastbound freight rates from China to the United States have fallen more than 37 percent in the past 12 months, from US$2,400 per 40-foot container in October 2010 to approximately US$1,500 in October of this year – the lowest level since the worldwide recession of 2008 to 2009.

At the same time, the average price of bunker fuel has climbed more than 40 percent since the launch of the service, according to Horizon.

Horizon Lines Inc. is the nation's leading domestic ocean shipping and integrated logistics company. The company owns or leases a fleet of 20 U.S.-flag containerships and operates five port terminals linking the continental United States with Alaska, Hawaii, and Puerto Rico. The company also provides integrated, reliable and cost-competitive logistics solutions. Horizon Lines Inc. is based in Charlotte, N.C., and trades on the OTCQB Marketplace under the symbol HRZL.

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