Tuesday, February 1, 2005

Shipper plans
to undercut rivals

The mainland service by Matson's
ex-CEO will launch in August

Former Matson Navigation Co. Chief Executive C. Bradley Mulholland is planning to undercut Hawaii market prices by 12 percent when a shipping service he is helping to launch begins in August, according to a report in a Norwegian-based shipping newspaper.

Mulholland, 63, will be president and chief executive of OceanBlue Express Inc., and Timothy Repp of the Aker Kvaerner group will be the chief financial officer, Repp confirmed yesterday. The venture, which will be based in the San Francisco area, is being orchestrated by Norwegian industrialist Kjell Inge Rokke, according to TradeWinds, an Oslo trade publication.

Aker Kvaerner ASA, the Norwegian-based parent company of the Aker Kvaerner group, is involved in shipbuilding.

OceanBlue will get its ships from the Kvaerner Philadelphia Shipyard, which has two container ships under construction, the Philadelphia Inquirer reported yesterday.

The Kvaerner Philadelphia Shipyard was built to support the U.S. Jones Act, which requires that ships sailing between U.S. ports be built, crewed and owned by U.S. citizens.

Kristian Monsen Rokke, the 21-year-old son of Kjell Rokke, is a U.S. citizen and is expected to be the initial owner, TradeWinds said.

The cost of the first vessel, with capacity for 2,600 20-foot containers, is $147 million. The second, a 2,500-container ship, costs $141 million, TradeWinds reported. Oakland-Los Angeles-Honolulu service is due to begin in August, with the second ship beginning service in June 2006, according to TradeWinds. There is an option for a third ship, the publication said.

Private-equity capital is being recruited, but 90 percent of the purchase is expected to come from debt, TradeWinds said.

"If OceanBlue acquires the Kvaerner vessels and begins operation in the Hawaii trade, I would expect Matson to aggressively defend its customer relationships and market share," said analyst Jamellah Leddy, who covers Matson for Seattle-based McAdams Wright Ragen. "I think that a third market entrant would alter the dynamics of the Hawaii trade, possibly putting pressure on margins. However, Horizon Lines may be more susceptible to a new competitor, based on its older fleet."

Matson and competitor Horizon raised their rates this month, citing increased labor and fuel costs. In October, both shippers also raised their fuel surcharges to 9.2 percent from 8.8 percent.

Mulholland did not return a phone call yesterday, but he left a message during the weekend in response to a story about the venture in Saturday's Star-Bulletin.

"We're not really far enough along, quite frankly, to make a public announcement," he said. "We'll catch up with you when we're ready to say something."

Repp also declined to comment.

"Everything's a little premature for what we're doing right now," Repp said. "We're not going to comment until we have agreements in place."

John E. Graykowski, senior vice president and general counsel for Kvaerner Philadelphia Shipyard, declined to comment.

"I'm not at liberty to talk," he said. "It's just not time yet."

However, Graykowski is leaving the shipyard, effective today, to work for the new company, according to the Inquirer. Graykowski, a former deputy administrator of the U.S. Maritime Administration, will be a Washington consultant for OceanBlue, the Inquirer said.

Mulholland, who was with Matson Navigation for more than 38 years before retiring on Jan. 1, 2004, was president and CEO of the company until July 2002, when he was succeeded by the current CEO, Jim Andrasick, and moved to vice chairman, according to a filing with the Securities and Exchange Commission.

OceanBlue began advertising for jobs last week on the Yahoo! Web site and has registered its business in California and incorporated in Delaware. The company will compete in Hawaii with Matson, Horizon and Pasha Hawaii Transport Lines.

Andrasick, through his secretary, declined to comment.

Matson purchased two similar ships from the Kvaerner Philadelphia Shipyard and received them in 2003 and 2004.

Brian Taylor, vice president of Horizon Lines for Hawaii and Guam, was unavailable for comment.

Brian Black, who is in charge of Hawaii operations for Pasha Hawaii, said the company's roll-on, roll-off automobile service that will begin in March would be minimally affected by OceanBlue.

"We're a different type of carrier," he said. "We're more like a niche player, and we also cater to buses, fire engines and oversize equipment like those that are used for construction. That's generally not what container operators look for."

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