Ships Ahoy!

When Matson Navigation Co. split off from Alexander & Baldwin Inc. earlier this year, it updated its name to Matson Inc. Now Hawaii’s largest ocean cargo transportation firm is looking ahead to update its fleet.

Honolulu-based Matson plans to spend $400 million in the next three to five years on two new ships that would improve operating efficiencies and significantly reduce the average age of its 13-ship fleet.

Matson said it likely will finalize plans for the new ships next year. So there aren’t details yet on size of the ships, where they would be built and which ships they would replace.

But the planned move represents the first outsize investment by Matson following its separation from A&B, and will be the first new ships bought in almost 10 years.

Matson embarked on its last ship renewal program a decade ago, and spent $500 million adding four ships between 2003 and 2006. Prior to that investment, the company had bought only one new ship in the prior two decades.

Kevin Sterling, a stock analyst with BB&T Capital Markets in Virginia, said adding two more new ships is a smart move, and noted that rival Horizon Lines has suffered from not investing as much in new vessels.

“It makes sense to keep your fleet young,” he said. “It gives them a lot of flexibility (to serve existing or new markets).”

Newer ships are typically bigger, quicker and more fuel efficient — qualities that enable more cargo to be carried with faster transit times using less fuel.

To illustrate the point, consider a situation Matson was in during the last quarter. One of its largest ships had to be removed from service for maintenance. But instead of using one reserve ship in its place, Matson had to use two reserve ships to carry the same amount of cargo, significantly raising expenses.

But adding new ships to replace smaller, older ships is expensive.

Because Matson operates directly between U.S. ports, federal law requires that ships on those routes be built in the country, which makes them considerably more costly compared with foreign-made ships that can operate between foreign and U.S. ports.

Sterling, the stock analyst, said Matson has the financial strength — namely cash and the ability to borrow money at favorable terms — to invest in new ships.

The age of Matson’s fleet isn’t very old by industry standards. The company says it has more modern ships than any other U.S. carrier. Still, its fleet is getting older.

Before Matson added its last four new ships, the average age of its fleet was 25 years, and it had five ships that were 30 or more years old. After the four ship replacements, Matson’s average fleet age fell to 14 years. Today the average is 19 years, and seven ships are 30 or more years old.

Matson uses its five youngest ships on a route running from Long Beach, Calif., to Hawaii, then continuing on to Guam then China, and returning to Long Beach. Older ships are deployed on routes mainly between Hawaii and Long Beach; Oakland, Calif.; and Seattle.

Eight Matson ships built between 1982 and 2006 are powered by diesel engines, while the other five, which date to between 1971 and 1980, are powered by steam turbine engines.

Matson said its four youngest ships are 25 percent or more efficient to operate considering fuel, speed, cargo capacity and reliability.

Matson might not necessarily replace its oldest ships, given that the vessels vary by design, speed and capacity measured in units equivalent to 20-foot containers, or TEUs.

For instance, Matson’s oldest ship is the Lihue, built in 1971. But its capacity of 2,018 TEUs is about 400 or 500 more TEUs than any of the next four oldest ships built between 1973 and 1980.

In terms of design, two Matson ships built in 1973, the Matsonia and Lurline, can carry containers as well as cars and other cargo that can be driven onto parking garage decks.

This so-called roll-on/roll-off capacity has been a challenge for Matson because much of its roll-on/roll-off capacity is on older ships. Matt Cox, Matson’s president, cited this issue in an analyst presentation earlier this year and said the company might remedy the situation with the planned new ships.

Matson, which has a roughly 66 percent market share in Hawaii’s ocean cargo market, also noted that one of its competitors, Pasha Hawaii Transport Lines, has a new ship under construction that would roughly double its service.

Pasha operates one roll-on/roll-off ship in Hawaii, and has a second ship being built plus an option to order a third ship. The second ship has a capacity of 1,400 TEUs and 2,750 cars, and is expected to be delivered next year.Matson has 13 ships but has used nine in service in recent years. If the local economy continues to grow and the construction industry rebounds significantly, Matson expects to put a 10th ship into service.