Matson Defines New Options for Supply Chain Managers

Editor’s Note: This is an exclusive interview with David Hoppes, Matson’s senior vice president, ocean services.

Supply Chain Management Review: Are you planning any new service enhancements to existing schedules?

David Hoppes: At this time, we plan to continue to do what we do best:  provide just in time service for the island economies of Hawaii and Guam, and premium, expedited service from China to southern California. We have been serving Hawaii continuously since 1882, and it remains our core market. We have been able to maintain our role as the state’s leading carrier by consistently delivering on time arrivals that are measured by hours, not days, and exceptional customer service that is experienced in working with shippers transporting the wide range of goods needed to support island economies.

Our weekly China service, which serves Xiamen, Ningbo and Shanghai, has a unique place in the Asia trade in that we are relatively small, but can offer significant value to shippers because of our size. Because our ships are smaller than the large international carriers, we are able to make Shanghai our last port of call and sail directly to Long Beach. In addition, we are not slow steaming our vessels to save on fuel, which is a common practice among international ocean carriers. And we have our own dedicated facility in Long Beach that allows our ships to be unloaded quickly. What that does is allow us to have between a three- and seven-day transit advantage over the rest of this very competitive Asia to U.S. West Coast market. Some shippers are using Matson’s China service as an alternative to air freight, clearly an option that delivers significant value for their supply chains.

SCMR: What economic indicators suggest greater demand in the future?

Hoppes: While Hawaii’s economy has been improving recently, with 2012 a strong year for tourism, the state’s construction industry continues to be weak, which has been reflected in Matson’s relatively flat container volumes for its Hawaii service.

As we look at growth in the Hawaii market, given our large market presence, our view is that it’s much more tied to the macroeconomic factors for the state in total, and the Hawaii market itself has contracted as it’s gone through its own version of the recession. If you look at it over the last three of four years, the overall container market for Hawaii has contracted by about 20%. We have seen these types of contractions before in the state’s history and in Matson’s history, and our expectation is that we will begin to see a recovery in the Hawaii market as the Hawaiian economy recovers,—and most importantly in the area of building materials as it relates to the construction part of the market, which has not yet recovered. We do think there will be a multi-year recovery in growth in that market if history repeats itself.

We think the growth and the prospects for the Guam market will be connected to the US military’s broader repositioning of its military forces to the Pacific theater from Europe and other places, which you’ve heard a lot of discussion about. As it relates to Guam, it is planned for a part of the Marines stationed in Okinawa to be relocated over the next few years to Guam. There is going to be some construction that will be required in order to allow for that transfer of the Marines from Okinawa to Guam, and so we do think that, probably not in the near term, the next year or so, will we see much of that, but over the longer term we do believe that the military’s strategy in the Pacific will lead to some improvement in construction activity in Guam.

SCMR: How has Matson benefited from the “separation” from A&B?

Hoppes: The separation of Matson from A&B was designed to provide a number of benefits for both Matson and A&B. The benefits include:

Enhanced Focus: Each company is now large enough to independently establish strategic priorities, growth strategies and financial objectives, and allocate capital in a manner that is best tailored to each business. Moreover, the Board and management of each company will be able to focus exclusively on the operation of its own business.

Sector-Specific Investors: Each company will appeal to a more focused shareholder base that is attracted to the particular business profile of that company and the specific industries in which it operates.

Separate Stock: Each company will have its own separate stock, which can be used to facilitate acquisition opportunities.

Greater Transparency: The proposed separation will allow for greater visibility into relative financial and operating performance.

Expanded Research Coverage: Each company expects to attract additional research coverage by industry-specific analysts, providing the public and investment community with more information and perspectives on the two companies.

It’s important that people understand that Alexander & Baldwin always ran Matson as an independent business, such that we, the Matson group, had its own finance, legal, information technology, accounting, insurance. They operated us much like a portfolio company, and so the separation, while momentous from a historic point of view, from an operational perspective was a fairly straightforward matter. For example, we have only had to hire five or six people at the Matson level in order to operate as an independent company, which is very small relative to our overall headcount. So, in some ways, because of A&B’s operating approach, Matson has been running autonomously for many, many years.

SCMR: What does this mean for supply chain managers?

Hoppes: For supply chain managers, the separation was a seamless process that didn’t result in any changes to Matson’s existing services. As mentioned, the company has operated historically as its own entity, with specific service offerings in the markets we serve. What we can say is that we will now be more focused than ever on building the Matson brand. Our strategic direction will be guided solely by leveraging our strengths as a transportation company. We do not plan on making any notable departures from our historical service offerings, but we do see this as an important new chapter in our distinguished history that will further sharpen on focus as a leading carrier in ocean transportation and logistics.

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