Item 1. Business
ITEM 1. BUSINESS
A. COMPANY OVERVIEW
Matson, Inc., a holding company incorporated in the State of Hawaii, and its subsidiaries (“Matson” or the “Company”), is a leading provider of ocean transportation and logistics services. The Company consists of two segments, Ocean Transportation and Logistics.
Ocean Transportation: Matson’s Ocean Transportation business is conducted through Matson Navigation Company, Inc. (“MatNav”), a wholly-owned subsidiary of Matson, Inc. Founded in 1882, MatNav provides a vital lifeline of ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska and Guam, and to other island economies in Micronesia. MatNav also operates premium, expedited services primarily from China to Long Beach, California, and provides services to Okinawa, Japan and various islands in the South Pacific, and operates an international export service from Dutch Harbor, Alaska to Asia. In addition, subsidiaries of MatNav provide stevedoring, refrigerated cargo services, inland transportation and other terminal services for MatNav and other ocean carriers on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai, and in the Alaska locations of Anchorage, Kodiak and Dutch Harbor.
Matson has a 35 percent ownership interest in SSA Terminals, LLC, a joint venture between Matson Ventures, Inc., a wholly-owned subsidiary of MatNav, and SSA Ventures, Inc., a subsidiary of Carrix, Inc. (“SSAT”). SSAT currently provides terminal and stevedoring services to various carriers at eight terminal facilities on the U.S. West Coast, including three facilities dedicated for MatNav’s use. Matson records its share of income from SSAT in costs and expenses in the Consolidated Statements of Income and Comprehensive Income, and within the Ocean Transportation segment due to the nature of SSAT’s operations.
Logistics: Matson’s Logistics business is conducted through Matson Logistics, Inc. (“Matson Logistics”), a wholly-owned subsidiary of MatNav. Established in 1987, Matson Logistics extends the geographic reach of Matson’s transportation network throughout North America and Asia, and is an asset-light business that provides a variety of logistics services to its customers including: (i) multimodal transportation brokerage of domestic and international rail intermodal services, long-haul and regional highway trucking services, specialized hauling, flat-bed and project services, less-than-truckload services, and expedited freight services (collectively, “Transportation Brokerage” services); (ii) less-than-container load (“LCL”) consolidation and freight forwarding services (collectively, “Freight Forwarding” services); (iii) warehousing, trans-loading, value-added packaging and distribution services (collectively, “Warehousing” services); and (iv) supply chain management, non-vessel operating common carrier (“NVOCC”) freight forwarding and other services.
Our Mission and Vision:
Our mission is to move freight better than anyone. Our vision is to create value for our shareholders by:
◾ Being our customers’ first choice,
◾ Leveraging our core strengths to drive growth and increase profitability,
◾ Improving the communities in which we work and live,
◾ Being an environmental leader in our industry, and
◾ Being a great place to work.
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B. BUSINESS DESCRIPTION
(1)
OCEAN TRANSPORTATION SEGMENT
Ocean Transportation Services:
Matson’s Ocean Transportation segment provides the following services:
Hawaii Service: Matson’s Hawaii service provides ocean carriage (lift-on/lift-off, roll-on/roll-off and conventional services) between the ports of Long Beach and Oakland, California; Tacoma, Washington; and Honolulu, Hawaii. Matson also operates a network of inter-island barges that provide connecting services from its hub at Honolulu to other major Hawaii ports on the islands of Hawaii, Maui and Kauai. Matson is the largest carrier of ocean cargo between the U.S. West Coast and Hawaii.
Westbound cargo carried by Matson to Hawaii includes dry containers of mixed commodities, refrigerated commodities, food and beverages, retail merchandise, building materials, automobiles and household goods. Matson’s eastbound cargo from Hawaii includes automobiles, household goods, dry containers of mixed commodities and livestock. The majority of Matson’s Hawaii service revenue is derived from the westbound carriage of containerized freight.
China Service: Matson’s expedited China-Long Beach Express (“CLX”) service is part of an integrated service that carries cargo from Long Beach, California to Honolulu, Hawaii, to Guam, and then to Okinawa, Japan. The vessels continue to Ningbo and Shanghai, China, where they are loaded with cargo to be discharged primarily in Long Beach, California at a Matson-exclusive terminal operated by SSAT. These vessels also carry cargo destined for Hawaii which originated in Guam, Micronesia, Okinawa, China and other Asian countries. Matson provides container transshipment services from many locations in Asia including Hong Kong and Xiamen, China to the United States via the ports of Ningbo and Shanghai, China.
In May 2020, as a result of increased market demand, Matson launched its second expedited service to the U.S. West Coast with the China-Long Beach Express Plus (“CLX+”) service. The CLX+ service uses chartered vessels and operates weekly from Ningbo and Shanghai, China where they are loaded with cargo to be discharged primarily at Long Beach, California, calling at an SSAT operated terminal.
In July 2021, Matson launched a temporary, third expedited service to the U.S. West Coast with the China-California Express (“CCX”) service to meet continued high market demand. The CCX service uses Matson-owned vessels and departs Shanghai, China every three out of five weeks with direct service to Oakland, California and then to Long Beach, California. Cargo at both Oakland and Long Beach, California, is discharged at Matson exclusive terminals operated by SSAT. Matson expects the CCX service to operate through the October peak season of 2022 . Matson’s expedited China service currently consists of the CLX, CLX+ and the CCX services.
Eastbound cargo from China to Long Beach, California consists mainly of garments, e-commerce related goods, consumer electronics, footwear and other merchandise.
Guam Service: Matson’s Guam service provides weekly carriage between the U.S. West Coast and Guam, as part of its CLX service. Matson also provides weekly connecting service from Guam to the Commonwealth of the Northern Mariana Islands. Cargo destined to these markets is similar to that described under “Hawaii Service” above.
Japan Service: Matson’s Japan service provides carriage to the port of Naha in Okinawa, Japan, as part of its CLX service. This service mainly carries general sustenance cargo and household goods supporting the U.S. military.
Micronesia Service: Matson’s Micronesia service provides carriage between the U.S. West Coast and the islands of Kwajalein, Ebeye and Majuro in the Republic of the Marshall Islands, the islands of Yap, Pohnpei, Chuuk and Kosrae in the Federated States of Micronesia, and the Republic of Palau. Cargo destined for these locations is transshipped through Guam and consists mainly of general sustenance cargo.
Alaska Service: Matson’s Alaska service provides ocean carriage between the port of Tacoma, Washington, and the ports of Anchorage, Kodiak and Dutch Harbor, Alaska. Matson also provides a barge service between Dutch Harbor and
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Akutan in Alaska, and transportation services to other locations in Alaska including the Kenai Peninsula, Fairbanks and the North Slope.
Northbound cargo to Alaska consists mainly of dry containers of mixed commodities, refrigerated commodities, foods and beverages, retail merchandise, household goods and automobiles. Southbound cargo from Alaska primarily consists of seafood, household goods and automobiles.
In September 2020, Matson launched its Alaska-Asia Express (“AAX”) service that provides carriage of dry and frozen seafood from Dutch Harbor, Alaska to Ningbo and Shanghai, China. The AAX service utilizes CLX+ vessels on their westbound trip to China. Matson also provides transshipment services from Ningbo and Shanghai, China to other locations in Asia.
South Pacific Service: Matson’s New Zealand Express (“NZX”) service provides carriage of general sustenance cargo between Auckland, New Zealand and select islands in the South Pacific, including Fiji (Suva and Lautoka), Samoa (Apia), American Samoa (Pago Pago), the Cook Islands (Rarotonga and Aitutaki), Tonga (Nukualofa and Vava’u), and Niue. Matson’s NZX service also provides transshipment services to the islands of Nauru and the Solomon Islands (Honiara). Additionally, Matson provides slot charter arrangements for the transportation of cargo from major ports on the east coast of Australia to ports in the South Pacific islands. The NZX service also distributes and sells domestic bulk fuel to a variety of these islands.
Matson’s South Pacific Express (“SPX”) service provides carriage of general sustenance cargo from the U.S. West Coast to ports in the South Pacific islands using vessel sharing agreements with other carriers. The SPX service provides direct calls to Tahiti (Papeete), American Samoa (Pago Pago) and Samoa (Apia) in the South Pacific. Cargo destined for other ports including Tonga (Nukualofa) and the Cook Islands (Rarotonga and Aitutaki) is then transshipped in Apia, Samoa to the NZX service for delivery to its final destination. Northbound SPX cargo originating in the South Pacific is transshipped from the NZX service with other carriers to the U.S. West Coast. Cargo destined for Hawaii or Washington is further transshipped in Oakland, California for delivery to its final destination.
In June 2021, Matson launched its new China-Auckland Express (“CAX”) service that operates from Shanghai, China to Auckland, New Zealand to meet increased demand from China. The CAX service departs Shanghai every two out of five weeks and transports cargo consisting mainly of garments, e-commerce related goods, consumer electronics, footwear and other merchandise.
Terminal and Other Related Services:
Matson provides stevedoring, refrigerated cargo services, inland transportation, container equipment maintenance and other terminal services (collectively, “terminal services”) at terminals located on the Hawaiian islands of Oahu, Hawaii, Maui and Kauai; and in the Alaska terminal locations of Anchorage, Kodiak and Dutch Harbor.
SSAT currently provides terminal and stevedoring services to various carriers at eight terminal facilities on the U.S. West Coast, including three facilities dedicated for MatNav’s use, in Long Beach and Oakland, California; and in Tacoma, Washington.
Matson utilizes the services of other third-party terminal operators at all of the other ports served by its vessels.
Vessel Management Services:
Matson contracts with the U.S. Department of Transportation to provide vessel management services to manage and maintain three Ready Reserve Force vessels on behalf of the U.S. Department of Transportation Maritime Administration.
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Vessel Information:
Vessels:
Matson’s fleet includes both owned and chartered vessels. Matson’s owned vessels represent an investment of approximately $2.2 billion. The majority of Matson’s owned vessels are U.S. flagged and Jones Act qualified vessels, and operate in the Hawaii, China, Guam, Japan, Micronesia and Alaska services. Details of Matson’s active and reserve vessels as of December 31, 2021 are as follows:
Usable Cargo Capacity
Vessel
Containers
Vehicles
Design
Approximate
Charter
Year
Official
Reefer
Speed
Deadweight
Expiration
Name of Vessels
Built
Number
TEUs (1)
Slots
Autos
Length
(Knots) (2)
(Long Tons)
Date (3)
Vessels-Owned:
DANIEL K. INOUYE (4)
2018
1274136
3,220
408
—
854’ 0”
23.5
51,000
—
KAIMANA HILA (4)
2019
1274135
3,220
408
—
854’ 0”
23.5
54,000
—
MANOA (4)(9)
1982
651627
2,824
408
—
860’ 2”
23.0
35,000
—
MAHIMAHI (4)(9)
1982
653424
2,824
408
—
860’ 2”
23.0
35,000
—
LURLINE (4)
2019
1274143
2,750
432
500
869’ 5”
23.0
51,000
—
MATSONIA (4)
2020
1274123
2,750
432
500
869’ 5”
23.0
51,000
—
MANULANI (4)(9)
2005
1168529
2,378
284
—
712’ 0”
22.5
38,000
—
MAUNAWILI (4)(9)
2004
1153166
2,378
326
—
711’ 9”
22.5
37,000
—
MANUKAI (4)(9)
2003
1141163
2,378
326
—
711’ 9”
22.5
38,000
—
R.J. PFEIFFER (4)(9)
1992
979814
2,245
300
—
713’ 6”
23.0
28,000
—
MOKIHANA (4)
1983
655397
1,994
354
1,323
860’ 2”
23.0
30,000
—
MAUNALEI (4)(9)
2006
1181627
1,992
328
—
681’ 1”
22.1
33,000
—
MATSON KODIAK (4)(9)
1987
910308
1,668
280
—
710’ 0”
20.0
20,000
—
MATSON ANCHORAGE (4)(9)
1987
910306
1,668
280
—
710’ 0”
20.0
20,000
—
MATSON TACOMA (4)(9)
1987
910307
1,668
280
—
710’ 0”
20.0
20,000
—
KAMOKUIKI (5)
2000
9232979
707
100
—
433’ 9”
17.5
8,000
—
OLOMANA (6)
2004
9184225
645
120
—
388’ 7”
14.0
8,000
—
IMUA (6)
2004
9184237
645
90
—
388’ 6”
15.0
8,000
—
LILOA II (6)
2006
9184249
630
90
—
388’ 6”
15.0
8,000
—
PAPA MAU (6)
1999
9141704
521
68
—
381’ 5”
14.0
6,000
—
Vessels-Chartered:
MATSON HAWAII (6)
2009
9386471
4,360
326
—
849’ 3”
23.3
52,000
July 2023
NAVIOS FELICITAS (6)(10)
2010
9395953
4,360
326
—
849’ 0”
24.6
51,000
January 2022
MATSON LANAI (6)
2007
9334143
4,253
400
—
855’ 2”
24.3
50,000
June 2025
MATSON MAUI (6)(10)
2007
9340764
4,253
400
—
854’ 8”
24.5
50,000
February 2026
MATSON KAUAI (6)
2008
9353278
4,218
350
—
841’ 4”
24.8
52,000
January 2025
MATSON OAHU (6)
2006
9308015
3,461
550
—
783’ 8”
23.0
42,000
April 2023
MATSON MOLOKAI (6)
2007
9338084
2,824
586
—
728’ 10”
22.0
39,000
May 2025
MATSON NIIHAU (6)
2005
9294159
2,824
586
—
728’ 10”
21.0
39,000
March 2023
Barges-Owned:
MAUNA LOA (4)(7)
2013
1247426
500
78
—
362’ 6”
—
13,000
—
HALEAKALA (4)(8)
1984
676972
335
78
—
350’ 0”
—
5,000
—
Barges-Chartered:
ILIULIUK BAY (4)(8)
2013
1249384
178
—
—
250’ 0”
—
4,000
December 2022
(1) Twenty-foot Equivalent Units (“TEU”) is a standard measure of cargo volume correlated to a standard 20-foot dry cargo container.
(2) Vessel Design Speed may vary from the operating speed of the vessel.
(3) Charter expiration date represents the approximate earliest month the vessel can be returned to its owner. Some vessel charter agreements include options to further extend the charter period.
(4) U.S. flagged and Jones Act qualified vessel or barge.
(5) U.S. flagged vessel.
(6) Foreign flagged vessel.
(7) Flat-deck barge.
(8) Lift-on/lift-off barge equipped with a crane.
(9) Vessel installed with exhaust gas cleaning systems (commonly referred to as “scrubbers”).
(10) Navios Felicitas was returned to its owner in January 2022 and replaced by Matson Maui , which was placed into service in February 2022.
Matson is constructing a new U.S. flagged and Jones Act qualifying flat-deck barge at a cost of approximately $25.0 million for operation within its Hawaii neighbor island service. The new barge is expected to be delivered in the first half of 2022.
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Vessel Emission Regulations:
Being a leader in environmental stewardship is one of Matson’s core values. Matson’s vessels transit through some of the most environmentally sensitive areas in the United States including the Hawaiian Islands and the coasts of California, Oregon, Washington and Alaska. Matson is focused in particular on reducing transportation emissions, including carbon dioxide, nitrous oxide, particulate matter and sulfur dioxide through improvements in vessel fuel consumption, choice of fuel types and the development of more fuel-efficient transportation solutions. Matson further contributes positively to the environment by testing and deploying leading technologies as the fleet is modernized.
The International Maritime Organization (“IMO”), to which the U.S. and over 100 other countries are signatories, is a specialized agency of the United Nations that sets international environmental standards applicable to vessels operating under the flag of any signatory country. Effective January 1, 2020, the IMO imposed regulations that generally require all vessels to burn fuel oil with a maximum sulfur content of ≤0.5 percent (“IMO 2020”). There are three main options for a vessel to meet the IMO 2020 requirements: (1) burn low sulfur fuel oil (“LSFO”), (2) install exhaust gas cleaning systems (commonly referred to as “scrubbers”) on vessels to reduce sulfur emissions from heavy fuel oil (“HFO”), or (3) switch to lower emission fuels such as liquefied natural gas (“LNG”), which requires converting existing vessels or constructing new vessels with LNG-capable engines and fuel tanks. With respect to North America, all waters, with certain limited exceptions, within 200 nautical miles of U.S. and Canadian coastlines have been designated emission control areas (“ECAs”). Since January 1, 2015, U.S. Environmental Protection Agency regulations have reduced the fuel oil maximum sulfur content in designated ECAs to ≤0.1 percent or the equivalent emissions by the use of scrubbers. In addition, since August 1, 2012, the California Air Resource Board and U.S. Environmental Protection Agency under the Vessel General Permit regulations have reduced the fuel oil maximum sulfur content to ≤0.1 percent within 24 miles of the California coastline and within Puget Sound.
All of Matson’s vessels in the Alaska and Hawaii services are designed to operate in compliance with IMO 2020 and ECA regulations as applicable, and can use LSFO. In the Alaska and Hawaii services, Matson installed scrubbers on ten diesel engine-powered vessels to allow them to use HFO and still comply with IMO 2020 and ECA regulations. Matson also maintains vessels which may operate as dry-dock relief or for emergency activation purposes under an EPA approved ECA permit enabling the use of fuel oil with a maximum sulfur content of ≤0.5 percent within the North America ECA or at any time on IMO compliant fuels. Matson’s Aloha and Kanaloa Class vessels burn compliant LSFO. These vessels are also equipped with dual-fuel engines and can be converted to run on LNG. All of Matson’s other vessels use LSFO to meet IMO 2020 and ECA emission standards.
In June 2021, the IMO adopted new greenhouse gas (“GHG”) emission requirements applicable to ships. Beginning with a company’s first annual, intermediate or renewal survey for an international air pollution prevention certificate on or after January 1, 2023, all containerships with more than 10,000 dead weight tons will be required to meet specified Energy Efficiency Existing Ship Index (“EEXI”) levels. EEXI is a one-time certification measuring a ship’s theoretical carbon dioxide (CO 2 ) emissions per transport work based on its design parameters. After 2023, containerships with over 5,000 gross tonnage (“GT”) will be required to meet annual Carbon Intensity Indicator (“CII”) requirements that become increasingly stringent towards 2030. CII measures how efficiently a ship transports goods, and uses actual CO 2 emissions to determine an annual rating from A to E. For ships that achieve a D rating for three consecutive years or an E rating in a single year, a corrective action plan needs to be developed as part of the vessels’ Ship Energy Efficiency Management Plan (“SEEMP”) and approved. For a discussion on the Company’s planned future capital expenditures to comply with these regulations, see Part II, Item 7 of this Form 10-K. For more information on Matson’s environmental stewardship initiatives, including GHG emission reduction goals, see Matson’s Sustainability Report and other information available at www.matson.com/sustainability.
Hawaii Terminal Modernization and Expansion Program:
During 2020, Matson completed the first phase of its program to modernize and renovate its terminal facility at Sand Island, Honolulu, Hawaii. As part of this phase, Matson completed the installation of three new 65 long- ton capacity gantry cranes, upgraded and renovated three existing cranes, demolished four outdated cranes, and installed upgrades to the electrical infrastructure at the terminal.
During 2021, as part of the second phase, Matson completed the installation, energization and transition to a new redundant main switchgear. Additional projects for this phase relate to improvements to its existing backup power
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generators, installation of new above ground fuel storage tanks, a battery energy storage system, and other upgrades at the terminal, and are expected to be completed within the next three years.
The next phase represents a broader and long-term terminal expansion program at the Sand Island terminal facility. Matson expects to expand into Pier 51A and portions of Pier 51B after Pasha Hawaii (“Pasha”) relocates to the newly constructed Kapalama container terminal facility planned for 2024. From 2022 to 2024, Matson will be performing surveying, planning and design work in preparation for this expansion.
Ocean Transportation Equipment:
As a complement to its fleet of vessels, Matson owns a variety of equipment including cranes, terminal equipment, containers and chassis, which represents an investment of approximately $0.8 billion as of December 31, 2021. Matson also leases containers, chassis and other equipment under various operating lease agreements.
Operating Costs:
Major components of Matson’s Ocean Transportation operating costs are as follows:
Direct Cargo Expense includes terminal handling costs including labor, purchased outside transportation and other related costs.
Vessel Operating Expense includes crew wages and related costs; fuel, pilots, tugs and line related costs; vessel charter expenses; and other vessel operating related expenses. Matson purchases fuel oil, lubricants and gasoline for its operations and also pays fuel-related surcharges to other third party transportation providers.
Operating Overhead includes equipment repair costs, equipment lease and repositioning expenses, vessel repair and maintenance costs, depreciation and dry-docking amortization, insurance, port engineers and other maintenance costs, and other vessel and shoreside related overhead.
Competition:
The following is a summary of major competitors in Matson’s Ocean Transportation segment:
Hawaii Service: Matson’s Hawaii service has one major U.S. flagged Jones Act competitor, Pasha, which operates container and roll-on/roll-off services between the ports of Long Beach, Oakland and San Diego, California to Hawaii. A U.S. flagged Jones Act barge operator, Aloha Marine Lines, also offers barge service between the Pacific Northwest and Hawaii.
Foreign-flagged vessels carrying cargo to Hawaii from non-U.S. locations also provide alternatives for companies shipping to Hawaii. Other competitors in the Hawaii service include proprietary operators and contract carriers of bulk cargo, and airfreight freight carriers.
Matson operates three strings of vessels to Hawaii. These strings provide customers an industry-leading five departures from ports on the U.S. West Coast to Hawaii every week – two each from Long Beach and Oakland, California and one from Tacoma, Washington. Each of these strings operates on a fixed day-of-the-week schedule. Two of the vessel strings continue from Honolulu to China before returning to Long Beach. Matson’s frequent sailings and punctuality permit customers to reduce inventory carrying costs. Matson also competes by offering one of the most comprehensive services to customers, including: the only container service to and from the three largest U.S. West Coast ports; the most efficient terminal network on the U.S. West Coast with three exclusive use terminals provided by SSAT; a dedicated inter-island barge network which is integrated with Matson’s line haul schedule; roll-on/roll-off service from Long Beach and Oakland; a world-class customer service team; and efficiency and experience in handling cargo of many types.
Alaska Service: Matson’s Alaska service has one major U.S. flagged Jones Act competitor, Totem Ocean Trailer Express, Inc., which operates a roll-on/roll off service between Tacoma, Washington and Anchorage, Alaska. There are also two U.S. flagged Jones Act barge operators, Alaska Marine Lines, which mainly provides services from Seattle, Washington to the ports of Anchorage and Dutch Harbor, and other locations in Alaska, and Samson Tug & Barge,
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which mainly serves Western Alaska and other locations. The barge operators have historically shipped lower value commodities that can accommodate a longer transit time, as well as construction materials and other cargo that are not conducive to movement in containers. Foreign-flagged vessels provide alternatives for companies shipping cargo (mainly seafood) from the Alaska ports of Kodiak and Dutch Harbor. Other competition includes air freight and over-the-road trucking services. Matson’s AAX service has two major competitors, CMA CGM and Maersk Lines, which provide services between Dutch Harbor, Alaska and Asia.
Matson offers customers twice weekly scheduled service from Tacoma, Washington to Anchorage and Kodiak, Alaska, and a weekly service to Dutch Harbor, Alaska. The Company also provides a barge service between Dutch Harbor and Akutan in Alaska. Matson is the only Jones Act containership operator providing service to Kodiak and Dutch Harbor in Alaska, which are the primary loading ports for southbound seafood. Matson offers dedicated terminal services at the Alaska ports of Anchorage, Kodiak and Dutch Harbor performed by Matson, and at the port of Tacoma, Washington performed by SSAT. Matson’s AAX service also offers customers a service from Dutch Harbor, Alaska to Ningbo and Shanghai, China, with transshipment services from those ports to other locations in Asia.
China Service: Major competitors to Matson’s China service include large international carriers such as CMA CGM, OOCL, ZIM, Evergreen and Maersk. Other competition includes air freight carriers.
Matson’s China service competes by offering fast and reliable service from the ports of Ningbo and Shanghai in China, and feeder services from other Asian ports of origin, to Long Beach and Oakland, California. Matson provides fixed day-of-the-week arrivals and industry leading cargo availability. Matson’s service is further differentiated by best-in-class stevedoring services provided by SSAT, Matson dedicated terminal space, access to Shippers Transport Express off-dock container yards for faster truck turn times, Matson-dedicated equipment including chassis to speed cargo availability, one-stop intermodal connections, and world-class customer service. Matson also provides intermodal services in coordination with Matson Logistics. Matson has offices located in Shanghai, Shenzhen, Xiamen, Ningbo and Hong Kong, and has contracted with terminal operators in Ningbo and Shanghai.
Guam Service: Matson’s Guam service has one major competitor, APL, a U.S. flagged subsidiary of CMA CGM, which operates a weekly U.S. flagged container feeder service connecting the U.S. West Coast to Guam and Saipan, via transshipments to U.S. flagged feeder vessels in Yokohama, Japan and Busan, South Korea. Waterman operates a roll-on/roll-off service, which periodically calls at Guam. There are also several foreign carriers, including CMA CGM, that call at Guam from foreign origin ports.
Matson offers customers a weekly service to Guam as part of the CLX service from three ports on the U.S. West Coast. Matson’s ocean transit time, frequent sailing and reliable on-time performance provides an industry-leading service to its customers.
Japan Service: Matson’s Japan service has one major competitor, APL, which operates a weekly U.S. flagged containership service from the U.S. West Coast to the port of Naha in Okinawa, Japan.
Matson offers customers a weekly service to the port of Naha in Okinawa, Japan as part of the CLX service from three ports on the U.S. West Coast.
Micronesia and South Pacific Services: Matson’s Micronesia and South Pacific services have competition from a variety of local and international carriers that provide freight services to the area.
Customer Concentration:
Matson serves customers in numerous industries and carries a wide variety of cargo, mitigating its dependence upon any single customer or single type of cargo. The Company’s 10 largest Ocean Transportation customers account for approximately 15 percent of the Company’s Ocean Transportation revenue. For additional information on Ocean Transportation revenues for the years ended December 31, 2021, 2020 and 2019, see Note 2 to the Consolidated Financial Statements in Item 8 of Part II below.
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Seasonality:
Historically, Matson’s Ocean Transportation services have typically experienced seasonality in volume, generally following a pattern of increasing volume starting in the second quarter of each year, culminating in a peak season throughout the third quarter, with subsequent decline in demand during the fourth and first quarters. This seasonality trend is amplified in the Alaska service primarily due to winter weather and the timing of southbound seafood trade. As a result, earnings have tended to follow a similar pattern, offset by periodic vessel dry-docking and other episodic cost factors, which can lead to earnings variability. In addition, in the China trade, volume is typically driven primarily by U.S. consumer demand for goods during key retail selling seasons. Freight rates are impacted mainly by macro supply and demand variables.
Since 2020, Matson’s typical seasonal trends have been impacted by the global pandemic which has resulted in elevated levels of demand experienced in our Ocean Transportation services. Matson’s expanded services in China and other locations have resulted in significant increases in volume during the second half of 2020 and throughout 2021. Supply chain congestion and elevated levels of demand are expected to impact the Company’s Ocean Transportation services during 2022.
Maritime Laws and the Jones Act :
Maritime Laws: All interstate and intrastate marine commerce within the U.S. falls under the Merchant Marine Act of 1920 (commonly referred to as the Jones Act).
The Jones Act is a long-standing cornerstone of U.S. maritime policy. Under the Jones Act, all vessels transporting cargo between covered U.S. ports must, subject to limited exceptions, be built in the U.S., registered under the U.S. flag, be manned predominantly by U.S. crews, and owned and operated by U.S.-organized companies that are controlled and 75 percent owned by U.S. citizens. U.S. flagged vessels are generally required to be maintained at higher standards than foreign flagged vessels and are subject to rigorous supervision and inspections by, or on behalf of, the U.S. Coast Guard, which requires appropriate certifications and background checks of the crew members. Under Section 27 of the Jones Act, the carriage of cargo between the U.S. West Coast, Hawaii and Alaska on foreign-built or foreign-documented vessels is prohibited.
During the years ended December 31, 2021, 2020 and 2019, approximately 41 percent, 62 percent and 72 percent, respectively, of Matson’s Ocean Transportation revenues came from the Hawaii and Alaska trades that were subject to the Jones Act. Matson’s Hawaii and Alaska trade routes are included within the non-contiguous Jones Act market. The commerce of both Hawaii, as an island economy, and Alaska, due to its geographical location, are dependent on ocean transportation. The Jones Act ensures frequent, reliable, roundtrip service to these locations. Matson’s vessels operating in these trade routes are Jones Act qualified and maintained in compliance with such requirements.
Matson is a member of the American Maritime Partnership (“AMP”), which supports the retention of the Jones Act and similar cabotage laws. The Jones Act has broad support from both houses of Congress and the Executive Branch. Matson believes that the geopolitical environment has further solidified political support for U.S. flagged vessels because a vital and dedicated U.S. merchant marine is a cornerstone for a strong homeland defense, as well as a critical source of trained U.S. mariners for wartime support. AMP seeks to inform elected officials and the public about the economic, national security, commercial, safety and environmental benefits of the Jones Act and similar cabotage laws. Repeal of the Jones Act would allow foreign-flagged vessel operators that do not have to abide by all U.S. laws and regulations to sail between U.S. ports in direct competition with Matson and other U.S. domestic operators that must comply with all such laws and regulations.
Other U.S. maritime laws require vessels operating between Guam, a U.S. territory, and U.S. ports to be U.S. flagged and predominantly U.S. crewed, but not U.S. built.
Cabotage laws are not unique to the United States, and similar laws exist around the world in over 90 countries, including regions in which Matson provides ocean transportation services. Any changes in such laws may have an impact on the services provided by Matson in those regions.
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Rate Regulations and Fuel-Related Surcharges:
Matson is subject to the jurisdiction of the Surface Transportation Board with respect to its domestic ocean rates. A rate in the non-contiguous domestic trade is presumed reasonable and will not be subject to investigation if the aggregate of increases and decreases is not more than 7.5 percent above, or more than 10 percent below, the rate in effect one year before the effective date of the proposed rate, subject to increase or decrease by the percentage change in the U.S. Producer Price Index. Matson generally seeks to provide a 30-day notice to customers of any increases in general rates and other charges, and passes along decreases as soon as possible.
Matson’s Ocean Transportation services engaged in U.S.-foreign commerce are subject to the jurisdiction of the Federal Maritime Commission (“FMC”). The FMC is a federal independent regulatory agency that is responsible for the regulation of international ocean-borne transportation to and from the U.S.
Matson applies a fuel-related surcharge rate to its Ocean Transportation customers. Matson’s fuel-related surcharge is correlated to market rates for fuel prices and other factors, and is intended to help Matson recover fuel-related expenses .
Other Environmental Regulations:
In addition to the vessel emission regulations discussed above, Matson’s operations are required to comply with other environmental regulations and requirements including the Oil Pollution Act of 1990, the Comprehensive Environmental Response Compensation & Liability Act of 1980, the Rivers and Harbors Act of 1899, the Clean Water Act, the Invasive Species Act and the Clean Air Act. Matson is also subject to state regulations affecting terminal and vessel emissions, such as the requirement to shut down vessel generator engines while at berth at California ports and switch to shore electrical power. The Company actively monitors its operations for compliance with these and other regulations.
For more information on Matson’s environmental stewardship initiatives, including its environmental goals, see Matson’s Sustainability Report and other information available at www.matson.com/sustainability.
(2)
LOGISTICS SEGMENT
Logistics Services:
Matson Logistics provides the following services:
Transportation Brokerage Services: Matson Logistics provides intermodal rail, highway, and other third-party logistics services for North American customers and international ocean carrier customers, including MatNav. Matson Logistics creates award winning benefits and value for its customers through volume purchases of rail, motor carrier and ocean transportation services, augmented by services such as shipment tracking and tracing, accessibility to its private fleet of 53-foot intermodal containers and single-vendor invoicing. Matson Logistics operates customer service centers and has sales offices throughout North America.
Freight Forwarding Services: Matson Logistics provides LCL consolidation and freight forwarding services primarily to the Alaska market through its wholly-owned subsidiary, Span Intermediate, LLC (“Span Alaska”). Span Alaska’s business aggregates LCL freight at its cross-dock facility in Auburn, Washington for consolidation and shipment to its service center in Anchorage and a network of other facilities in Alaska. Span Alaska also provides trucking services to its Auburn cross-dock facility and from its Alaska based cross-dock facilities to final customer destinations in Alaska.
Warehousing and Distribution Services: Matson Logistics operates two warehouses in Georgia and two warehouses in Northern California providing warehousing, trans-loading, value-added packaging and distribution services.
Supply Chain Management and Other Services: Matson Logistics provides customers with a variety of logistics services including purchase order management, customs brokerage, LCL and full container load NVOCC freight forwarding services. Matson Logistics has supply chain operations in North America, China and other locations.
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Operating Costs:
Matson Logistics’ operating costs primarily consist of the costs of purchased transportation, leases of warehouses, cross-dock and other facility operating costs, salaries and benefits, and other operating overhead.
Competition:
Matson Logistics competes with hundreds of local, regional, national and international companies that provide transportation and third-party logistics services. The industry is highly fragmented and, therefore, competition varies by geography and areas of service.
Matson Logistics’ transportation brokerage services compete most directly with C.H. Robinson Worldwide, Hub Group, XPO and other freight brokers and intermodal marketing companies, and asset-invested market leaders such as J.B. Hunt. Competition is differentiated by the depth, scale and scope of customer relationships; vendor relationships and rates; network capacity; real-time visibility into the movement of customers’ goods; and other technology solutions. Additionally, while Matson Logistics primarily provides surface transportation brokerage, it also competes to a lesser degree with other forms of transportation for the movement of cargo.
Matson Logistics’ freight forwarding services compete most directly with a variety of freight forwarding companies that operate within Alaska including Carlile, Lynden, American Fast Freight and Alaska Traffic Company.
Customer Concentration:
Matson Logistics serves customers in numerous industries and geographical locations. The Company’s 10 largest logistics customers account for approximately 25 percent of the Company’s Logistics revenue. For additional information on Logistics revenues for the years ended December 31, 2021, 2020 and 2019, see Note 2 to the Consolidated Financial Statements in Item 8 of Part II below.
Seasonality:
In general, Matson Logistics’ services are not significantly impacted by seasonality factors, with the exception of its freight forwarding service to Alaska which may be affected by winter weather and the seasonal nature of the tourism industry. However, Matson’s Logistics businesses are being impacted by the global pandemic which has resulted in elevated levels of demand for our Logistics services that is expected to continue during 2022.
C. EMPLOYEES AND LABOR RELATIONS
Human Capital Strategy:
In support of Matson’s vision to be a great place to work for all employees, the Company focuses on a variety of human capital programs that have been developed to attract, retain and motivate its employee workforce. As a company that operates in various global locations, the Company’s human capital programs are designed to reflect the unique market practices in each geographic location. The Company’s success depends in part on employing a diverse, talented and engaged workforce that reflects its local communities, supports an environment of high standards and performance, and thrives in the Company’s collaborative and respectful culture.
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During 2021, Matson had 4,259 employees worldwide, of which 147 employees were based in international locations and 3,040 employees were covered by collective bargaining agreements with unions. These numbers include seagoing personnel who rotate through billets (as described below) and temporary employees, but do not include employees of SSAT or other non-employee affiliates such as agents and contractors. The composition of Matson’s workforce by geography is as follows:
Matson’s fleet of active vessels requires 392 billets to operate. Each billet corresponds to a position on a vessel that typically is filled by two or more employees because seagoing personnel rotate between active sea-duty and time ashore. These amounts exclude billets related to Matson’s foreign flagged chartered vessels where the vessel owner is responsible for its seagoing personnel. Matson’s vessel management services also employed personnel in 32 billets to manage three U.S. government vessels.
Diversity, Equity and Inclusion:
For many years, Matson has been committed to improving diversity, providing equal pay for equal work and creating an inclusive culture. According to the U.S. Bureau of Labor Statistics, traditionally the shipping industry’s workforce has been predominately represented by white males. While Matson’s workforce is representative of many of the communities where it operates, the Company has taken steps to do more to change the status quo within the Company and industry. In 2021, the Company continued to advance many of its diversity, equity and inclusion efforts. This includes continuing its efforts to analyze pay among various employee groups to confirm pay equity across the Company. Externally, the Company supports programs intended to help build a diverse talent pool for Matson and its industry. In 2020, the Company committed $100,000 toward creation of new Matson scholarships to be offered in conjunction with 16 higher education institutions and maritime academies in its communities with the goal of increasing diversity among those pursuing studies in transportation and logistics. The first scholarships were granted in Fall 2021. Separately, the Company committed more than $200,000 to fund paid internships with the goal of providing professional work experience opportunities and promoting the Company and the industry to a diverse group of students in its various regional locations. The first internships under this program are anticipated for Summer 2022.
The composition of Matson’s domestic shoreside workforce by gender and race in 2021 is as follows (data for seagoing personnel is not available to the Company):
The composition of management positions within Matson’s domestic shoreside workforce by gender and race in 2021 is as follows (data for seagoing personnel is not available to the Company):
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“Minority” in these graphs refers to any employee who self-identifies as such under the categories established by the Equal Employment Opportunity Commission.
Total Rewards Programs:
Matson provides a highly competitive and balanced total rewards program designed to attract, retain and motivate its employees . While factors such as job, location and business unit ultimately determine which plans an employee may be eligible for participation, the Company’s total rewards offering includes market competitive base salaries, cash and equity incentives, recognition awards, health and welfare benefits, and employee and employer funded retirement plans. The Company believes that management level positions should have a portion of pay aligned with its short- and long-term business objectives. Accordingly, the Company’s total rewards program contains several pay-for-performance components tied to individual, business unit and company performance, as well as Matson stock price performance.
Succession and Career Planning:
Matson’s workforce is characterized by uniquely skilled, long-tenured employees. To create career pathways for future leaders while planning for the loss of retiring employees, the Company takes a proactive approach to succession and career planning. The Company focuses on providing the next generation of promising talent with the tools they need to build their own careers at Matson. In 2021, 46 percent of open positions were filled through internal promotions. The Company also provided approximately 3,200 hours of employee training and development, while giving annual performance reviews to its non-union workforce.
For more information on Matson’s human capital programs, see our Sustainability Report which is available at www.matson.com/sustainability .
Bargaining Agreements:
Matson’s shoreside and seagoing employees are represented by a variety of unions. As shown in the chart below, union employees comprise 71 percent of Matson’s global workforce.
Matson has collective bargaining agreements with these unions that expire at various dates in the future, including as early as 2022. While Matson believes that it will be able to renegotiate these collective bargaining agreements with its various unions as they expire without any significant impact on its operations, no assurance can be given that such agreements will be reached without slow-downs, strikes, lockouts or other disruptions that may adversely impact Matson’s operations.
Additionally, Matson and SSAT are members of the Pacific Maritime Association (“PMA”), which on behalf of its members negotiates collective bargaining agreements with the International Longshore and Warehouse Union (“ILWU”) on the U.S. West Coast. The PMA/ILWU collective bargaining agreements cover substantially all U.S. West Coast longshore labor. In August 2017, the ILWU agreed to extend its contract with the PMA to July 1, 2022. The Company believes that the renegotiation of this contract will be completed during 2022.
Multi-employer Pension and Post-retirement Plans:
Matson contributes to a number of multi-employer pension and post-retirement plans. Matson has no present intention of withdrawing from, and does not anticipate the termination of any of the multi-employer pension plans to which it contributes (see Notes 11 and 12 to the Consolidated Financial Statements in Item 8 of Part II below for a discussion of withdrawal liabilities under certain multi-employer pension plans).
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D. AVAILABLE INFORMATION
Matson makes available, free of charge on or through its Internet website, Matson’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes them to, the U.S. Securities and Exchange Commission (“SEC”). The address of Matson’s Internet website is www.matson.com. This website is provided for convenience only, and the contents of our website do not constitute a part of and are not incorporated by reference into this Form 10-K.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding Matson and other issuers that file electronically with the SEC. The address of the SEC’s Internet website is www.sec.gov.