Islands to Islands
Matson is 'just in time' from Hawaii to Kodiak and beyond
The Matson Kodiak approaches the Matson Terminal at the Port of Alaska.
A little more than three years ago Matson acquired Horizon Lines’ Alaska assets for a total transaction value of $469 million, taking its first step into the Alaska marketplace. Kenny Gill, who had worked for Horizon since 2004, stepped into his current role as Matson vice president, Alaska in 2015 (at the time of the acquisition). Since then, he says, it’s been “nothing short of fantastic. "Culturally we’re a fit—a lot of the same types of people and values. What Matson has done is infused a sense of confidence in the team here.”
Gill continues, “People are rejuvenated; we're getting opportunities to have merit increases and bonus opportunities… So we're with a healthy company that has a long-term view, knows our industry, can relate to our industry, and supports us tremendously.”
When Matson acquired Horizon, it hired every Alaska employee as well as those in terminal operations in Tacoma. Matson CEO Matt Cox explains that at the time of the acquisition Matson didn’t know many of the Horizon Lines’ staff on a personal level, but “we have been absolutely delighted by the quality of the employees in the state and in Tacoma. They share the exact same mindset that the rest of Matson has about servicing customers and doing whatever it takes to make sure that the cargo is delivered on-time and in good fashion.”
In addition to investing in personnel, Matson has made significant expenditures in Alaska since 2015. In August 2016 Matson subsidiary Matson Logistics purchased Span Alaska Transportation for $197 million; in 2016 Matson supplied a crane valued at approximately $10 million to a public-private port project on Kodiak; and this year the company installed a new modern, automated gate system at its facility at the Port of Alaska.
Altogether, in addition to $600 million in acquisitions, Matson has spent approximately $50 million in the state on new equipment, equipment upgrades, and other investments, according to Cox: “We’ve leased additional land in Dutch Harbor; we’ve acquired a parcel of land near the port on Kodiak Island.
“On our D7 class vessels [which operate between Tacoma and Alaska], we installed emission scrubbers to meet required environmental compliance, and those have now been certified by the EPA as being effective in reducing emissions to operate within the Emission Control Area [or ECA Zone], where we spend most of our voyage back and forth.”
The Matson Tacoma arrives at the Matson terminal at Kodiak. The tug is turning the vessel around 180 degrees to position it for departure from the dock.
Investments and Infrastructure
Even before the acquisition and in the midst of Horizon dealing with financial issues, customer service was a priority to the Alaska team. “That never changes,” Gill says. Now, as part of Matson, “whether we’re in Hawaii, Guam, China, or the South Pacific, [Matson] is very much customer focused; it’s why we exist.”
Alaska, like Hawaii (where Matson was founded), is a just-in-time market, meaning that while some shipped goods are luxuries, more are necessities, so being on time and keeping the consumer in mind is vital. “We bring the stuff that people need every day up to Alaska,” says Gill, referring to anything from groceries and household goods to automobiles and construction materials.
Gill is proud of his Alaska Matson team, both in the office and out on the docks, which has grown since the acquisition. “We’ve recently added some pretty stellar employees to the group.” He continues, “I will tell you, unequivocally, that six months of the year this is the easiest place to work on the dock because we have nineteen hours of daylight and sixty-five degree weather. The other six months of the year it is the toughest conditions that I've ever seen in my life, and the credit goes to the longshoreman and all those people who work the docks to get those containers on and off our ships… people don't realize our folks are out there working in nineteen hours of dark, cold wind, ice, and snow, ensuring that when people go to the grocery store in November or January everything's on the shelf.”
Cox says that it’s not a part of Matson’s culture to be boastful, but he is proud of the company’s commitment and capabilities. “For three of the last four years we were named as the best ocean carrier in the world by Logistics Magazine and Peerless Research Group [as part of the annual Quest for Quality Awards]. And so, while we're local, we're really good at organizing ourselves and our company to have our vessels arrive on-time, and we know in remote economies that's what matters—you just can't be days late.”
In Alaska, one of Matson’s smaller markets, the company has three vessels that make two calls to Anchorage, two calls to Kodiak, and one call to Dutch Harbor every week. In fact, Matson is the only transportation company of its size to make calls to Kodiak and Dutch Harbor. It also has regular barge service from Dutch Harbor to Akutan and trucks goods from Anchorage to Kenai, Homer, Seward, Valdez, Fairbanks, and Prudhoe Bay. “We service a bigger part of the state, and we’re proud of that,” Gill says.
How Matson partners with those communities is also unique. In 2016 the company supplied a $10 million, 340-foot electric crane as part of a $35 million public-private project to update and modernize unloading and loading capabilities at the Port of Kodiak. The newer, larger crane can accommodate a new generation of wider container ships and is currently the largest crane in Alaska.
And even cooler, by utilizing flywheel technology, the crane both reduces the community’s consumption of diesel fuel and functions without being a major disruption to the City of Kodiak’s electric system.
Gill explains that as a container is raised off a ship, the crane uses electricity, but as a container is lowered, the crane generates electricity, which could have created massive spikes in Kodiak’s electric grid. However, the City of Kodiak, Kenai Electric Association, and Matson all partnered to install a flywheel system, whereby electricity is stored when a container is lowered and released when needed without creating huge fluctuations on the rest of the electric system. “We worked hand-in-hand with Darren Scott, president of Kodiak Electric Association, on flywheel technology to help manage the electricity created by the crane,” Gill says. “Partnering with cities [and] private industry is important to us, and it shows our commitment… and that was in 2016—that was right out of the gate.”
More recently, in December 2017, Matson completed installation of a new automated gate system at its Port of Alaska facility, the first of its kind in the Last Frontier. The new gate system uses multiple, high-resolution cameras and advanced optical processing computers to collect real-time data on all arriving and departing containers.
“Before, drivers had to stop, check in manually, talk to a person at the gate, and take down information,” he says. Now—having “pre-advised” load details in advance of their arrival through mobile communication devices or tablets—drivers just drive through. “We want to get them in as fast as we can and out as fast as we can,” Gill explains. “Not only does it allow quicker turn [around] times for our customers and move our assets quicker, there’s a green effect: trucks are not sitting idle.”
He adds that this project improved the customer experience without sacrificing any local positions. “We value our employees… we didn’t automate and fire people,” Gill emphasizes.
The Matson Kodiak is unloaded at the Matson terminal at Tacoma, Washington.
Matson has a policy of involvement beyond direct business investment. In the “Matson Giving 2017 Manifest” the company states, “Our communities and their needs are diverse, and so is our giving.” The company addresses this diversity by allocating funds to each of its service areas and allowing Matson employees in that area, who know local needs and resources, to determine how the funds are spent.
The Alaska Community Giving Committee is comprised of nine Matson employees, including Gill and Lindsey Whitt, external affairs manager for Matson, who says for 2018 the committee has access to $350,000 in cash to help support local communities and nonprofits. That is a significant increase from the 2017 cash budget of $200,000; last year Matson contributed a total of $1 million in Alaska including in-kind donations, supporting sixty-eight organizations.
Gill says that the Committee tries to reach as many good causes as possible without spreading the money so thin it’s no longer effective, the group is specifically focused on sports teams, social issues, health issues, women’s issues, homelessness, military assistance, and environmental issues.
One of Matson’s in-kind donation partnerships is with Alaskans for Litter Prevention and Recycling. Gill says that Matson annually hauls 400 loads of recycled material out of Alaska free of charge, except for the wharfage across the dock.
Whitt adds, “[In May] we were in Talkeetna supporting the American Lung Association of Alaska; we also supported the American Foundation for Suicide Prevention Out of the Darkness Anchorage Walk because we have personal stories involving that here at Matson; we supported Pink Martini with the Anchorage Concert Association; and we supported Walk MS: Anchorage 2018—and that's just one weekend.”
Gill leads charitable giving and community interaction by example. He’s on the board of the American Heart Association in Anchorage and is closely involved in a partnership with Kaladi Brothers and Covenant House Alaska. “Covenant house is going to be training students to become baristas, and then they’ll get jobs at Kaladi locations throughout the state,” Whitt says. Gill adds, “We’re looking to partner up with Kaladi Brothers on other projects in town. We help provide capital, they help provide training and capital, and then these young folks get jobs and a skillset they can use.”
Whitt says, “We’re shippers by day and we do that really well, but [since the acquisition] it’s the community piece that’s new… We love this part of our job.”
“Yes,” Gill agrees. “That we love.”
That love of community fits Matson’s culture like a glove. Cox says, “One of the things about the Hawaii culture is—and I know it's the same in Alaska—we're in a remote place and we all sort of need to depend on each other, right? And there are needs that are just all around us and our goal as a company, everywhere, is to improve the communities in which we work and live.”
The Matson Kodiak is unloaded at the Matson terminal at the Port of Alaska.
An Interest in Alaska
Gill is highly enthusiastic about Matson’s approach since it has come to the 49th State: “They have infused money in people, in equipment… not only did they purchase an Alaska business but invested in it very heavily in three years, and it’s sent an incredible message to not only our customers but also our employees,” especially as that investment came at a time when many participants in Alaska’s economy were cutting back, slowing down, or pulling out.
In 2015 Alaska was still in the early stages of an economy reacting to a dramatic crash in oil prices. Cox says, “It's unfortunate for us that we acquired the company in the middle of a recession, but at the end of the day, we knew it going in and the nature of our business is we make these really long-term investments… Three years later we're more confident that our decision to invest in Alaska was the right one.”
He explains that before the 2015 acquisition of Horizon Lines, Matson had been taking a close look at Alaska as a possible market for expansion. “Matson has had a long interest in the Alaska business. At one point we had looked at whether or not Matson was going to start its own service to Alaska and determined that, given the size of the market, it wasn't large enough to sustain a third ocean carrier—with Totem Ocean Express and Horizon Lines being the principal two. And so the economics didn't really work.”
When Horizon Lines determined to sell itself rather than go through a large recapitalization process, Matson saw the opportunity it had been waiting for.
Cox explains Matson was interested in entering Alaska, in part, because of similarities between Alaska and Hawaii, unlikely as that may seem to some. “There's great affinity between our two states, being the forty-ninth and fiftieth state, and our congressional delegations for decades have been so close and remain close. But it's the idea that the community depends on reliable ocean transportation to meet the basic daily functioning of the economy.”
Having operated in Hawaii for 136 years, Matson is acutely aware of how a late ship can affect the people who rely on it in a visceral way. “We love the story that’s told about us, which is instructive in a way: when the Matson ship was late, if you went to the grocery store to the dairy or milk counter, the manager would post a sign saying, ‘No fresh milk today; Matson’s ship was late.’ So it’s not sending container-loads of flat-screen TVs to some distribution center… people depend on your product, and you take it personally.”
The Hawaii/Alaska Connection
Matson’s story starts in Hawaii in 1882 when Captain William Matson sailed a three-mast schooner to the Big Island—to the town of Hilo specifically—from San Francisco, carrying supplies for Hawaiian sugar plantations. Having delivered those, he loaded up sugar and molasses to transport back to San Francisco, “and that began a run that this company has been making for the last 136 years, virtually unchanged except for growth,” says Matson Director of Corporate Communications Keoni Wagner.
Wagner continues that Seattle has been on Matson’s trade route for about 100 years, and that the company branched out to Guam approximately 20 years ago. “Loads that started in the Pacific Northwest or in California would go through Honolulu and discharge most of the cargo there and then go on to Guam and discharge cargo there.” Not long after, Matson ships began to travel past Guam to China, “because leaving Guam they’d be mostly empty.” The mostly-empty ships were then ripe to be filled with goods coming out of China and directed to the United States.
It made sense to eye the Alaska market because the two states, upon inspection, are strikingly similar from a transportation standpoint. Alaska has in common with Hawaii, as Gill puts it, that shipping is mostly “the head haul, not the back haul.” In other words, they’re primarily import markets that rely on inbound cargo for everyday consumer goods. This directionality is termed “head haul” when inbound and “back haul” on return voyages. Matson does back haul fish headed to the Lower 48 out of Kodiak and Dutch Harbor. Back haul from Hawaii is also light: Hawaii exports produce and some fish and Wagner says Matson transports automobiles and personal belongings when people move.
Both states are home to a significant military population, and “on Oahu, in particular Honolulu, there’s a fair amount of military cargo that we carry,” in addition to moving military families, which also happens frequently in Alaska.
Hawaii and Alaska also share just-in-time markets “that rely on frequent deliveries of goods, everyday living stuff that is needed to stock the shelves.” Wagner explains that in both areas, consumer markets aren’t large enough to justify a large warehousing system “that much of the mainland relies on where things are delivered to big warehouses and stored for some period of time.” Instead, in Alaska and Hawaii products are often taken directly from the ship to a store shelf.
In Hawaii, Matson runs a hub-and-spoke operation; the mainliners dock in Honolulu and discharge goods, and the company transships those materials to smaller barges that make multiple deliveries weekly to neighboring islands, similar to how goods are distributed throughout Alaska by boat or, often as not, by plane.
“When we look at this trade, it looks an awful lot to us as something that is core to our DNA and what we do, and it has proven to be exactly what we expected,” Cox says. “We've got to get our vessels here on time and we've got to make sure that the cargo gets unloaded fast. So, we have equipment that is in good mechanical shape that is able to do this, and we have to organize our marine terminals in Tacoma to allow for receiving of cargo up until the last minute before sailing, which then would give store managers in Alaska up to the last minute to be able to order exactly what they need to replenish the trade. And the same is true in Hawaii.”
Assets in the transportation industry, especially large vessels, are long-lived, so Wagner is excited about four new vessels currently under construction that will be deployed for transportation services to and from Hawaii. The first will begin service in the fall with the remaining three coming online over the next two years. “All of the new vessels are going to be larger than anything else we’re sailing at the moment… and are going to be the biggest container ships ever built in the United States.” Two of the vessels are what Matson is labeling Kanaloa Class and will be 870 feet long and 114 feet wide with a deep draft of 38 feet.
The size of the new vessels has necessitated that Matson upgrade its infrastructure at the company’s hub in Honolulu: “the cranes need to be a little bit taller and have a longer reach to fully service these new vessels.” Wagner says this is taking place at the same time that the state of Hawaii is undergoing its own harbor modernization program, in which Matson is participating with upgrades to its terminal there. “Between the new cranes we’re bringing in and improvements to older equipment, expansion of the footprint there at our terminal, and the new vessels, it’s close to $1 billion in investments,” he says.
Here and there, Matson has been busy.
“But it's all good and exciting stuff,” Wagner says. “And working with the Alaska team has been fantastic; they're experienced, knowledgeable people that know that market really well. So Matson's approach has been to step in with support, but largely it's support and wanting to preserve what they've built there, which is a great operation.”
“We’re excited to be part of the state, and honestly, we look forward to a hundred years with the state.” Cox says.
Gill says, “We love what we do, and that’s the best way to end the conversation: we love what we do.”
Tasha Anderson is the Associate Editor for Alaska Business.