Alexander & Baldwin (ALEX)

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Alexander & Baldwin, Inc. (NYSE: ALEX) is the largest of three companies that ship between Hawaii and the U.S. mainland, and also has fingers in the agribusiness, logistics, and real estate honeypots. The fortunes of A&B's shipping arm, Matson Navigation Co., has been tied to the health of the Hawaiian economy, which has been faltering lately. Although the Jones Act bars foreign companies from shipping along Matson’s routes, new competition from Pasha Hawaii Transport Lines in 2005 cut prices by 10% and Matson’s market share by 20%.^[1] In an effort to expand its operations and gain from China’s strong economic growth and increasing demand for imported goods, Matson opened up a new international route to the country in 2006. Despite volume growth of over 57% in 2007 along that route, it still represents just 15% of the segment's overall traffic. ^[2] Even more, competition along the China route is much fiercer than competition along the Hawaii route, because the Jones Act does not apply. Combined with rising fuel costs, margins have been pressured from all sides. Its real estate segment, however, is thriving; although GDP growth in Hawaii has slowed due to stagnating tourism, median home prices have stayed up. Despite bringing in just 13% of the company’s overall revenues, A&B’s real estate subsidiary, A&B Properties, accounted for 32% of A&B’s operating profit in 2007. ^[3][4] Falling sugar yields and sugar prices has crushed A&B’s agribusiness segment, making land more profitable for real estate than for agriculture.

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Competition

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Real Estate Competition

Subsidiary A&B properties, has, through a 50 year process of mergers and acquisitions, become Hawaii’s fourth largest private landowner. The company’s size lets it expand quickly into high value real estate markets. Competition comes from Hawaii's other, large land owners, like the Bishop Estate.

Land Ownership in Hawaii in 2005^[5]

Domestic Ocean Transportation Competition

Within the domestic shipping market between the U.S. pacific coast and Hawaii, Matson competes on quality, breadth of service, price, and speed of delivery, as the number of shipments it makes is greater than all of its domestic competitors combined. ^[6] Until 2005, Matson’s only significant competitor was Horizon Lines. In 2005, however, Pasha Hawaii Transport Lines began to transport automobiles to Hawaii. Pasha competes with A&B primarily over price; after it announced its entrance to the U.S./Hawaii market, A&B cut automobile transportation fees by over 10% - but still lost 20% of its market share.^[7]

Source:^[8]

Competition Along International China Route

Strong growth in the U.S./China rout has buoyed the entire company, but competition along that route is fierce. Matson Navigation competes with carriers such as Maersk, COSCO, Evergreen, Hanjin, APL, China Shipping, Hyundai, NYK Line and Yang Ming. ^[9] Matson’s shipment time is faster than the route average, but it is still forced to compete over price. The company represents less than 15% of the route’s traffic in terms of the total size of cargo delivered.^[10][11][12]

Ocean Shipping Time for U.S./China Routes^[13]

References

1. ↑ Port Services & Technology News: New Competition In Hawaii
2. ↑ ALEX 2007 10-K, Item 7, Page 38
3. ↑ ALEX 2007 10-K, Item 6, Page 28
4. ↑ Bureau of Economic Analysis
5. ↑ Hawaii Data Book
6. ↑ ALEX 2007 10-K, Item 1, Page 2
7. ↑ Port Services & Technology News: New Competition in Hawaii
8. ↑ Seafarers International Union News: Horizon Lines Charters New Vessels
9. ↑ ALEX 2007 10-K, Item 1, Page 3
10. ↑ Matson’s China – Long Beach Express Brochure
11. ↑ China Focus: Freight Transport
12. ↑ ALEX 2007 10-K, Item 7, Page 36
13. ↑ Matson Navigation China Express Overview