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%. 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.  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.  Falling sugar yields and sugar prices has crushed A&B’s agribusiness segment, making land more profitable for real estate than for agriculture.
Alexander and Baldwin has a market capitalization of $2.07B, and had revenues of $1.69 billion in 2007. In the first quarter of 2008, quarterly earnings were 70.40% higher than in the year before, and 51.90% higher than in 4Q07. These increases were fueled by growth in the company’s China shipping segment, high value housing sales, and a recovery in its sugar business. 
A&B operates four main segments:
From 2005 to 2007, the operating profit of the agribusiness segment fell by approximately 98%. The first cause, lower production yields, was a result of dry weather conditions lasting over two years. That, combined with lower sugar prices, accounts for over 94% of the decline in profit margins from 2006 to 2007.  U.S. raw sugar prices have fallen approximately 20% since 2006. As a result of NAFTA, starting in 2008 Mexico was allowed to export unlimited quantities of duty-free sugar to the U.S. Since then, sugar prices have fallen approximately 15%, and have shown no sign of stabilizing. 
Woah nelly, how about them appels!
The Hawaiian economy is primarily driven by tourism and military spending. A slowing U.S. economy has already negatively impacted tourism; the number of people visiting Hawaii in 2008 has fallen to 2005 levels.  As a result, container shipping volume along the U.S./Hawaii route fell 3% in 2007.  A U.S. recession would further cripple Hawaii’s largest industry, tourism. The value of the dollar compared to the Chinese Yuan has also fallen by about 14% since 2006, lowering freight rates to China. However, volume growth of 57% along that route has more than made up for falling prices. 
From 2006 to 2007, the price of oil rose by over 66%, raising the company’s fuel expenses by $53.1 million. Through fuel surcharges, subsidiary Matson Navigation is able to recover some of the increases in its fuel expenses. However, there is a lag between price and surcharge increases, causing the company to lose some potential revenue anyways. Furthermore, competitive pressures limit the potential increase in surcharges. From 2006 to 2007, Matson was only able to raise fuel cost surcharges by $43.4 million, $9.7 million less than needed to prevent income loss. 
The smaller agribusiness component of A&B faces significant competition, but is able to sell approximately 80% of its coffee at a premium, above commodity market prices.  Subsidiary Kauai Coffee’s largest competitor is Kona Premium Coffee Company. Kauai Coffee competes primarily over taste and product variety. Subsidiary Hawaiian Commercial & Sugar Company (HC&S) produces over 60% of Hawaii’s white (not premium) sugar. Although HC&S faces competition from companies all over the globe, from Bunge’s growing operations in Brazil to Imperial Sugar Company in the U.S, tariffs and import quotas have drastically reduced the impact of competition. In 2005, sugar prices in the U.S. were three times the world markets’. That has been changing; however, in just the six months since Mexico has been allowed to export duty-free sugar to the U.S., prices have fallen over 15%. Nevertheless, the market remains heavily subsidized, keeping prices above a floor minimum of 18 cents per pound of raw cane sugar. As comparison, the price at the start of 2008 was 20 cents per pound. 
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
|'||Bernice P. Bishop Estate||Parker Ranch||Castle & Cooke, Inc.||Alexander and Baldwin, Inc.||James Cambell Estate||Dole Food Company, Inc.|
|Land Ownership (in acres)||365760||134446||94737||90000||59645||28472|
|Percent of Total Land Area||8.9%||3.3%||2.3%||2.2%||1.5%||0.7%|
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.  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.
|'||Average Age of Fleet (Yrs)||Hawaii Container Shipping Market Share||Guam Container Shipping Market Share|
|Matson Matson Navigation Co., Inc.||25.2||65%||48%|
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.  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.
Ocean Shipping Time for U.S./China Routes
|'||Transit Days||Discharge Days|
|Other Carriers||11 to 13||2 to 3|