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Charting steady courses: with no waves of growth on the horizon, Alaska's water transport competitors will focus on maintaining market share.

Judging from the balance sheets, Alaska's marine transportation was virtually becalmed in 1991, waiting for the state's economic trade winds to pick up velocity. But on the water and at dockside, the major competitors were hustling just to maintain their positions in the market.

Sea-Land Service Inc. and Totem Ocean Trailer Express (TOTE) continued their neck-and-neck rivalry at the Port of Anchorage, which receives the bulk of Alaska's general year-round waterborne commerce. "1991, as far as general cargo was concerned, was almost exactly the same as 1990," says H. Glenzer Jr., port director.

While Sea-Land and TOTE split the majority of the Southcentral market, Crowley Maritime, Alaska Cargo Transport and Canadian National's Aquatrain service also provide regular service to Anchorage and the Railbelt. Crowley managers claim their firm accounts for about 18 percent of waterborne commerce in what they call the Anchorage-Fairbanks market.

Competing in the Dutch Harbor market are Sea-Land, Samson Tug & Barge and a number of other companies. Crowley, which feeds cargo to Sea-Land in Dutch Harbor, dominates marine shipping in rural Western Alaska with its tug-and-barge and lighterage services. According to a company spokesman, Crowley controls about 80 percent of the market to the villages and regional centers of Western and Arctic Alaska, with an average of just two to three sailings a year.

In Southeast, a number of smaller firms provide regular barge service between Seattle and the Panhandle's coastal communities.

Major carriers plying the waters between Alaska and the Lower 48 had anticipated a brighter 1991, but with 20-20 hindsight, the word most often used by company spokesmen to describe the year was "flat." Although most industry analysts expect some growth in 1992, the discrepancy between last year's predictions and ultimate volumes has led most water transportation managers to conservatively project a repeat of 1991.

According to Dick Simpson, vice president of public relations for Crowley Maritime Corp., headquartered in Oakland, Calif., all carriers serving Alaska currently are operating at less than capacity. He asserts it would take a 40 percent increase in the market to use up that capacity and prompt consideration of expansion. Unless a megaproject, such as the gas pipeline or oil exploration in the Arctic National Wildlife Refuge, gets a green light, such a jump is unlikely in the near future.

The 1991 numbers aren't all bad news. Given the poor state of the national economy, some marine transport managers are grateful just to be able to keep their ledgers in black ink, instead of red. Comfort also is drawn from the recognition that current trends reflect a stable, consistent alternative to the ledger-wrenching gyrations of Alaska's traditional boom-and-bust cycle.

Steering Plans. Furthermore, some companies are using this time to consolidate previous gains or better position themselves to take advantage of the next spurt. TOTE, for example, regained substantial momentum following a 1990 accident that put one of its Alaska ships temporarily out of commission.

Dan Ramsay, a spokesman for Sea-Land says operations last year were pretty unremarkable. Highlights of 1991 for the firm, which is based in Edison, N.J., with Alaska operations headquartered in Seattle, included the completion of dock expansion at Dutch Harbor.

While the dock project will have no immediate impact on shipping to or within Alaska, it does mark the beginning of a new era in which Alaska fish products can be shipped directly to the Orient without first going through the Seattle/Tacoma area, a substantial boon for fishermen and processors.

"For the most part, it wasn't a very eventful year. It was pretty flat, we didn't have a boom by any means. We had a little growth, which when you look at the overall American economy, it's pretty encouraging, because Alaska is usually a roller coaster," Ramsay says.

Ramsay vividly recalls the cyclical peaks and valleys of the 1970s and early 1980s: four years of double-digit growth; followed by four years of decline; four more years of galloping growth; before another slide until 1987, when the market dropped 12.6 percent in one year.

In Sea-Land's case, a little growth in the Alaska market translates into about 3.5 percent, compared to 11 percent for 1990 and 13 percent for 1989, two years that saw freight shipments boosted by supplies for the Exxon Valdez oil spill cleanup. In 1988, at the bottom of the state's recession, Sea-Land saw less than 1 percent growth in business.

Last year's performance was based on shipment of about 100,000 containers from the Port of Tacoma. "It was a good year for stability," says Ramsay.

According to Jeff Keck, Alaska general manager for TOTE of Seattle, the total Anchorage market grew 1.3 percent last year. He says his firm recovered from the untimely loss of one of its vessels during the summer of 1990. Partly because of the prior year's mishap, TOTE's 1991 volumes rose 10 percent.

In 1990, the company lost half its hauling capacity when the 791-foot vessel Great Land had its engine room flooded during routine maintenance operations in Tacoma. The ship was out of commission for a crucial 12 weeks while repairs were made.

Keck says the company's reputation with shippers saw it through the down time. "One of our key strengths is service reliability and schedule integrity. Our key customers continued to ship after repairs were made to the ship," notes Keck.

Unwilling to risk substantial losses again -- competitor Sea-Land attributes a 20 percent summertime boost in its 1990 business to the accident -- TOTE decided to buy a third vessel and have it outfitted for the Alaska trade. Investment in the vessel eventually will total about $50 million.

According to Robert McMillen, TOTE president and chief executive officer, the ship has been refurbished and completed sea trials in January. The marine transportation firm plans eventually to enlarge the vessel, called The Northern Lights, but may use it in the Lower 48 or Alaska this summer before the construction.

"It's ready to go to work. We don't know when we'll put it into the Alaska market. It depends on how market conditions develop up there," McMillen says. TOTE is collecting bids from eight shipyards to contract for a 90-foot extension to the vessel, a project expected to commence this winter and take nearly a year.

McMillen says that no final decision has been made to use the new vessel to expand service to Kodiak or Dutch Harbor. "We have no plans at this time, but that's something we're always looking at. As those markets grow, we feel that's something we should be doing."

He explains that such a decision would be based on growth in the demand for northbound cargo, not on back-hauling fish products. Currently, McMillen says, there's not sufficient demand to warrant committing the company's large Alaska-bound vessels to a Dutch Harbor-Kodiak schedule.

Officials for both Sea-Land and TOTE say the firms constantly trade the lead market position in hauling freight to and from the Port of Anchorage, with Sea-Land realizing a somewhat higher market share when the year-end totals are done. Says Sea-Land's Ramsay about TOTE, "Admittedly, they are a terrific competitor. They have a market niche."

Both companies provide service to Anchorage every four days, but with three ships in service between Tacoma, Anchorage, Kodiak and Dutch Harbor, Sea-Land has somewhat greater capacity than rival TOTE, which runs two ships.

Both companies offer containerized service, with a key difference. TOTE loads cargo using a roll on-roll off (ro-ro) method: Containers affixed to chassis are driven on and off the vessel, using tractors provided by TOTE or the customer. The trailers are then secured directly to the deck. Sea-Land vessels employ a so-called lift on-lift off (lo-lo) procedure, in which containers are lifted by crane from dockside chassis to the ship, then stacked and interlocked directly with other containers.

Early in 1992, Sea-Land was running at two-thirds to three-quarters of capacity, and TOTE at approximately 85 percent of capacity, according to company officials.

Cargo Challenges. It might have been business-as-usual for the big carriers at the Port of Anchorage in 1991, but for those operating in some of Alaska's other markets, a number of challenges kept things hopping. Samson Tug & Barge Inc., headquartered in Sitka, had kind of an "odd year," says traffic manager Mike Halko. The company provides year-round service from Seattle to Sitka, Cordova, Valdez, Kodiak, Dutch Harbor, King Cove and Adak.

Samson's northbound manifests alternate seasonally. During the winter months, the company supplies coastal communities with general cargo; when spring comes, supplies for fish processors dominate; construction supplies are a staple of summer and early fall.

With five tug-and-barge combinations (three of which operate year-round), Samson competes chiefly with Sea-Land in the Dutch Harbor market. Sea-Land provides faster, more frequent service and has a larger equipment base. Samson focuses mostly on cargo that is not time-sensitive. "We're not trying to knock anybody out, we're just looking for our little niche," notes Halko.

As with other carriers serving Alaska, an important aspect of Samson's business is transporting fish products to Seattle. The fishing industry is always dynamic, but last year's upheavals created a number of challenges. Salmon and pollock seasons, chiefly in the Gulf of Alaska, opened sporadically, making it hard to coordinate northbound supply loads with backhauls of fish products. In some instances, the openings were canceled altogether.

"No one knew from one day to the next what was going to happen," Halko says. "That weighed on everyone as they decided how to respond, everyone in the communities, including the carriers. The major pink salmon run really taxed everybody's capabilities."

From a transportation standpoint, it was an especially difficult situation for even a veteran Alaskan-owned company such as Samson, because of the firm's small size. Explains Halko, "We're not able to mix and match when things get dry somewhere. When an opening is canceled, we can't make that up. That's all lost business; it's not recaptured. We have a full year of activities, but not a full year of cargo."

The traffic manager notes the unpredictable fluctuations caused problems for everybody. "But overall, the volumes were what we'd hoped for," Halko adds.

Less than hoped for were construction supply cargoes destined for Southcentral Alaska. As do its competitors, Samson tracks key economic indicators looking for clues to guide annual planning efforts. Those indicators gave rise to hopes of a resurgence in the state's housing market that never quite panned out. Halko blames jitters related to the weak national economy.

"I felt construction was down a little bit from 1990. 1991 was probably the worst we've seen in four to five years. Somebody building a house has thought twice about it," Halko reflects.

That picture might improve in 1992, given current low interest rates and other indications of a potential resurgence in building. But Halko notes that projects scheduled for 1992 construction need to have been in planning stages since early 1991. He expects construction cargo volumes to remain stable, and southbound fish product volumes to drop about 5 percent.

Calm Sailing. Most experts are a little more optimistic, predicting that marine carriers will post 1992 numbers pretty close to those for last year. Although the expectations range from a sober 1 percent to 2 percent, the general mood is distinctly hopeful.

"Next year, we're looking at even less growth, but it's still growth," says Sea-Land's Ramsay. "We're seeing some investment that is not entirely oil-related -- in areas like mining and fishing and the expansion of air-cargo facilities at the Anchorage airport -- and that is important to us. It represents more jobs, more households shipping goods, more general cargo to support that growth. Just a little bit of diversification helps us maintain stability, which is important for our long-term growth and positioning."

TOTE's McMillen says other hopeful signs can be seen in the amount of cargo that moved over the Anchorage dock in December, a normally slow time. "That market was up 15 percent over the previous December," McMillen says. He also cites the near-term expansion plans of large merchandise retailers in the Railbelt area -- such as Carrs Quality Centers, Fred Meyer, Costco and Pace -- as cause for cautious optimism for this year.

"These things are going to result in additional freight volume," McMillen adds. "We're hearing more talk about things that are going to be happening this summer than we heard last fall when we put out budget together. This could be just a lot of talk, or it could be real. We just don't know that yet."

Crowley's Simpson expects a stable year, with a couple of potential headaches on the horizon. "We're not projecting anything dramatic in '92," he says. "Continued flat is the expectation."

Simpson cautions that water carriers will continue to feel the pressure of variable fuel prices, the largest fixed cost for most companies and one of the most difficult to plan for, given volatile oil markets. "It's an issue every year. That whole scenario has been like a Ouija board evaluation," he says.

Other issues concerning managers of marine transportation firms include the impact of new environmental liability rules on water carriers -- even those not directly involved in transporting hazardous materials -- and the future of Alaska's oil fields. As a prominent carrier of goods to the North Slope, Crowley has been feeling the effects of industry uncertainty over future drilling activities.

"We'd like to have an answer to that, too. The oil companies are wondering what they can afford to invest. They used to be able to plan more in advance; they could predict more what the market conditions were going to be. Now it's sort of year to year," Simpson says. He notes that Crowley is still waiting to get information about shipments to Prudhoe for the next two years.

Beyond 1992, planners for most water carriers forecast a continuing competitive environment, some price increases to customers to reflect rising operating costs and no expansion in capacity, unless a large project receives the go-ahead.

Samson's Halko notes that such an environment motivates carriers to find ways to operate more efficiently. "Competitors are starting to combine various moves between each other, sharing loads via charter during peak periods to offset costs for both," he notes.

Bob Smith, Alaska sales manager for Alaska Cargo Transport Inc., a barge line based in Seattle, says, "Today, you have to be much more flexible about the service you provide. Price still has its place, but service plays a much bigger role. You have to be much more savvy putting together door-to-door packages. Margins have shrunk a bit, and they were always narrow."

Smith, too, sees no indicators of substantial growth in the waterborne commerce trade for the next two to five years. He says, "What lies beyond, we don't know."
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Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Article Type:Industry Overview
Date:Apr 1, 1992
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