Fuel Surcharge Under Scrutiny In Jones Act Trades

Implications: Tradewinds reported that Rhythm of Life Cosmetics has filed a "me too" law suit against Matson Navigation Company (Nasdaq:ALEX) citing the DOJ investigation into the Jones Act liner trades.  This is the first suit against Matson, whom does not participate in the Puerto Rico trade where most of the DOJ focus has been.

Analysis: While the DOJ seems mostly focused on the Puerto Rico trade, Matson disclosed that the company has been subpoenaed for documents at the same time as the raids on Horizon, Sea Star and Crowley.  Numerous law suits were filed by shippers following the DOJ raids, none of which cited allegations other than the DOJ search warrant indicated a smoking gun.

The Rhythm of Life Cosmetics suit goes further, and alleges a conspiracy to inflate fuel surcharges as a revenue enhancement tool.  Using unrelated statistical comparison, the lawsuit alleges that bunker fuel cost has increased 450% since 1999, while Matson's fuel surcharge has increased 3800%.

Outside of this self-serving comparison of two disparate measurements, the real-life calculations of BAF's are very complicated.  In Matson's case, there are a number of variables to take into account: different ships with different capacity and fuel consumption; multiple and variable trade routes; different average load factors; etc.  It is extremely complicated to come up with an "average" per TEU factor, especially in a volatile fuel price market such as we have seen.

Normally, complaints about fuel surcharge levels would be addressed to the Surface Transportation Board.  A quick check of the current levels against reasonable assumptions does not indicate to me that the current levels are obscenely out of line in the Hawaii trades.  The argument appears to revolve around Matson and Horizon typically moving in lock-step with adjustments.  Comparing the fleets in service, one would expect Horizon to require a large BAF than Matson.

In the end, I do not expect any significant result to emanate from investigations into fuel surcharge levels.