How Significant is One Company?

It is not often that I write about a specific shipping company, however today I feel that this one is worth mentioning. There is more to this article than just one shipping company, there is a more important issue for people to think about. In a time where it is commonplace for companies to be "delisted" by the New York Stock Exchange (NYSE)  or the NASDAQ there is significance to the fact Horizon Lines was delisted from the NYSE.

What is it about Horizon that makes this so significant? The short answer is the Jones Act of 1920. Horizon lines is one of the largest Jones Act cargo carriers in business today. What the Jones Act does is restrict domestic cargo to U.S. manufactured, U.S. owned and U.S. crewed vessels for interstate cargo.

Horizon shares traded (at the time of writing this article) in the .24-.25 range, whereas in January, shares were trading at 52 week highs of 5.95. While I don’t believe this company is in serious trouble, its stock price has put its future in question.

If a foreign company were to come in and purchase this company, it would be one less Jones Act Carrier to become history. (Remember must be U.S. owned) This would mean, assets would be sold or moved and the remaining Jones Act Carriers would pick up the slack. Demand for shipping would go up, because there would be less supply. Prices would go up for shipping, and then eventually tacked on to the products each of us buys.

The government isn't helping either. Refer back to the blog article regarding the implementation of fuel usage fees on October 19, 2011. With the expansion of the definition of U.S. Waterways in the proposed fuel usage fees could in fact change the scope of the Jones Act.

The bottom lie is that if Horizon lines disappears from the list of Jones Act Carriers, it wouldn’t be the end of the shipping industry within the United States. However, there are many overlapping factors that get overlooked. If the operating costs are increased for carriers, companies that are struggling could be forced out of business. Because of the economic crisis, our elected officials are scratching their heads trying to uncover more funding. A fuel usage fee, or expansion of areas covered could give the government more funds to resolve the debt crisis. When a congressman, or senator or even the president says "this will provide millions if not billions" I submit that they have not researched the overarching effect to companies like Horizon who are struggling to come back from the last crisis caused by inappropriate legislation.

I'm thinking about this stuff, are you?

K.Swanson

Where are the Jobs?

In a recent Op-Ed piece for  The Wall Street Journal, Harold Ford Jr., wrote about several major projects which will provide several thousand jobs in various parts of the country.

 A brief listing of the projects he mentioned included:

• Two new build oil tankers in the Philadelphia Shipyard

• Alaska, 500 off-shore drilling leases to move forward

• New-York, Natural Gas drilling to commence after lifting Hydraulic Fracturing moratorium

• Ohio, new steel-mill to be built in  Youngstown

• Multi state pipeline project from  U.S. Gulf Coast to Canada

The main point that Mr. Ford was getting at in his Op-Ed is that thousands of jobs would be created if policies were lifted to allow it. These are real jobs being prevented from starting due to government red-tape.

 The politicians are continually posturing over how to fix the nations employment problem and in turn, fixing our economy.

I will say, that there are jobs out there. There are industries that are succeeding despite the downturn. Some of the jobs Mr. Ford  outlined in his comments are slightly more complicated than a simple "green light" from the Government. For instance, the Multi-state pipeline requires not only an "OK" from the EPA, but also from each of the states it passes through.

The fact that the two oil tanker builds in Philadelphia are pending is miraculous, considering Exxon could have taken the builds to Korea at half the cost. So in addition to authorizing these builds, I would suggest we take a hard look at how the Historic Philadelphia Shipyards received these contracts. Perhaps there's some value added element that has not been reported on yet, and other industries, who are losing jobs to Korea and China, could learn from.

There's a lot that can be done, and lifting government red-tape is only one step. We don’t necessarily support recent jobs bills, but we do believe that any jobs bill passed have elements that begin to lift regulations that hinder job creation.

(Mr. Ford, a former Democratic member of Congress from Tennessee, is a visiting professor at New York University.)

K. Swanson

New Fees for Inland Water Way Being Considered

As reported by Professional Mariner, Congress recently began considering an Inland Waterways Development Plan to improve the United States inland waterways transportation system and infrastructure over the next 20 years.

Agreed, the inland waterway system is in need of some major maintenance and upgrades, however the idea of another tax submitted under the radar of most media is a bit unsettling. The most troubling aspect, is that there have been numerous expenditures by the Federal Government earmarked for the "Nation's Infrastructure" that have funded projects such as wildlife repopulating, tunnels for turtles, beach erosion repair and countless others. The term "Shovel-ready" has been used a lot in the interest of political posturing with regards to the current unemployment situation.

I get the feeling that a six to nine cent increase per gallon of diesel assessed on commercial carriers may not seem like a big deal to a lot of people. I suggest we dissect what is happening here. First for every 1000 gallons of fuel sold to commercial carriers as a "user fee," this means a 90 dollar fee (tax). Commercial carriers use 10's of thousands of gallons of fuel per month. Next, they (the Government) is redefining the scope of what constitutes U.S. Waterways, more than doubling the covered area to include the Intercoastal Waterways (ICW). What's the big deal? The ICW commercial operators will now be assessed this fee, which means no matter the size of your boat, if you use it commercially you will pay this additional money.

The most important thing to remember about these fees charged to the commercial carriers are passed down to the end consumer. Costs of goods that are transported on the inland waterways as well as the intercoastal waterways will go up. Who's paying for the upgrades, not the commercial carrier, but the every American who struggles to pay for the goods they already buy.

I will end this by comparing this whole situation to the revision of banking regulations Early on, many critics said there would be unintended consequences. Two years later, everyone is up in arms about the fact banks are charging customers to use debit cards. (Most notably Bank of America.) I don't blame the banks, they are a business and are simply passing on the cost of operations to the consumers. Long story short, if you spend money on any product or service you will be contributing to this increased user fee for inland waterways and the expansion to cover the ICW.

K. Swanson

Mystery Bay Marine, LLC

Some Ethanol Tax Facts - the First of Many.

I was doing a little research for a upcoming blog article on Ethanol and found this little gem in wikipedia. Honestly, the accounting involved here made my head spin and forced me to try and find the answer to one monstrous mathematical word problem. The article is intended to be about how much Ethanol costs the average person. No one, that we've found anyway, has really explored how much it costs indirectly through repairs to older vehicles, outdoor power equipment and boaters. We're publishing this a little ahead of the article this research is intended - but I thought it was worth sharing. If there's an acountant out there who has the spare time to figure this little bit out, I personally would be grateful!

Since the 1980s, domestic ethanol producers have been protected by a 54 cent tariff on imports mainly intended to curb Brazilian sugarcane ethanol imports. Also, since 2004 blenders of transportation fuel have received a tax credit for each gallon of ethanol they mix with regular gasoline.^[60][61] Historically, the tariff has been intended to offset the federal tax credit that is applied to ethanol no matter its country of origin.^[62][63] However, several countries in the Caribbean Basin have been importing Brazilian ethanol, but not for domestic consumption, instead these countries reprocess the product, usually converting Brazilian hydrated ethanol into anhydrous ethanol, and then re-export it to the United States, gaining value-added and avoiding the 2.5% duty and the USD 0,54 per gallon tariff, thanks to the trade agreements and benefits granted by Caribbean Basin Initiative (CBI) and free trade agreements. This process is limited by a quota, set at 7% of U.S. ethanol consumption.^[64]
Currently, blenders receive a US$0.45 tax credit for each gallon of ethanol that is blended with gasoline, regardless of the feedstock; small producers receive an additional US$0.10 on the first 15 million gallons produced; and producers of cellulosic ethanol receive credits up to US$1.01. Tax credits to promote the production and consumption of biofuels date back to the 1970s, and the current credits are based on the Energy Policy Act of 2005, the Food, Conservation, and Energy Act of 2008, and the Energy Improvement and Extension Act of 2008, and the tax credit is due to expire on December 31, 2011.^[28] However, on June 16, 2011, the U.S. Congress approved an amendment to the economic development bill to repeal both the tax credit and the tariff on ethanol, but this bill has an uncertain future.^[60][61]
A 2010 study by the Congressional Budget Office (CBO) found that in fiscal year 2009 the biofuel tax credits reduced federal revenues by around US$6 billion, of which corn ethanol accounted for US$5.16 billion and cellulosic ethanol accounted for US$50 million. A 2010 study by the Environmental Working Group estimated that the cumulative ethanol subsidies between 2005 and 2009 were US$17 billion. Considering the levels of ethanol production mandated by the Energy Independence and Security Act of 2007 (EISA), the same study estimates that the total cost to taxpapers will be US$53.59 billion if these tax credits continue to be extended until 2015, when 15 billion gallons are required by EISA.^[65]
The CBO estimates that the costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for corn ethanol and $3.00 for cellulosic ethanol. In a similar way, and without considering potential indirect land use effects, the costs to taxpayers of reducing greenhouse gas emissions through tax credits are about $750 per metric ton of CO2-equivalent for ethanol and around $275 per metric ton for cellulosic ethanol.<sup>[28]

To see the original Wikepedia article please click here.

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Karl Swanson
Owner/Manager
Mystery Bay Marine, LLC</sup>