Page 17: of Maritime Logistics Professional Magazine (Q3 2012)

price of yard work can be seen from variations in newbuild vessel prices. The cost of a newbuild ?Aframax? tanker in an Asian yard was estimated variously by brokers at around $60 million at roughly the same time that reports pegged the price tag of two SeaRiver vessels to be built in a leading U.S. yard at around $200 million, each. The cost of a foreign built Afra- max is now estimated to be under $50 million. Exact capital budgets are closely guarded (note the Coast Guard?s wording in their denial: ? ... virtually all applicants consider the information submitted to the Coast Guard in con- nection with requests for foreign rebuild determinations to be highly proprietary? ), but planners likely evaluated the capital cost savings against the incremental cost of positioning the vessels to Asia. This would include the not-so-insigni cant extra round trip transit time on the order of six to seven weeks (compared to repositioning into a U.S. yard) that would also give rise to additional fuel costs, Canal transit expenses (each Panama transit could be on the order of USD $150,000 to $200,000), as well as the out of service time. However, in the planners? calculus, these costs were outweighed by the capital cost savings, where the price tag on domestic work would be at a multiple of that done in a Chinese yard. Analysis: And a Look Ahead ? Horizon Lines has been through a massive balance sheet restructuring. After dodging numerous  nancial bullets, man- agement of cash  ows is crucial. Earlier this year, it announced that it had agreed with debt- holders, and with Ship Finance Limited, on the elimination of $188.4 million, net, of debt. Its CFO, Michael T. Avara, had said: ?The signi cant deleveraging resulting from these transactions greatly improves the Company?s cash  ow and li- quidity, allowing for greater  nancial  exibility and stability.? Careful navigation around the ?Second Proviso? will be im- perative in Horizon Lines? quest for smoother sailing as the carrier performs work that includes modi cation of holds and hatches for carrying both conventional and reefer boxes. Looking beyond things like cell guides and brackets, the strategy here points to the broader issue ? work in domestic yards costs substantially more than doing work in foreign yards, even after not-insubstantial positioning and reposition- ing costs are considered. In these tough economic times, other Jones Act owners will likely be looking closely at how Hori- zon Lines fares. www.maritimeprofessional.com I Maritime Professional I 17MP #3 1-17.indd 17MP #3 1-17.indd 178/14/2012 5:05:02 PM8/14/2012 5:05:02 PM