Rising fuel prices are once again boosting the cost of shipping goods to Hawaii just as consumers are adjusting to the shock of $4-a-gallon gasoline.
Matson Navigation Co. said it will raise its fuel surcharge on shipments from the mainland to 43.5 percent on May 1, the highest level since it broke out fuel costs as a separate item on customers’ bills more than 10 years ago.
The increase of 8.5 percentage points is the third this year for Matson, which said it is trying to keep pace with the rapidly rising price of the bunker fuel it uses in its ships.
Rising crude oil prices have also bumped up the price of gasoline in Hawaii, which hit $4 a gallon in early March for the first time since the fall of 2008.
The largest shipping company serving Hawaii sent a letter to its customers yesterday saying that when it announced its previous surcharge increase in February, fuel prices “had just begun to spike because of the unprecedented unrest in the Middle East.”
“Since then, the environment has failed to stabilize, causing the global fuel market to remain at near historic highs,” Dave Hoppes, Matson senior vice president wrote in the letter.
“Matson recognizes that fuel costs impact all businesses, as well as consumers. Unfortunately, transportation companies are especially hard hit, with fuel consumption an unavoidable and significant component of operating costs,” Hoppes said.
Matson’s parent, Alexander & Baldwin Inc., warned investors recently that it expected to post an operating loss in the first quarter because of the effects of higher fuel costs on Matson’s business.
Horizon Lines and Pasha Transport Lines, the other shipping companies serving Hawaii, have matched Matson’s fuel price adjustments in the past. As of yesterday they had not announced surcharge increases.
The price of bunker fuel started the year at $85.30 a barrel and has risen to past $111 since then, Matson said. Bunker fuel prices have risen faster over the past year than crude oil futures, which closed at $106.72 a barrel yesterday on the New York Mercantile Exchange, the highest since September 2008.
Matson’s latest increase means that for a container of produce with a base shipping rate of $4,592, the surcharge will rise by $391 on May 1 to $1,998.
Local food distributor Armstrong Produce said rising transportation costs, both for shipments it brings in from the West Coast and for local deliveries, have had a significant effect on their cost of doing business. The company is looking at ways to absorb a part of the increase internally through operational efficiencies, but some of the added cost “ultimately will reach the consumer,” said Tish Uehara, director of marketing for Armstrong.
“Fuel prices have been going up dramatically. It is a problem,” she said.
In addition to higher ocean freight charges, Armstrong also has been paying significantly more than it did last year for air freight, Uehara said.
Hardware retailer City Mill said the company has been careful about raising its prices to recover higher freight costs given Oahu’s competitive retail environment.
“Our success comes from the people of Hawaii, so we try to hold off price increases much as possible,” said Steven Ai, president of City Mill. “We’re like a shock absorber. We can’t pass along the cost immediately. But like anything else, if it (fuel costs) stays up over time, eventually it will be passed on.”
Ai added that with eight locations on Oahu, City Mill does a sufficient volume of business with ocean shipping companies to command “favorable rates.”
There is a silver lining to higher fuel surcharges for local farmers. Higher shipping costs for mainland produce can provide a competitive advantage to Hawaii farmers, whose goods don’t carry the same freight premium when they are sold locally.
“It does help in the short term,” said Dean Okimoto, owner and president of Nalo Farms in Waimanalo. “We’re more competitive with the fresh greens.”
But higher fuel costs boost other expenses for local farmers, particularly the cost of fertilizer, he said. “One of the keys for us will be to be to develop fertilizer locally,” he said.