Rising fuel costs hurt shippers, businesses
By Kelly Yamanouchi
Advertiser Staff Writer
Rising fuel costs are weighing heavily on shippers and businesses that depend on air and ocean shipping to transport goods.
It's a cost that many businesses say could lead eventually to higher prices for shipped goods, from Spam to steel rebar.
"The end result is the consumer ends up paying more," said Eric Tanouye, president of the Hawai'i Florists and Shippers Association, whose members pay higher fuel surcharges for air, land and ocean shipping.
But for some businesses, it's difficult to pass on the costs because of competition and economic uncertainty.
"We haven't been very successful in increasing prices and passing on the costs," said Tanouye, who is also vice president of Green Point Nurseries in Hilo, Hawai'i. "There is a ceiling on what people will pay."
For many businesses like Tanouye's, absorbing the increasing fuel costs has meant more belt-tightening and thinner margins.
Crude oil prices have increased from about $17 per barrel at the beginning of 2002 to $35.38 a barrel on Friday. The prices fell slightly last week as the Bush administration said it would allow more time to consider a U.N. agreement on disarming Iraq. But short-term prospects for price relief remain cloudy.
Some major providers of air and ocean shipping have raised their surcharges on cargo shipments. Aloha Airlines will increase its fuel and security surcharge by 1 cent to 6 cents per pound as of April 1, according to a letter sent to cargo customers.
The increase is largely because of aviation fuel costs that have risen more than 25 percent since mid-2002. A gallon of fuel has risen from about 57 cents a year ago to about $1.02 a gallon today.
And the prices may not have peaked. "With the current Middle East uncertainty, aviation fuel cost quite possibly will rise further in the near term," Aloha told its customers.
Hawaiian Airlines, which has a fuel surcharge of 3 cents for interisland cargo and 4 cents for trans-Pacific cargo, has not decided yet whether to increase its surcharge.
Horizon Lines, formerly CSX, and Matson Navigation Co. both raised their fuel surcharge on cargo shipments to Hawai'i from 6 percent to 7.5 percent. The companies said the surcharge only covers a portion of the rise in fuel costs.
Each rise of a $1 per barrel equates to an additional $1.8 million in costs per year, according to Matson.
As is the case with companies that ship by air, businesses that rely on ocean-shipped goods may need to brace for even higher costs down the road.
"We're holding off on doing anything further at the moment but we're obviously evaluating it on a week-to-week basis," said Horizon spokesman Brian Taylor. "Fuel is a tremendous cost-driver."
Ronald Williams, chief executive of Atlantis Adventures, said that although fuel makes up a small percentage of his expenses, it continues to add to the cost of doing business.
Atlantis pays more than $115,000 for fuel in a year to operate six vessels, including the Navatek dinner cruise ship. A 15 percent rise in fuel prices would cost $15,000 more annually.
"It'd be very difficult to pass on costs at this moment," Williams said. "I don't think the market can bear it" because of competition.
FedEx Freight, another service used for large shipments, has a fuel surcharge that increases along with U.S. diesel fuel prices.
"Every month the fuel surcharge goes up," said Bob Raley, transportation chairman for the Hawai'i Florists and Shippers and owner of Volcano Isle Tropicals and Coffee in Mountain View on the Big Island. "We're looking at almost every month nibbling away a little bit more at our profit."
Raley said some businesses are already raising their prices and eventually he will have to do the same.
"So that means that, OK, now I'm going to maybe not sell as many flowers. We're caught in between this whole situation," he said. "I don't think we're through seeing gas prices going up."
Reach Kelly Yamanouchi at 535-2470, or kyamanouchi@honoluluadvertiser.com.
