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Matson to hike
freight rates 3.5%

The cargo carrier cites
increased labor costs and
investments; CSX yet to respond

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By Russ Lynch
Star-Bulletin

Matson Navigation Co. said today it plans to raise its West Coast-Hawaii freight rate by 3.5 percent starting Feb. 14.

The hike is needed to cover wage increases for its union-member employees in Hawaii and on the mainland and to support ongoing investments in its fleet and other equipment, the shipping line said.

Officials of competitor CSX Lines could not be reached today for comment on whether CSX will match the Matson hike. Competition usually keeps the rates of both lines close to each other.

Matson filed its rate-hike plan with the federal Surface Transportation Board and it will automatically go into effect in February unless its successfully challenged.

Matson and CSX (formerly Sea-Land Service) both raised their basic freight rates in February by 3.9 percent increase, citing labor and investment costs. The two companies had a 2.5 percent increase in February 1999 but did not raise rates in 1998.

The two lines also already have a 4.25 percent fuel surcharge in place. They began tacking extra fuel charges on to freight bills in October 1999, when oil costs were soaring.

If that surcharge is still there when the new rate increase goes into effect, freight to the islands next spring will cost nearly 12 percent more than it did in the summer of 1999.

The fuel charge is a separate item that directly reflects changes in the cost of the fuel for their ships, the shipping lines say, and can come down if oil costs move lower.

Matson said it needs the latest basic freight rate increase largely because it has to cover an 8 percent increase in wages though the life of the current three-year union contract with the International Longshore & Warehouse Union, as well as double-digit increases in benefits and pensions.

It also needs to cover the cost of capital for investments that include $32 million for improvements at the company's Honolulu terminal at Sand Island, $22 million for new containers, $15 million to improve the fleet, and $8 million for information technology, Matson said.

The shipping line also added two ships this year, bringing the mainland-Hawaii freight service to eight sailings a week. Matson had cut back to six sailings a week in 1998.

Jeff Hull, a Matson spokesman in San Francisco, said the rate increase will apply to most commodities but not to one-time personal shipments, such as hauling an automobile between the islands and the mainland.

Hull said the 3.5 percent rise would add 2 cents to the cost of bringing a 20-pound bag of rice to the islands, which now costs 63 cents to ship.

The overall impact on the cost of living in Hawaii will depend on how much of the increase is passed on to consumers, something that is not always easy to do in a competitive environment.

Honolulu food wholesaler Y. Hata & Co., said that ultimately cost increases do get passed along, but often it is not an immediate effect.

"Many times we simply can't pass it on and have to absorb it, and that's the reality of doing business in Hawaii," said Larry Vogel, Y. Hata president.

Sheryl Toda, a spokeswoman for Foodland Super Market Ltd., said the grocery chain has not seen increased costs this year as a result of higher freight rates.

C. Bradley Mulholland, Matson president and chief executive officer, said Matson is encouraged by the positive trends it has seen in the Hawaii economy. "We nevertheless continue to experience increases in operating costs," he said.

The shipping line is the major subsidiary of Honolulu-based Alexander & Baldwin Inc. and has been bringing the company higher profits this year. Matson had an operating profit of $73.9 million in the first nine months of this year, up 12.8 percent from an operating profit of $65.5 million in the equivalent period of 1999.

A&B spokesman John Kelley said today that interest costs are not deducted from the operating numbers and Matson has significant interest expenses. Taxes are also not deducted from the operating figures, he noted.