It is the shipping line's largest
rate increase in a decade, brought
about, it says, by
labor costs

By Russ Lynch
Star-Bulletin

Matson Navigation Co. announced today a 3.9 percent across-the-board increase in its West Coast-Hawaii freight rates, the shipping line's largest rate hike in over a decade.

Matson said the increase, which goes into effect Feb. 14, is needed because new waterfront labor contracts in Hawaii and on the West Coast will raise its costs considerably, as will major investments in equipment.

Officials of competing CSX Lines, which operates the Sea-Land service, were not available for comment. Sea-Land, which faces similar business costs as Matson, usually matches the rate changes of Matson, which has the bigger West Coast-Hawaii market share.

Matson's last rate increase, 2.5 percent, was in February and the shipping line tacked an additional 1.75 percent on its rates in October as a surcharge to cover higher fuel costs. The fuel surcharge is a direct pass-along of costs and varies when fuel costs change.

Higher shipping rates affect all Hawaii consumers since roughly 90 percent of the goods imported into the islands come by ship.

This year has been difficult for Matson, said the shipping line's president and chief executive officer, C. Bradley Mulholland. He said the biggest problem was work disruptions associated with labor contract talks with the International Longshore & Warehouse Union.

"Matson's work disruption costs in the third and fourth quarters of the year were in excess of $5.3 million and we know our customers also suffered," Mulholland said.

He said the company needs to restore top-level service and make operations more efficient at the same time. "Without this dual focus, Matson will not be viable over the long term," he said in a statement from the company's San Francisco headquarters.

The new Hawaii ILWU contract, which was ratified earlier this month and effective retroactively from July 1, included a nearly 8 percent wage increase over the next three years, as well as significant hikes in pension and benefit costs. Shipping lines agreed to a similar contract for West Coast dockworkers in the summer.

Matson also cited capital expenditures of $30 million on container equipment, $13 million on information technology, $13 million in fleet improvements and $1.3 million to improve its terminal facilities at Sand Island.

Matson filed the latest rate hike with the national Surface Transportation Board today. Unless there are significant protests, increases below 7 percent are routinely approved by the board.

Despite its difficulties this year, Matson had a 35 percent increase in its third-quarter operating profit compared with the 1998 July-September period. But the company noted that the previous year's results were unusually low.

Its parent company, Honolulu-based Alexander & Baldwin Inc., has said the overall return on its investment in Matson is still not adequate and Matson has to reduce its operating costs.

Hawaii businesses and consumers had another increase in their shipping costs earlier this year when other shipping lines raised Asia-Hawaii-West Coast rates almost 50 percent in May. Matson and Sea-Land are not in the Asia trade.

Matson's biggest increases in the recent past were 3.8 percent hikes in 1991 and 1995. The shipping line had no increase for 1998.