Matson raises fuel
fee by 9.5%

Other shippers are likely to follow
suit as oil prices keep rising

In a move that will increase costs for many goods shipped to the islands, Matson Navigation Co. said yesterday it will raise its Hawaii service fuel surcharge 9.5 percent.

The company cited a 30 percent increase in bunker fuel prices during the past three months in announcing the decision to boost the fee to 11.5 percent from 10.5 percent of the total shipment cost.

Jeff Hull, a Matson spokesman, said average West Coast bunker fuel prices have jumped from $32.54 a barrel in February to $42.17 a barrel in May.

Hull said the impact of the most recent surcharge increase would be relatively minor on goods shipped to the islands. The price to transport a can of beer, for example, would be an additional half-cent, Hull said, while a 20-pound bag of rice would cost about seven-tenths of a cent.

"While we continue to invest in modern, fuel-efficient vessels that help reduce our overall fuel consumption, the impact of fuel prices on Matson's business remains a cost factor we cannot simply absorb," said Dave Hoppes, vice president of ocean services for Matson.

Matson's announcement could serve as a harbinger of increases by other ocean shippers, which typically follow each other in raising the surcharges that pass part of fuel cost increases to customers.

Brian Taylor, vice president and general manager for Horizon Lines Inc.'s Hawaii and Guam operations, said "we'll have to wait and see" whether Horizon will follow suit. But he added that Horizon has seen fuel prices rise 16 percent in the past two weeks alone.

"We're obviously facing enormous pressure," Taylor said. "It's certainly not something we're happy about."

Rising fuel prices have a significant impact on the shipping companies that import to the islands everything from food to building materials to cars. Fuel costs are the single largest variable expense for a company like Horizon, Taylor said.

Horizon's vessels gulp 1.7 to 2 barrels of fuel per mile, Taylor said. That adds up to as much as 4,800 barrels on a one-way trip from the mainland. Taylor said the company spends $120 million annually on petroleum-based bunker fuel.

Compounding the effects of the fuel prices for companies is a crude-oil price that simply will not decline. The spot price of oil has been stuck well above $40 a barrel for almost a year, and averaged more than $54 a barrel for the three months ended in May. In this environment, companies such as Matson have been reluctant to buy large hedge positions that would protect against further price increases, Taylor said.

"Everybody's been holding off on hedging so as not to get caught at the top" of the market, he said. "The expectation or hope was we'd see the prices reduce a little, but they just haven't."