Posted on: Friday, September 29, 2000

Hawaiian Islands feel oil crunch

By John Duchemin

Advertiser Staff Writer

Times could be better for motor oil salesman Ron Kimura.

As the cost of imported crude oil has tripled since January 1999, Kimura, who distributes Pennzoil to Oahu businesses, has watched his profits dribble away. He has kept a lid on his prices but must soon increase them to survive.

"Believe me, all the local oil distributors have been eating a lot of the higher costs," says Kimura, whose clients include Longs Drugs, Daiei and Jiffy Lube. "Its been really hard for us to go through this."

It has been hard for others, too. As oil-dependent suppliers like Kimura are forced to raise their rates, the effects on Hawaii consumers are multiplying  and have yet to reach their peak.

Many key local companies already have increased their prices as refinery costs have risen from $10.16 per barrel (42 gallons) of imported crude oil in January 1999 to $32.88 per barrel for the week ended Sept. 22. Consumers already are paying more for plane tickets, electricity, shipping and gasoline.

But many of these prices will rise further as companies react to lags in the market. And the price increases will stick around, say observers in several affected industries. Not only are many Hawaii companies already locked into more expensive rate structures, but they will be reluctant to drop prices until they see proof that oil costs have truly fallen.

"We would hope we could get back to the low point of 1998, but we have no control over fuel prices," says Jeff Hull, spokesman for Matson Navigation Co., which in October will start a 4.25 percent fuel surcharge on all goods shipped to and from the Islands.

Airlines have the same problem. In the past 18 months, the price of jet fuel has nearly tripled from 40 cents a gallon to more than $1.10 a gallon. This has multimillion-dollar impacts on local airlines bottom lines.

Hawaiian Airlines pays about $1.5 million more a year for each extra penny of higher fuel costs, says Keoni Wagner, spokesman for the carrier. Aloha Airlines has seen monthly costs increase about $1.7 million, spokeswoman Stephanie Ackerman says.

To pay for it all, Hawaiian and Aloha each have levied $6 one-way fuel charges for interisland flights. Hawaiian charges $10 one way for its mainland flights; Aloha charges $9.30 one-way for its Oakland flights.

Why prices may stay high

The charges are not likely to go away soon. Thanks to stiff competition, airlines waited until January 2000 before instituting surcharges  about 10 months after oil prices started to rise. The same caution will keep prices up, Hawaiians Wagner says.

"You have to wait for a sustained period of price stability so you can predict your operating costs with some confidence," he said. "Just as it took some time for prices to rise to where they are now, itll perhaps take more time for prices to drop lower."

Even gas stations, which often reduce pump prices within a few days of oil price changes, are unlikely to slash their rates immediately if oil prices drop, a national observer says.

The hangup is profitability, says Jeff Spring, California-based spokesman for the American Automobile Association. Despite higher prices, gas stations nationwide are making less money: Theyre absorbing more of the increase than theyre passing on to consumers, Spring says.

"Retailers are getting squeezed pretty tight," Spring says. "They just cant sell for a profit right now."

As a result, gas stations have responded more slowly to drops in crude oil prices, Spring says. "Thats unfortunate, but its just a fact of the market," he says.

Honolulu gas stations were charging an average $1.89 per gallon in the month that ended Tuesday  the highest monthly average in the past year, according to a daily survey by the Oil Price Information Service. That price is about 5 cents, or 2.8 percent, higher than the previous month, and 47 cents, or 33.5 percent, higher than a year ago.

Feeling the bite

Hawaii consumers certainly feel the impact, says Charles Ridings, a security guard who commutes daily from his Makaha home to his Makiki job  more than 40 miles round trip.

"When gas prices go up 5 or 10 cents a gallon in two weeks, yeah, that takes a bite out of me," he says. Consumer electric bills also are taking a hit.

Higher costs passed along

Hawaiian Electric Co. is one of the states major consumers of oil: Electric power accounts for 30 percent of oil use in Hawaii, according to a 1997 state survey on energy use.

To help Hawaiian Electric pay for this huge consumption, the government lets the company pass fuel costs on to consumers. Monthly utility bills vary according to trends in oil prices: This month, the bill was $88.89 for a typical home using 600 kilowatt-hours, 19 percent higher than the bill in September 1998. "Were definitely seeing it in our household," says Remy Dumlao, manager of Kramers Big & Tall on Ward Avenue. "I just hope that prices go down in six months or so."

In the meantime, however, many local prices are likely to escalate further. Septembers power bills, for example, reflect August power use. The higher fuel costs of September will figure into next months utility bills, Hawaiian Electric vice president Chuck Freedman says.

Airline passengers also may feel more effects later, Alohas Ackerman says. Many tickets for flights today wont reflect surcharges, because many passengers buy tickets months in advance. Airlines thus must play catch-up to recover costs, Ackerman says.

"Airlines are always chasing their increased costs, so it takes a while to reverse that extra charge," she says.

The fuel surcharge for shipping also will increase. On Oct. 15, the states two major shipping companies, Matson and CSX Lines, will tack a 4.25 percent fuel fee onto their rates. One year ago, there was no surcharge. Since October 1999, however, the two companies have increased fuel surcharges four times.

And motor oil prices have not yet peaked, says Pennzoil distributor Kimura. Suppliers have given distributors a "buying window" of 30 days to purchase oil at a certain price level; when that window closes, prices may then increase, he says.

Once prices are up, they may not drop for quite a while, Kimura says: "Id assume it will take about three times as long for prices to go down as it took for them to rise."

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-- Carl Jenkins (Somewherepress@aol.com), September 29, 2000