My wife and myself are regular visitors to the Islands but we’re not your ordinary visitors or tourists. We spend most of our time on the back roads and streets learning how people live and how the Islands operate. The more we visit the more we enjoy your home and climate.
Being a business man myself I also spend time observing business, industry and economic development which leads me to the topic of this op ed: Artificially high prices and fraud in the price of goods.
I would like to start with the price of gas. Hawaii has some of the highest fuel prices in the country. Hawaiian fuel prices should not only be price competitive but could be some of the lowest in the country.
I’ve heard all of the usual excuses: the islands are to remote, they don’t use enough, shipping costs are to high, there is high demand.
I’d like to offer some thoughts. When gas is processed at any one refinery, no matter where it’s destination is, the refining costs at the plant are typically the same. Therefore the two factors driving the price are transportation (shipping) and supply/demand.
Let’s first look at transportation and shipping.
I personally live in the Midwest but the process is the same for most of the Continental United States. Gas is pumped through pipelines all across the country to large bulk plants and then trucked from 10 to 1000’s of miles to filling stations. In some cases gas is hauled direct from the refinery to filling stations with semi trucks.
Though pipeline transportation over the very long term is among the lower priced options, it is still cost 100’s of millions to build, maintain and operate. Accompany this with trucking costs (the highest price form of transportation) from the refinery or bulk plant and you have continental fuel prices.
Now let’s compare shipping costs. Ocean shipping is one of the lowest priced transportation costs in the world. Let me site some industry examples. I’m personally in the aggregate business where we crush rock and mine sand. Vulcan Materials who is the nations largest aggregate producer, does some mining in Mexico and ships the materials to South Florida where it is sold at competitive rates. Yes, production costs are somewhat less because of labor and less regulation but Vulcan attributes there greatest savings is the low cost of ocean shipping.
Martin Marietta is the second largest aggregate producer in the nation and they do some “close” over seas mining of a specialty product and ocean ship it to the United States. They claim they can ocean ship cheaper then they can truck material from a continental source only a short distance away, with both products going to the same coastal port yard in the United States.
There is also a sand and gravel producer on the coast of California who buys his product on the west coast of Canada and has it ocean shipped to the market vs. local production and trucking costs. This is able to be accomplished due to the very low cost of ocean shipping.
While on the island of Kauai two years ago I learned they used to have a dairy farm that produced milk for the Hawaiian Islands. A few years ago it closed and the reason I received was they could ocean ship milk to the Islands cheaper than produce it themselves.
Now let’s look at supply and demand. Supply is a large issue on a global scale so let’s concentrate on demand. When the holidays and travel is up so is demand and prices go up. The Hawaiian Islands are not Los Angles, Chicago or New York where demand is huge. The Islands are not the Continental United States where holiday travel drives up demand. The excuse can not go both ways. #1 It is a small market or #2 There is high demand. So just exactly why are fuel prices so high in Hawaii. Ocean shipping is very low cost and demand is not huge.
If ocean shipping was high cost, does there need to be a small refinery built in Hawaii to catch some foreign oil on its way to California and save 5,000 miles in freight costs?
If demand is so high or low in Hawaii, does there need to be a larger storage facility built to help control supply?
Iowa makes gas called ethanol, out of corn. An ethanol plant costs about $50 million. Does Hawaii need to turn all those abandon sugar cane fields into corn fields and build a ethanol plant?
Just why are fuel prices so high in Hawaii and when is someone going to do something about it. The fuel issue I’ve just wrote about applies to all other goods also. Grocery, hardware, appliances, lumber etc. Nearly everything Hawaii gets comes from California and the west coast via ocean shipping (low cost freight). There is no reason why Hawaiian prices are not only the same as the states but should be in some cases cheaper.
As a whole I don’t believe in government interference into private business, but when tackling artificial high prices and fraud, it will take an investigation by an entity as large as the state and federal government to do this crack down.
The statements I’ve made and the examples I’ve used are types and shadows and brief descriptions of articles read, real life experiences, observations and some research. This article is only the first step of a long journey to be traveled when the citizens of Hawaii get feed up with being over charged.
”’Terry Winn can be reached via email at”’ mailto:winncorp2@lisco.com