The rising price of paradise
With fuel prices continuing to go up, the cost of living on Guam is higher than ever
By C.J. Urquico
Living on Guam comes with a premium. Everything costs more in paradise. Most basic commodities, including food items, consumed on Guam are shipped from off-shore sources. Given the rising cost of shipping, living on Guam is becoming a luxury.
A recent report by the National Association for Business Economics warned that inflation will further balloon in the coming months. The report found inflation ranks as a top concern for economists— more so for consumers.
Russia’s invasion of Ukraine sparked conditions for fuel prices to further surge. Guam is in a vulnerable position with fuel prices at the pump skyrocketing quickly and seemingly slow to come down when the price of oil in the world market drops.
On March 9, the price per gallon of regular unleaded gasoline on Guam spiked to $5.99. A day earlier, the price per barrel of petroleum rose to $123.70. The spike was triggered by the U.S. and UK declaring added sanctions against Russia, cutting off the country's oil trade further. Russia is the third top oil producer globally, after the U.S. and Saudi Arabia.
All the talk about renewable energy, electric cars, and carbon neutrality pivoted to energy security. Petroleum is the world's lifeblood.
Approximate monthly expenses for a two-person household:
Source: Guam Chamber of Commerce
Monthly rent for 85 m2 (900 sqft) furnished accommodation in expensive area: $2,551
Monthly rent for 85 m2 (900 Sqft) furnished accommodation in normal area: $1,815
Basic utilities (Heating, electricity, gas) for two people in 85m2 Flat: $418
Cable internet service: $76
Basic food: $14
Dining out/ entertainment: $49
The annual rate of inflation was reported at 7.9 percent in February, a 40-year-high in the U.S. mainland. However, on island, feels much higher.
The different types of fuel consumed in Guam are transported more than 2,900 miles from the oil refineries in Singapore, earning Singapore its nickname of "the undisputed oil hub in Asia."
"It takes eight to 10 days for a tanker to sail from Singapore to Guam barring any adverse weather and sea conditions on its journey," said Jimmy Tim Chau Hau, president of Mobil Oil Guam Inc.
Mobil Oil, which has been doing business on Guam for 72 years, supplies the Mobil service stations, commercial customers including the power companies, military, airlines, construction companies, hotels and other industries.
"Prices at the pump are influenced by the wholesale price of products that fluctuate according to many factors, including demand and supply, seasonal factors, storage and supply costs, and geopolitical situations,” Hau said. “Pump prices reflect the prevailing market conditions.”
He noted that transportation costs to supply fuel from the source to Guam are subject to many factors, including the type of vessel used, the quantity of products, supply and demand of vessels, fuel price, import and supply costs, distance traveled, demurrage and surveyor inspection fees, among others.
“Many of these factors have been affected by global supply chain demand and the pandemic. Once the product reaches Guam, it also may need to be delivered via tank trucks on the island to our customers and facilities. We would not comment on the absolute cost; however, it is significant," Hau added.
The government has launched an initiative to dole out a one-time payment of $300 to help alleviate the higher fuel costs to eligible Guam households. Applications to the Guam Prugråman Salåppe' Ayudon I Taotao Program (Prugråman Salåppe') are ongoing until April 15.
The price increases do not end at the gas stations. Food prices are spiraling as well. One may have second thoughts about eating out. But with the Guam Power Authority increasing rates, even staying home does not guarantee household savings.
"Oil prices have been steadily increasing since late December when the potential for a war in Eastern Europe became news. Since the war started, prices have rapidly increased much further,” said Bernadette Valencia, who has been appointed vice president for sales in Hawaii effective April 1.
Matson, Inc. is the primary shipping company serving Guam and Micronesia. In 2021, Guam's volume was 21,900 containers, higher than in previous years primarily due to the increased retail-related demand.
“Major indices have shown bunker prices increasing by as much as 50 percent since the end of last year. Although oil prices have gone up and down a lot recently – there's still a lot of volatility in global markets – our fuel prices remain substantially higher than last year,” Valencia said.
“The fuel surcharge we announced is designed to help recover some of these higher costs. But will likely not cover all of them," she added.
Beginning April 10, Matson was set to raise the fuel surcharge for its Guam/CNMI service from 39.5 percent to 47 percent. For Micronesia service, the fuel surcharge will increase from 43.5 percent to 51 percent.
“This will add approximately $300 to the cost of transporting each 40-foot container,” Valencia said. “When applied to the price per container, it amounts to a slight increase in the cost of each unit. It remains Matson's policy that we do not profit from fuel surcharges.”
She said Matson will watch the prices very closely and adjust the fuel surcharge accordingly. “While we provide a 30-day notice for increases, we pass along decreases as soon as possible,” Valencia added.
Throughout the pandemic and historic supply chain challenges in the past two years, Valencia said Matson managed to operate well. “While international carriers have canceled hundreds of voyages, particularly during the early stages of the pandemic, Matson has canceled only one voyage to Guam in the last two years,” she said.
“In addition, our operations have continued uninterrupted by the congestion problems affecting major U.S. ports because Matson has exclusive use terminals on the U.S. West Coast and in Hawaii. As a result, our service to Guam and Micronesia has remained steady and on schedule."
Transportation company Kloppenburg Enterprises, Inc. (KEI) feels the hit of higher fuel prices. KEI has buses running over 19 hours a day.
"We've slowly watched the price of fuel creep up over the last year after seeing it decline in 2020 as Covid began and everything came to a standstill,” said Brad Kloppenburg, KEI’s president and CEO.
“We've seen an accelerated increase in the last few months, so it has a noticeable impact,” he said. “Along with the direct cost of fuel, we see other costs rising as suppliers and other businesses adjust costs."
KEI provides transportation services for the elderly as part of the Division of Senior Citizens with the Department of Public Health and Services. It also provides service to workers and the military for bus charters. Before the pandemic, KEI’s Turtle Tours division transported visitors around the island. Unfortunately, much like all the tourism-related businesses in Guam, they've had to make a drastic adjustment.
"We are currently operating at about 60 percent of what we were in 2019 prior to Covid. As a result, all of our tourism-related activities have stopped, including the shopping bus shuttles we were operating," Kloppenburg said.
Engineering and technology company JMI-Edison switched to a proactive approach to energy conservation. "In our immediate policies, we re-read our fleet vehicle manuals, and on the vehicles that say lower octane will provide satisfactory fuel economy, we switched accordingly,” said John Ilao, JMI’s vice president.
“We implemented a 'keep it simple' driving strategy in weekly staff meetings. We remind team members to check tire pressure weekly and always curb aggressive driving and minimize idling when loading and unloading," Ilao said.
"When we built our corporate headquarters, we designed our building with insulated metal panels with a 2-inch foam core for its superior thermal properties,” Ilao said.
JMI has also installed a solar system on the roof of its facility to reduce the monthly power bill to only $15 a month. “To cool our warehouse, we installed the Powerfoil from Big Ass Fans, which is energy-efficient and spans 30 feet. The Powerfoil is known as a high-volume, low-speed fan. Even though their blades turn more slowly than smaller fans, they're capable of circulating a much higher air volume," he added.
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JMI is also exploring other areas where it can get potential cost-savings without impacting any of its current services. “Passing along the cost is something that we may potentially have to do,” Ilao said.
Kloppenberg keeps his fingers crossed. “Hopefully, there will be an easing of fuel prices globally,” he said. “However, it doesn't seem likely in the near term. We will look at ways to offset costs in other areas before determining if a price increase for our services is needed."
For his part, Hua noted the external factors influencing his company’s prices. "Recent geopolitical events, the global pandemic, and market conditions have caused increased volatility in global crude oil and petroleum product prices,” he said. “Mobil has and will continue to leverage our strong regional supply networks to deliver a reliable supply of fuels to our customers in Guam and the CNMI to meet local fuel requirements."
The ongoing war in Ukraine will continue to strain the global economy. Guam may not be anywhere near Europe, but the conflict's effects are felt everywhere. Should the conflict continue, the resilience of the people of Guam will surely help the island prevail.