Homer Alaska - Business

Story last updated at 8:47 PM on Wednesday, March 23, 2011

Fear over Mideast unrest raises fuel prices in Alaska even more

By Sean Manget
Morris News Service - alaska

Transportation officials in Alaska and elsewhere are watching closely to see what happens to fuel prices as the unrest in the Middle East continues.

According to some transportation entities in the state, panic over what might happen to supplies overseas is already hitting home in the form of higher fuel prices.

The cost of the low-grade bunker fuel used in Totem Ocean Trailer Express's marine vessels has increased by 30 percent since the beginning of the year, said David Kilbourn, the company's vice president of pricing and operations.

The liner's vessels fuel up at the Port of Tacoma before heading to Anchorage, he said.

Since September 2010, the price per-barrel has increased 50 percent, from $70 to $105, he said.

This has been coupled with a dramatic increase in the price of crude oil in the state. In January, economists at Northern Economics said they were skeptical that the price would remain at roughly $90 per barrel through the year. However, as of March 14, the price of North Slope oil had risen to more than $113 per barrel.

"(The price of bunker fuel is) almost a one-to-one correlation with the cost of oil," Kilbourn said.

The ocean liner raised its fuel surcharge, the amount charged to account for the price of fuel. At the start of 2011, the surcharge was 23.5 percent, he said. As of March 10, it had risen to 28 percent, and would likely rise before this article went to print, Kilbourn said.

"Obviously, we're having a lot of conversations about this today as we talk. In other words, it's going to go up again. The question is, what do we do?" Kilbourn said.

Totem and ocean carrier Horizon Lines collectively bring most of the goods consumed throughout the state from Tacoma to the Port of Anchorage.

Horizon Lines has similarly announced fuel surcharge hikes. According to its website, it raised surcharges in its Alaska-related operations from 26 percent to 28 percent, effective March 13.

And, as fuel prices increase, the cost of shipping anything — be it a pallet of groceries or a car — goes up.

Representatives of Fred Meyer parent company Kroger, as well as that of Carrs Safeway, did not return phone calls for comment before press time on how the hikes are affecting their prices, if at all.

Air carriers nationwide have been raising airfares to account for rising jet fuel costs, according to media reports, and local regional carriers are no exception.

Bob Hajdukovich, CEO of the parent company that owns the four air carriers that harbor the Era Alaska brand, said the airlines are charging a 12.5 percent fuel surcharge.

This surcharge came about a few weeks ago, Hajdukovich said. Previously, there was no surcharge, but the carriers are having to offset $3 million to $5 million in fuel costs this year, he said.

Normally, a gradual increase in the fuel price would warrant slightly increased airfares as opposed to the surcharge, Hajdukovich said. He said airfare is increasing in some areas of the carriers' operations but not across the board.

Potentially compounding fuel price volatility are differences in the way Era Alaska buys its fuel versus methods employed by larger airlines, Hajdukovich said. Some national and international airlines hedge prices, meaning they work out a contract where prices are set for a period of time.

Era Alaska carriers don't do that, Hajdukovich said. Large national and international carriers can do this because they have large amounts of excess capital to throw around, he said.

In an interview, Hajdukovich voiced frustration over the causes of the fuel price increase.

"It's not a supply-and-demand issue. That's the most frustrating thing for us as an industry," Hajdukovich said. "We're tied to world trends. Those ... countries don't represent significant supply issues for the current world market. So when you add the instability to a perception that the U.S. economy is improving, then you get two speculative actions happening."

People are driving their cars more often due to that perception, he said, raising demand for oil. That demand is coupled with the perception that supply is about to tank, raising prices, he said.

In an interview with the Peninsula Clarion, University of Alaska Anchorage economics professor Scott Goldsmith echoed that idea.

"It's not necessarily that there's a shortage of crude oil, but the perception there might be in the future, and it raises it for the moment," he said.

Even at the consumer level, gasoline prices have been rising statewide. According to the AAA Daily Fuel Gauge Report, the average cost of regular gas in Alaska was $4 per gallon March 23. A month prior, it cost $3.59 a gallon.

Gordon Forsyth, a spokesman for Horizon Lines, said costs incurred by transportation entities affect everybody.

"Clearly, fuel prices are increasing worldwide. As that cost increases, our costs increase and those costs spread throughout the entire supply chain," he said.

Sean Manget is a reporter for the Alaska Journal of Commerce.