High oil prices seen to drive cost of basic goods up

Although increasing prices of petroleum products remain confined in gas pumps, airline tickets and transportation costs, their effects will soon translate to further contraction of the CNMI economy in terms of higher commodity prices.

Northern Marianas distributors of items imported from the mainland United States and other countries are starting to feel the pinch of skyrocketing oil prices, reporting a sharp increase in the cost of moving the commodities from off and within the island.

If oil prices stay high for months, the impact could grow as consumers pay more for basic commodities.

Pacific Trading Co. Ltd., one of the Commonwealth’s largest distributors of imported goods, noted a significant increase in the transportation of its imports from the Saipan port to the warehouse.

Pacific Trading is the local distributor of Miller beers, Pepsi and Kraft products, liquors and cigarettes.

According to Pacific Trading beverage brand manager Charles V. Cepeda, local wholesale businesses have started coughing up higher budget for the forwarding of the imported items from the point of origin to Saipan ports, and from the harbor to the warehouse.

Higher fuel costs for transporting products will eventually prompt wholesalers to raise delivery charges. Exporting companies are also expected to consider raising their destination charge for shipment of products.

“There is an increase in transportation costs in the delivery of the items from the port to our warehouse, and from there to various local stores and supermarkets,” Mr. Cepeda said.

Pacific Trading estimates the increase in transportation cost to reach 6 percent since the first round of oil price hike was effected last month.

Mr. Cepeda projects that wholesalers may soon pass on the added cost to retailers. End-consumers will eventually be burdened to carry the additional expense through increased shelf prices of commodities.

At present, local wholesalers like the Pacific Trading are taking steps to avoid passing on the additional transportation cost to retailers in order to block any increase in the mark-up prices of imported commodities.

“We are cutting back on promotions and similar expenses to avoid passing on the additional costs to retailers and consumers. At the moment, there is no increase because businesses are trying to absorb the added costs,” Mr. Cepeda said in an interview.

However, continued increase in both world and local prices of petroleum products will eventually force distributors to adjust the prices of the items they sell to retailers in order to at least break-even.

“With the way things are going, the rounds of oil price increase are affecting a lot of businesses worldwide. If the situation continues, I think we would start seeing increased shelf prices of imported goods,” Mr. Cepeda said.

He added that Pacific Trading has recorded a sudden drop in returns since the company is presently subsidizing the additional expense in transporting the imported items it distributes locally.

Oil companies in the Northern Marianas have increased pump prices of petroleum products two times in February citing rising fuel prices in both global and regional markets.

Economists are predicting that oil prices will remain high for months due to the depletion of oil inventories by the world’s richest countries to the lowest levels in four years.

World output of oil increased in February by a slight 0.3 percent to 75 million barrels per day. Reports claim that drastic reductions in oil inventories in the U.S., Europe and Japan created a shortfall in global petroleum supplies of about 2.5 million barrel per day.

When consumer demand historically rises during the second half of 2000, business analysts expect the shortfall for gas and home heating oil to widen.