Tropical hikes shipping fees to V.I.

ST. THOMAS - Virgin Islanders may need to start bracing for even higher prices on store shelves as one of the territory's major shipping lines implemented a general rate increase Sunday.

Tropical Shipping announced the increase in an August press release.

"Due to the increasing cost of non fuel related operational expenses, our ability to sustain and invest in the service you have come to expect has been impacted," the statement reads.

A spokeswoman with the company refused to elaborate on what "non fuel related operational expenses" means or to provide other information relevant to the increase, including the company's original and new shipping rates.

According to the statement, effective Sunday, Tropical is implementing the following increases for all open-tariff and service contract rates for dry and refrigerated cargo:

- $12.50 per pallet

- $2.34 per barrel

- $0.16 per cubic foot

- $0.32 per cubic weight unit

- $125 for a 20-foot equipment shipment

- $250 for a 40-foot equipment shipment

- $281 for an equipment shipment over 40 feet

- $125 for vehicles under 700 cubic feet

- $6.25 for vehicles exceeding 700 cubic feet (ST/FT)

The increases apply to all shipments between the continental United States, Canada, the Virgin Islands and 16 other Caribbean islands.

The rate hike was announced two weeks after Tropical's parent company, AGL Resources, announced second-quarter earnings below their 2011 equivalents. Excluding expenses from the December 2011 merger in which AGL acquired Tropical, the company announced earnings per share of 30 cents in the second quarter of 2012 compared with 33 cents per share in the second quarter of 2011.

A press release issued at the time states the company's cargo shipping segment, which includes Tropical, posted a loss of $1 million in the second quarter of 2012 with a break-even level of earnings before interest and taxes year-to-date through June 30.

"Our midstream operations and cargo shipping segments continue to face challenging market conditions, though we are seeing modest signs of improvement in each," the statement reads.

Virgin Islanders will almost certainly feel the impact of the new rates in their pocketbooks, according to business owners familiar with the shipping industry.

"Obviously it's going to affect everybody in the territory," Tom Brunt, CEO of St. Thomas-based MSI Building Supplies, said. "When you raise freight rates, the cost of living goes up because we ship almost anything we consume into the territory."

Brunt said his company uses all three of the major shippers to the V.I. - Tropical, Crowley and Sea Star. Crowley and Sea Star had not responded to requests for comment on their rates as of Saturday.

Though Brunt described the shipping process as "very complex," he said a 1 percent increase in shipping rates will almost always translate into a 1 percent increase in the cost of goods for consumers.

"It's cumulative across the entire territory - food, construction materials, anything you want to ship in," he said. "It's a direct pass-through to the consumer."

He said shipping rates already have been on the rise in recent years because of higher fuel-related expenses. He added that companies and their customers are reluctant to publicly disclose their shipping rates because doing so could allow the shippers' competitors to undercut their prices and create conditions for a de facto monopoly in the industry.

The World Bank has estimated transportation and logistics costs account for 18 to 32 percent of a product's value in Latin America and the Caribbean, compared with about 9 percent elsewhere.

However, not all retailers in the territory will be directly affected by Tropical's new rates. Kim Freely, a spokeswoman for Sears Holding Corporation, the parent company of Kmart, said Kmart does not use Tropical Shipping.

"We supply some items locally and for other items we have our own shippers," Freely said.

But others are bracing for the trickle-down effect of the higher rates.

"The thing is that every time they go and raise prices, our suppliers raise prices, because that's where they get their containers from," said Sammy Zatar, a manager at E&M Grocery in Lerkenlund. "If they go up, if the shipping company goes up, everything's got to go up."

- Contact reporter Lou Mattei at 714-9124 or email lmattei@dailynews.vi.

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