Common Fare: An Example of "Blanket" Rates in Hawai'i Waterborne Trade

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INTRODUCTION

"Blanket" rates are rate structures that apply uniform rates to a geographical region in spite of differences in the costs of carrying the goods. They are generally proposed by carriers to achieve some strategic objective, whether rate simplification, to be more competitive, or to meet some political objectives. While blanket rates are common in land transportation, the Hawai'i waterborne trade offers a unique example of this pricing mechanism. Further, given new and potential competitive factors in this trade, shippers and the state government should be aware of the implications of both the existing situation and the potential impacts of impending changes. This is also a unique case study for those interested in transportation pricing and the economic impacts of changes in the competi-tive structure in an isolated market. Hawai'i is often described as the most isolated populated landmass. As such, there are numerous ways in which it is unique from other states, including the costs of getting goods and people between it and other locations. Hawai'i has only air and water transportation to connect it to the rest of the United States while other states also have access to rail, highway and pipeline transporta-tion. This isolation gives birth to unique cost and competitive structures and resulting pricing structures with resulting profound impact on both businesses and consumers.

New competitors are about to enter this market. The purpose of this paper is to provide an understanding of the structure to improve business' ability to compete and provide the state and county governments with a tool for addressing the new competitive and economic realities. It also provides students of trans-portation a unique insight into the reasons for, the consequences of, and potential impacts of change in, voluntary waterborne blanket rates: The Hawai'i Common Fare.

HAWAI'I'S UNIQUE SITUATION

Due to Hawai'i's location and its comparatively small population, most cargo to Hawai'i is shipped from the continental U.S. (i.e., the main-land). Even freight from foreign countries, like cars from Japan, are often shipped from Japan to the mainland, and then transshipped to Hawai'i on one of the American-flag carriers serving Hawai'i. This places Hawai'i in the unique position of: 1) being served by carriers in heavily regulated trades, 2) also having limited competition, and 3) virtually no competition from foreign-flag vessels. This gives rise to unique pricing structures and one such unique pricing mechanism is the Common Fare.

Hawai'i receives most of the goods it consumes from sources outside Hawai'i. The majority of the goods flowing to and from Hawai'i, as well as among the islands, are transported on water carriers, and the majority of the consumer goods are transported in containers. When fully As an aside, a Common Fare approach can apply to passengers and/or freight. Before U.S. airlines were deregulated in 1978, a passenger Common Fare structure existed between the mainland and Hawai'i ("For the Common Fare," 1960). However, since deregulation, this cellular containerships bring cargo from the mainland, all containers are unloaded from the vessel on O'ahu, where more than 70 percent of the population is located (US Census Bureau, 2000). Those destined for the Neighbor Islands are reloaded onto a barge and then shipped to the desired island. Consequently, the costs involved for Neighbor Island shipments are always more than the costs to simply ship the containers to O'ahu due to the additional loading and unloading and vessel movement costs. Nonetheless, the tariff (i.e., freight rate) for each container charged by the containership company is generally the same, no matter the desti-nation. (1) This pricing phenomenon is referred to as "Common Fare," "Common Rate" or "Standard Tariff" (henceforth referred to as "Common Fare"). This Common Fare pricing is unique in the United States for in no other state, including Alaska, are all containers transshipped on a particular origin-to-destination movement and the customer not charged for the additional movement and associated costs. …