When you’re shipping freight to Hawaii, most businesses adopt one of two approaches:
- Send everything to a central warehouse in Oahu and distribute inventory to neighboring islands from there.
- Leverage direct service to send cargo straight to Maui, the Big Island and Kauai, without going through Oahu.
After nearly 15 years of experience with Hawaii freight, our team has discovered that the second approach, direct service, can save companies up to 25% on their Hawaii freight costs. If you’re not already using direct service, now might be the right time to reassess your supply chain and create a new efficiency that can directly impact your bottom line. Additionally, with the recent approval of Young Brothers’ requested rate increase, rates on interisland cargo are expected to rise. This makes it an even more important time to evaluate your supply chain to uncover potential new optimizations.
Want to understand more about how direct service can save you money on your Hawaii freight? Read on, and we’ll walk you through the three major factors at play.
Understanding the True Costs of Hawaii Freight
Evaluating the effectiveness of your supply chain can feel like a daunting task. Especially for larger companies, the number of pieces, players, and touchpoints can feel overwhelming. However, even if you start with small, incremental changes, you can create significant impacts. Moving to direct service to Hawaii is one of these small (but key!) changes that can impact your Hawaii supply chain in three areas. Here’s why:
1. Fewer Taxes and Lower Costs
Shipping freight intrastate in Hawaii comes with some unique costs.
First and foremost, ocean freight moving interisland is subject to more taxes than those sent from the mainland. This means that if your current solution routes goods through a central warehousing hub in Honolulu, you are probably paying more than you should for Hawaii freight. The Hawaii State General Excise Tax varies depending on the island. However, you can expect to pay around 4.5% more for intrastate freight than you would for goods originating on the mainland. Take a look at this break down of the specific tax rates for each of the islands of Hawaii to see how much more you are paying.
In addition to this extra tax, you’ll be paying more on your ocean freight rates than you would for direct service. The Hawaii Public Utilities Commission (PUC) regulates the prices for the barge service between islands. These charges change depending on the destination island, and, as we mentioned, rates are on the rise. If you ship and store on Honolulu before delivering to Kauai, Maui or the Big Island, you’ll be paying for an extra leg of transportation. However, if you choose direct service, you’ll still pay a flat ocean rate from your freight provider, no matter where your goods are going in Hawaii. This way, you won’t have to shell out to move your goods to neighbor islands, creating immediate cost savings.
Ultimately, these savings you’ll uncover, due to lower taxes and rates, can reduce your costs by as much as 25 %. While your results may vary depending on your volume, companies of just about every size can benefit financially, tax-wise and rate-wise, from direct service to the neighbor islands of Hawaii.
Direct service also comes with another significant benefit: a lower possibility of damaged or lost goods.
2. Less Handling and More Security
In our on-demand world, it’s easy to forget just how far Hawaii is from the mainland. Depending on the origin and final destination, your freight will likely move at least 2,500 miles, both over ocean and road, to get to its final destination. That’s thousands of ocean and road miles with potential bad weather, choppy seas, speed bumps, and potholes, which can result in damages and potentially rough handling.
Direct service, however, can reduce the amount of handling your goods are subjected to. When you choose direct service, your freight travels directly to the neighbor island it’s intended for, rather than making a stop through the Port of Honolulu, then a trip to your warehouse, then back to the port and onto an interisland barge. By removing the extra touchpoints of drayage, loading and warehousing, direct service means less mileage, fewer transfer points and less opportunity for lumps, bumps and accidents.
After all, each additional handler compounds the possibility of damage to your product. Even the best transportation service providers have off- days, which can mean money out of your pocket. While most cargo arrives unscathed, cutting down on the touchpoints helps reduce the risk of loss. And fewer moments for potential damages means fewer claims and lost revenue, all of which can offer a huge boost to your bottom line.
Finally, as with most supply chains, one small change can create a ripple effect, which leads us to our final major benefit around direct service for your Hawaii freight.
3. Savings in Warehousing and Transportation Expenses
Just this one simple alteration—moving to direct service—can have a waterfall effect on your supply chain. Deliveries straight to neighbor islands means new efficiencies: Instead of paying for drayage from the Port of Honolulu to your warehouse, then back to the port, then from the neighbor island port to the final destination, you’ll only pay for drayage once, for delivery on the neighbor island. This also means that you’ll need fewer drivers—and you’ll need to schedule fewer deliveries and pickups. In addition to lowering transportation costs, this also simplifies a major part of your supply chain.
Direct service also means fewer warehouse expenses. Physical space in Hawaii is both hard to come by and costly, with prices for space almost four times the mainland rate. If you’re selling high-margin goods like luxury items and high-value products, you may be able to absorb these costs. However, at the end of the day, higher expenses mean tighter margins in a market that’s already expensive to work in, so any savings you can create can deliver some well-needed breathing room for your bottom line.
Finally, direct service can also help you get goods on the shelf faster.
On average, direct service allows you to save four to five days of transit time. In addition to helping you put your goods out for sale faster, the shorter transit time also makes it easier for you to restock quickly in order to meet your customers’ demands—key for a local brick-and-mortar establishment who’s competing with online options.
You’ve Got Options When It Comes to Hawaii Freight
Perhaps because Hawaii’s high cost of living and high cost of doing business are well known, adjustments in this lane often get overlooked. However, working with an experienced expert to evaluate your supply chain can often mean a considerable increase in efficiency and a nice bump in margins. Even when you implement a small win, such as switching to direct service, you can deliver a quick boost to your bottom line, improving the overall health of your business. Then, once that improvement is in place, you will find yourself freed up to continue eliminating other pain points in your supply chain, improving its efficiency and ensuring the long-term future of your business.
If you’d like to discuss how direct service to Hawaii can improve your supply chain, contact our team today here!
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