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PACIFIC BUSINESS NEWS ARTICLE

Playing the export game

Hawaii is a tiny part of the global exporting industry, but more companies are connecting to international markets

Bill Cresenzo
Reporter- Pacific Business News

Hawaii companies are looking westward as they try to sell their products to the rest of the world.

The power of the Internet is helping more small businesses connect with international markets, particularly in Asia and Australia. But the high cost of shipping is a tough barrier to overcome.

Hawaii exports of goods and merchandise were a $598 million business in 2013, according to the U.S. Census Bureau. That makes the state pretty much a non player in the nation’s export industry, representing less than 0.1 percent of total exports.

And that number is “significantly flawed,” according to John Holman, director of the Hawaii Export Assistance Center.

The problem, Holman says, is that the Census Bureau counts such things as airplane and helicopter parts as Hawaii exports.

“Products that pass through Hawaii from the Mainland to international destinations are erroneously counted as Hawaii exports,” he told PBN in an email. “If Boeing sells 10 airplanes to China, and they stop in Hawaii for refueling, these are counted as Hawaii exports. From past analysis, we know the airplane parts, oil and petroleum products, scrap metal, and automobiles are not Hawaii exports.”

Rather, he said, the state’s top manufactured foreign exports are prawns, bottled water, coffee, macadamia nuts and papaya.

And its top foreign export customers are in Australia, Singapore, China, Japan and Korea, he said.

However they are measured, Hawaii exports took an 18.3 percent drop in dollar volume between 2012 and 2013, the Census Bureau said. They had surged to $884 million in 2011 from $684 million in 2010, then dropped to $732 million in 2012 and $598 million last year.

Growing confidence

The numbers may be masking a trend, however. Holman says many local businesses are feeling more confident about pursuing international markets.

“They may have better cash flow or access to capital than during the depths of the recession,” he said. “More small businesses are getting into exporting through e-commerce, selling their products to international customers through their websites. The Korea-U.S. Free Trade Agreement has opened up that market in a big way for U.S. companies, and many Hawaii companies are taking advantage.”

The U.S. Department of Commerce estimates that more than 900 companies exported goods outside of Hawaii in 2012. That number does not include shipping to the Mainland. Exports refer only to those products shipped to other countries.

One of those companies is Hawaiian Springs, a manufacturer and exporter of bottled water on the Big Island. President Tom Van Dixhorn says exports historically have accounted for about 2 percent of his sales and are on track to increase to 4 percent this year. Most of his international sales are in Asia.

Another Hawaii-based exporter is Tradewinds Global. The U.S. Department of Commerce recently cited the export management company as a success story, saying that it has exported $65,000 worth of the pet care product Innovacyn to new customers in Hong Kong.

Another exporting company, Hawaii Exports International, represents Paradise Meadows, a 75-acre coffee and macadamia nut farm on the Big Island. Its owner, Michael Rakieten, said export sales have grown to around $350,000 per year. The farm’s main foreign customers are coffee importers in Germany and South Korea.

Rakieten would like to see Hawaii promote itself more as a provider of exports.

“I think Hawaii could increase its exports by investing more in promoting Hawaii, not just as a tourist destination, but also for all of the excellent agricultural products we grow here,” he said. ”Very few people I meet know that Hawaii is the only state in the United States that can grow coffee, and very few know that Hawaii has exportable produce and products.”

High cost of shipping

Holman and others agree that shipping costs have stymied the growth of Hawaii’s export businesses.

“Hawaii’s manufacturing and export sectors are severely limited due to the high cost of shipping, both importing raw materials and exporting finished goods,” Holman said.

Rakieten’s biggest complaint is the cost of shipping out of Hawaii.

“The biggest challenge is the fact that we are in a middle of an ocean, and air freight is very expensive,” he said. “Ocean freight is less expensive, but everything has to go to a transshipment point, like Long Beach, Calif., to be consolidated with other cargo and rebooted on another cargo ship for my destination.”

Robert Gunter, president and CEO of Koloa Rum Co. on Kauai, said it costs up to $8,000 each time he ships in the glass bottles that he fills with his rum. When the rum is ready to ship to Australia, he pays about $6,000 to ship the cargo to the Mainland, and then another $1,900 to ship it from the Mainland to Australia.

“There are not many opportunities to ship out of the Port of Honolulu,” he said.

Conrad Divis, business manager for Ambyth Group, said his company mainly ships macadamia nut chocolates and clothing as exports.

“The market for Hawaii products is limited, and certainly items face international competition,” he said. “Some products just don’t sell well or can be bought more cheaply from a foreign competition than being shipped out of Hawaii. I don’t think Hawaii is gaining a competitive advantage over some of its international competitors, mainly because of the systematic problem of the shipping costs.”

Blaming it on the Jones Act

Gunter blames the lack of competition among shippers and the resulting high shipping costs on the federal Jones Act, which retricts foreign container ships to just one stop in a U.S. port each trip. He said that if foreign ships were allowed to stop in Hawaii on their way from the Mainland, shipping prices would go down.

“Clearly there is not a level playing field for us in Hawaii,” he said. ”It’s a much more expensive proposition, and it hurts everyone.”

Holman said that reducing shipping costs by repealing the Jones Act would increase exports out of Hawaii.

The $6 billion service business

While there may be problems with manufactured exports, Holman said Hawaii’s yearly service exports represent a $6 billion industry. Education exports top $200 million each year, and renewable energy and clean technology companies that are developing technologies in Hawaii have potential in international markets, Holman said.

“Hawaii coffee companies are finding new markets in China and Korea,” Holman said.

In addition, architectural firms are capturing new business in emerging markets such as China and Vietnam,

Dean Sakamoto, principal of Dean Sakamoto Architects, said his firm does work in China, but it can be a challenge, and businesses must build relationships with their customers.

“It’s difficult because you don’t have the old-fashioned face-to-face,” he said. “It takes a connection, a personal connection. You have to physically have a presence. We have to identify the needs and what we can offer and go there.”

Raitikan concurs.

“Working with the U.S. Commercial Services, the Hawaii Department of Agriculture and the Agricultural Trade Offices in the country you are exporting to are all important relationships that must be built,” he said.

Joseph J. Ferraro, principal of the architectural and design firm Ferraro Choi and Associates, said he recently made three trips to China to secure contracts. He said the biggest problem in relation to exporting his services is getting paid.

“Typically, we get money up front, because you are never assured you are going to get final payment,” he said.

Ferraro said there also are issues regarding culture and different rules and regulations that each country may have regarding building design.

To get export numbers up, Holman said businesses should build on Hawaii’s brand.

“The positive attributes of Hawaii’s brand — clean, healthful, great weather, outdoor lifestyle — often translate to increased appeal across multiple product categories,” he said. “Hawaii’s geographic location and rich cultural diversity also give Hawaii exporters an edge when pursuing international market opportunities.”

Holman noted that about 95 percent of the world’s consumers live outside of the United States.

“If a business is only selling domestically, it’s like leaving money on the table,” he said. “Exporting doesn’t have to be burdensome. The reality is that during the last few years, exporting has become much more viable for even the smallest businesses due to the Internet, improved logistics and transportation options, free trade agreements, and the array of available export assistance.”

TOP EXPORTS

Some of Hawaii’s top exports

Bottled water: $23 million

Cold water shrimp and prawns: $18 million

Coffee, not roasted, not decaffeinated: $9 million

Coffee, roasted, not decaffeinated: $5 million

Paintings, drawings and pastels: $11 million

Papaya: $9 million

Nuts and seeds: $4 million

Countries

1) Australia: $114 million

2) Singapore: $103 million

3) China: $89 million

4) Japan: $86 million

5) South Korea: $41 million

6) Taiwan: $26 million

7) Canada: $21 million

8) Netherlands: $20 million

9) Hong Kong: $16 million

10) United Kingdom: $12 million

Source: U.S. Census Bureau