Guam’s Growth and Saipan Prices

Guam’s Growth and Saipan Prices

I had an opportunity to visit Guam for a few days and could not help but view the island through an economist’s eyes and one who could look back on the island from a distance of a quarter century. When I first visited Guam there were only three or four hotels, two of which were situated along Tumon Bay, the only facilities in that location.

At that time in 1970 there was no tourist industry on Guam or anywhere else in Micronesia. Today, I am astounded at what has taken place in upper Tumon Bay. There are dozens of new, first class, elegant tourist shops, hotels and restaurants situated along beautiful landscaped thoroughfares. That area of Guam bears little resemblance to that of only a couple years ago. Guam is now “Big Time” and for a while I felt that I had stepped out of a Saipan “time capsule.” The DFS Galleria is something to behold with its Planet Hollywood restaurant – if you can call a movie memorabilia extravaganza cafe – a restaurant. I asked my old friend Joe Murphy what had occurred to account for the tremendous inflow of foreign investment, a great deal of it just recently put in place and long after the Japanese economic “bubble” burst five or six years ago. He made an interesting observation and said something to the effect, “aside from additional Japanese investment there must be something magic about the one million tourist entry benchmark. Since Guam hit that number, mainland United States businesses took notice of the opportunities and started investing in a big way.” There are still many small business being run by non locals just as one finds on Saipan.

As Japanese, Korean, Chinese and others own and operate a myriad of tourist oriented activities on the island, I inquired as to the type of U. S. immigration entry permit they possessed to enable them to establish themselves on Guam. I was told that most were United States citizens that had relocated from the U. S. to be near the “mother country.” There are also many workers in Guam’s labor force from the islands of Micronesia who are allowed to move to the island under the terms of the Compact of Free Association with the U. S. None of this seems to have effected the composition of Guam’s legislature. Guam’s economy must be at least five times as large as the Northern Marianas with food prices in some cases one half those of Saipan. This was itself was a great surprise to me and I couldn’t help but wonder why the disparity in pricing. We aren’t that different from Guam – or are we? Because of the Jones Act all commodities ordered for Guam from the U. S. mainland must, by law, be transported on U. S. flag carriers and are thus subject to freight rates much higher than would otherwise be the case had they been carried on foreign flag bottoms with their lower freight rates. Upon arrival at Guam a port charge is levied after which the goods are transported to a warehouse. When NMI merchants order commodities from Guam they must again be transported to the port where a second Guam port charge is imposed, then the freight charge associated with the barge shipment between Guam and Saipan is added and finally a Saipan port charge. All costs added to the final shelf price of the goods purchased on Saipan. The higher prices not only result from shipping costs but also because local distributors cannot always take advantage of economies of scale with the result that the small CNMI market translates into smaller volumes in shipping, warehousing and distribution. There is little flexibility in the disposal of excess inventories which means that discount retailing, factory outlets, etc., are not usually found on Saipan. The high freight rates associated with commodities transported from Hawaii or the United States west coast on American flag carriers first to Guam then to the Northern Marianas by barge are always passed on to the consumer. The CNMI should perhaps publicize the fact among Asian steam ship companies that this area is not subject to the Jones Act and thus any foreign flag carrier loading freight on the U. S. west coast or Hawaii bound for Asian destinations can also load and transport cargo to the Commonwealth at rates much lower than those imposed by United States carriers which frequently must return empty to the U.S. This “dead head” of empty cargo holds also contributes to the high, one way freight charge.

The use of foreign flag vessels could result in lower landed costs for goods shipped to Guam after first being delivered to the Northern Marianas for transshipment to that American Territory through a Commonwealth port. Finally, the Commonwealth’s quarterly consumer price index monitors the movement of the price structure of certain commodities in the NMI but does not allow comparison with a comparable price index of a similar market basket on Guam. This is something that should be done.