1 - American Memory

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house" system Is not in operation. Irregular shipping schedules and the possi-
bility of strikes discourage complete dependence on a continual flow of supplies
from the mainland. Instead, Hawaiian businessmen hedge against possible short-
ages by maintaining substantial and larger than mainland inventories. In the
aggregate. Hawaiian firms maintain excessive inventories by mainland stand-
ard.s—a supply one to two months above mainland inventories.
Even on perishable and semi-perishable items, higher than mainland stocks
are maintained. But in the interest of product quality and brand acceptance,
there has been a tendency to reduce storage times on semi-perishable staples
such as canned milk and rice because their quality does deteriorate with time,
especially in Hawaii's semi-tropical climate. In times of strike threats, large
stocks are built up even though they may not be desirable from a product qual-
ity viewpoint. By extending liberal credit terms to Hawaiian businesses, main-
land manufacturers encourage inventory buildups on semi-perishable items—up
to 90 or more days supply—sometimes beyond the limit of perishability. This
type of buildup in 1962 resulted in some food items having to be destroyed.
Major manufacturers with well known brand names are willing to subsidise
the buildup of stocks in order to keep their product in front of the consumer.
Brand loyalty frequently follows from consistent and dependable service and
high quality. This leads to repeat purchases and this "consumer franchise" is
worth a considerable amount to these manufacturers. Some are willing to go to
great lengths to protect It. One of the major cereal manufacturers, for example,
flew in two plane loads of cereal at a cost of $30,000 during the 1962 strike, but
before the "cooling-off' period (and lost money on every case). During the in-
junction period this firm brought In an additional two months' supply and placed
it in local warehouses. These and similar "old" stocks were still being worked off
months later by several Arms because the strike was settled at the end of the
injunction period.
Higher Inventories Are Costly
The earlier analysis of the cost of carrying inventory indicated that the higher
inventories needed to hedge against delivery uncertainties probably add 3 to 5
per cent to retail prices in Hawaii during normal times. In addition, the buildup
of inventory before and during strikes can only add additional costs at the rate
up to 2 per cent per month of added inventory—probably on an additional one
to two months' supply. These added costs, of course, must be passed on to the
consumer in higher prices. This is obvious as many wholesalers and retailers
operate on a profit of only 1 to S per cent of sales and cannot assume any addi-
tional cost.
Stockpiling Cannot Keep the Economy Ooing
The most damaging argument against the stockpiling approach is that not all
of the items which are needed to keep an economy going can be stockpiled. A mod-
em economy depends upon the ready availability of literally hundreds of thou-
sands of items at widely varying rates of use. Unless an economy is completely
self-suffldent. It must depend upon a continual exchange of commodities with the
other parts of the system. To attemp to run any part of an economy without
benefit of supplies from the other parts of the system Is completely unrealistic.
Here, Hawaii is a part of the United States economic system and cannot exist for
long without continual interaction with the rest of the system.
Hawaii's insular position and almost complete dependence upon only one
method of transportation and predominately one carrier is unique in the United
States. All other states have access to several modes of transportation. In the
extreme, if all common carriers were tied up with strikes, mainland firms could
buy, rent, or lease their own trucks and assure a continual flow of supplies. This
option is not open to Hawaiian firms.
Additional Stockpiling Not Feasible or Tfecessary
It appears that additional stockpiling is not needed at this time. Hawaiian
businessmen already maintain large and higher than mainland stocks and are
willing to, and do, add to these stocks substantially when they have adequate
notice of strikes. In spite of these larger stocks, some items quickly become
critically short. These are items which are relatively perishable and which would