The air was polite, but testimony before the state Public Utilities Commission Tuesday night in Hilo was overwhelmingly opposed to Young Brothers’ request to raise interisland ocean freight rates by 34%.
About 25 people attended the meeting at the Aupuni Center in Hilo, with 12 testifiers.
Young Brothers reported losses of $11.4 million in 2018 and $8.9 million in 2019, and projected losses of $12.3 million this year. The company seeks to raise an additional $27 million in yearly revenue, citing a “substantial increase of $17 million in operating expenses, $5.8 million from critical investments in four new Kapena-class tugs and and replacement of other aging equipment, and declining revenue from intrastate cargo operations.”
“This financial situation is clearly unsustainable to Young Brothers,” a company document stated. “Since 2017, the company has reinvested more than $88 million in new vessels and shore-side equipment to better serve Hawaii now — and into the future.”
The company said $80 million of that reinvestment was in the tugboats.
The requested rate hike also includes salary increases for International Longshore and Warehouse Union workers in 2020 and 2021 of 4.7%, per the collective bargaining agreement. There was no salary hike in 2019.
Sandra Larsen, Young Brothers’ vice president of legal, regulatory and government affairs, testified the interisland tug-and-barge shipper is “essential to Hawaii’s economy and what we do affects nearly every business, every person, every day here in Hawaii.”
“This increase in rates is needed to cover increasing operating costs and investments that were made to replace our aging vessel fleet and equipment,” Larsen said.
Larsen said the Young Brothers understands “any increase in rates will have a real impact on you — the customers and communities we serve.”
“Because of this, we are committed to continuing to find ways to reduce costs and implement operational efficiencies,” she said.
Keoki Wood of the Hawaii Cattlemen’s Council, which submitted written testimony against the proposed rate hike, said the organization is “not opposed to any PUC-regulated entity receiving a reasonable rate of return.”
“However, we do feel that a rate increase of this magnitude is pretty hard for ranchers to bear,” Wood said. “We already have to own … the containers that we ship in, so this kind of rate increase is pretty significant in terms of our ability to do business and ship cattle between the islands.”
Randy Cabral, president of Hawaii Farm Bureau, said the steep hike, if granted, “will hurt agriculture and make it difficult to reach the state’s goal of doubling food production.”
“Farmers and ranchers have thin profit margins and many are totally dependent on YB to deliver their products to Oahu, the population center and our major market. And they are dependent on YB to bring necessary inputs to them for their farms, unlike their peers on the mainland who can choose trucks and trains to deliver products,” Cabral said.
County Councilman Tim Richards of Kohala, a veterinarian and rancher who chairs the Agriculture, Water, Energy and Environmental Management Committee, said any large increase in the cost of doing business “is potentially ruinous to agriculture.”
Richards used Texas as an example, where the state has a large number of rural “farm-to-market” roads designated on signs by the letters FM and a number.
“It is the policy statement that they do to support the transportation of agriculture to the marketplace,” Richards said. “Our geography mandates that ocean freight and barge service is our farm-to-market road. As with all ag, margins for profit are extremely thin. Anything that impacts the cost of doing business impacts the bottom line.”
Noting agricultural market values are “set in part by competing value of imports,” Richards said such a dramatic uptick “cannot be easily passed to the consumer, but rather, must be absorbed by the farmers and ranchers.”
”This could be a tipping point for some, especially the smaller operations,” he said.
Michael Pacheco III, a retired teacher, called 34% “a gigantic number.”
“When we’ve gone through sort of extreme increases in fuel rates and so on … the price goes up for shipping, which is understood, because of the fuel costs,” Pacheco said. “My question is, when the fuel costs go down, when have they decreased their rates?”
Scott Unger, owner of Alii Gas & Energy, a propane supplier, said his smaller accounts would bear most of the burden of increased shipping rates.
“For the commercial accounts, we pretty much have contracts. We would not be able to pass this on, OK?,” Unger said. “Where we would be able to pass it on, it would be residential accounts. We have no contracts with them. So the people taking the brunt of this bump would be residential domestic gas users.”
Candy Hololio Johnson, a Puna farmer and livestock producer, called the rate hike request “excessive, particularly since Young Brothers holds a monopoly on interisland freight transportation.”
“Farmers, ranchers, producers of all kinds must not be held hostage to this monopoly,” Johnson said.
Kiki Rycraft of Hilo was the only Big Island testifier in favor of the 34% rate hike.
“They’ve provided consistent, reliable service. They service all islands,” Rycraft said of Young Brothers. “Other shipping companies, such as Matson and Pasha, do not have to go through this procedure to have a rate hike. … Young Brothers also ships to Molokai and Lanai. They go every week. And those are not-for-profit runs for them. And so, again, it points to … service and loyalty to our state. I have friends who are fruit farmers and nurserymen. They ship with Young Brothers every week. Without Young Brothers, they would not be able to ship their product.”
The rates charged by Matson Navigation and Pasha Hawaii Transport Lines, the two domestic ocean shippers of cargo between Hawaii and the mainland U.S., are not subject to PUC approval.
A statement Wednesday by Jay Ana, Young Brothers’ president said the company is asking the PUC “to approve a rate that matches our true cost of doing business.”
“Steadily increasing operational costs and nearly eight years with no significant boost in revenue makes it necessary for us to reset our rates. This proposed increase will place Young Brothers on a more sustainable path for the future – ensuring that we can continue to provide this critical service for the people of Hawaii,” Ana said.
The state Consumer Advocate will assess Young Brothers rate request and make its recommendation on the proposal to the PUC before any action takes place. Any approved rate increase is expected to go into effect this fall.
Email John Burnett at jburnett@hawaiitribune-herald.com.