The state consumer advocate is opposing an application by Young Brothers Ltd. to raise interisland shipping rates 13.3 percent after less than a year ago the state Public Utilities Commission rejected a 4.4 percent increase.
Young Brothers filed its application Dec. 20 and said it needs to boost interisland revenue by $9.5 million so it can earn a fair return in the face of buying new tugboats, paying more for labor, lower projected shipping volume and other factors.
But Dean Nishina, executive director of the Division of Consumer Advocacy at the state Department of Commerce and Consumer Affairs, earlier this month objected to the rate hike request in large part because the company isn’t factoring the recent federal tax overhaul benefiting businesses.
The Tax Cuts and Jobs Act, enacted Dec. 22, decreases the federal corporate tax rate to 21 percent from 35 percent. Nishina, in a Jan. 10 letter to the PUC, said the tax benefits should be reflected in the company’s business projections.
“The consumer advocate recommends that the commission suspend the tariff and toll the regulatory review period until amended schedules are filed that provide updated schedules to reflect the new income tax rate,” he said in the letter.
Sandra Larsen, legal affairs director for Young Brothers, said in a statement Tuesday that the company is working to adjust its application based on the tax cuts.
If the increase is granted, it would cost about $35 more to ship a medium-size car to the neighbor islands, or $250 to Maui or Kauai and $280 to Hawaii island. The price for a 40-foot container of general cargo would rise $75 to $1,019 from $944 to all neighbor island ports served by Young Brothers, which makes 12 round-trip sailings a week between Honolulu and Hilo, Kawaihae, Kahului, Kaumalapau, Kaunakakai and Naawiliwili.
Maui Mayor Alan Arakawa said in a Jan. 8 letter to the PUC opposing the increases that higher shipping rates trickle down to businesses and consumers.
“Intrastate transportation is the lifeline for the neighbor islands — especially agriculture in rural communities such as Molokai,” Arakawa said. “As such, I am especially concerned that the proposed increase may be the tipping point that forces our farms and ranches to downsize or simply leave the agriculture industry on the neighbor islands.”
Young Brothers said in its application that the main driver for its need for more revenue is to pay for four new tugs it commissioned in 2016 for about $80 million. The boats — two of which would be ready for service this year and two next year — would improve service reliability and efficiency by replacing older tugs, some of which are more than 40 years old, according to the company.
“These vessels must be replaced to avoid mounting maintenance costs and increasing and costly breakdowns that affect on-time arrivals and may result in service disruptions,” Young Brothers said in its application. “This investment will serve Hawaii over the long-term, as the tugs will constitute the core of the company’s towing capacity for their 30-year life expectancy.”
Young Brothers also said it is costing more to do business, particularly the cost of labor that is rising through union contracts and will more than offset efficiency gains. Furthermore, Young Brothers projects that interisland shipping volume will decline 0.3 percent this year.
In May the PUC approved a scant rate increase — 0.1 percent that was projected to add $88,000 to Young Brothers’ interisland revenue. The company had sought a 4.4 percent increase, and the consumer advocate recommended a 5.9 percent decrease.
A PUC hearing has not yet been set for the current rate case.
Correction: An earlier version of this story gave an incorrect figure for how much Young Brothers wants to charge for a 40-foot container. That figure included a transshipment charge.
