The cost to ship most cargo between islands in Hawaii could jump 20% on average, and in instances up to 45%, next summer under a plan by the state’s regulated interisland tug-and-barge operator.
Young Brothers LLC filed an application Tuesday with the state Public Utilities Commission to raise a variety of rates the company said are needed to cover higher costs that include investments in equipment, a new labor contract and other things as cargo volume still lags pre-pandemic levels.
The proposed increases would generate an additional $26.3 million in annual revenue, according to the company.
“Like many local companies, we are continuing to navigate challenging business conditions, with inflationary pressure pushing up our operating expenses and higher capital costs for critically-needed investments to maintain the reliability of our service for every community we serve,” Jay Ana, Young Brothers president, said in a statement.
Young Brothers said its requested 20% average increase to deliver the majority of cargo to neighbor island ports is about equivalent to a 3.7% increase per year since the company’s last increase in 2020, or slightly less than inflation during the same period.
Rates for some types of cargo, however, are proposed for higher increases. They include:
>> 30% to ship a car or roll-on, roll-off cargo.
>> 35% for containers shipped to and from Hilo.
>> 20% to 35% for some service requiring less handling.
>> 35% to 45% for services requiring additional or special handling.
>> 30% for dry and 40% for refrigerated cargo on pallets.
>> 35% for less-than-container loads.
>> 45% for less-than-pallet loads.
The company, owned by Seattle-based transportation and distribution conglomerate Saltchuk, described the higher rates it seeks as “just and reasonable” amounts that will enable it to earn a fair return as Hawaii’s only regulated interisland ocean cargo transportation firm.
“This necessary realignment of rates will put Young Brothers on a more sustainable path for the future, ensuring we can continue providing the vital service our customers and communities depend on and build a more resilient company that can adapt to future needs and challenges,” Ana said in the company’s announcement.
Operating costs for Young Brothers have risen 17% since 2020, according to the company, including a $10 million annual increase in compensation and benefits under new collective bargaining agreements for unionized employees earlier this year.
The company also said it will have invested more than $120 million in infrastructure between September 2020 and the end of this year, and has spent $74 million to buy two new tug boats and two new barges. The barges are scheduled to begin service in December and will become the first new barges in over 20 years added to the Young Brothers fleet.
Meanwhile, Young Brothers said its regulated cargo volume through 2023 remained 8% lower than it was in 2019. The company also said regulated cargo volume for the first nine months of this year was down 9% from the same period in 2019.
During the pandemic in 2020, Young Brothers received an emergency 46% rate increase aimed at generating an extra $27 million in annual revenue that the company said was necessary to nearly break even financially and avoid ceasing service.
At the time, the state Consumer Advocate considered the increase excessive. In 2021 a state-ordered audit concluded that the emergency increase was producing profits for Young Brothers and said there was a strong argument for the emergency increase to be reduced.
The audit, by Nevada-based Munro Tulloch Inc., also said Young Brothers doesn’t appear to fairly split costs between its regulated service and a line of unregulated service predominantly moving containers for a few large international shipping companies.
“Based on our analysis and observations there is currently an over allocation of costs to the regulated business,” the audit said.
In July, the PUC approved a proposal by Young Brothers to modify cost allocations between its regulated and unregulated services.
The new rate increase request considered by the PUC will involve the Consumer Advocate and input from customers and the public.
The PUC is expected to hold public meetings on each island in January, according to Young Brothers.
Correction: An earlier version of this story omitted two new tug boats as part of a $74 million investment. It also has been updated with a July PUC decision regarding cost allocations between regulated and unregulated service.
