Hawaii Island residents have an opportunity to respond to the state’s only regulated interisland ocean cargo shipping company’s request for a 34% rate increase.
The state Public Utilities Commission has scheduled a pair of meetings on Young Brothers LLC’s rate hike application filed Sept. 25. The first meeting is at 6 p.m. Monday at the West Hawaii Civic Center’s County Council Chambers, 74-5044 Ana Keohokalole Highway in Kailua-Kona. The second is at 5:30 p.m. Tuesday at Aupuni Center, 101 Aupuni St., Suite 1 in Hilo.
Included in the proposal is a 25% rate hike for automobiles and shipping containers and 60% for items that take up less than an entire container. For Young Brothers, which makes a dozen port calls a week using tugboats and barges — including stops in Hilo and Kawaihae harbors — that would mean an additional $27 million in revenue.
In its application, Young Brothers said it needs the steep rate hike because of two years of financial losses due to higher operating costs and declining cargo volume.
“We work hard to keep costs down and create added value for our customers, and it is never easy to raise rates,” wrote Paul Stevens, the company’s interim president, in a Sept. 25 letter to customers. “However, with declining volumes and no significant increase in revenue over the last eight years, our existing rates do not allow us to meet our current and rising costs. … We believe that a reset of our rates represents the best interests of our customers, enabling Young Brothers to be a healthy and sustainable interisland water carrier for generations to come.”
According to Young Brothers, its rates for shipping 40-foot containers have risen just 5% since 2014, in comparison to about 20% rate increases by Matson Navigation Co. and Pasha Hawaii Transport Lines, unregulated ocean cargo firms delivering goods between the mainland and Hawaii.
Ultimately, whether Young Brothers is granted an increase and if so, how much, is up to the PUC, after holding the statewide public meetings and an analysis by the state consumer advocate.
Any approved rate hike isn’t expected to take effect until late this year.
“Anytime shipping to the neighbor islands goes up, you’re going to see prices go up,” Tina Yamaki, president of Retail Merchants of Hawaii, told the Tribune-Herald. “And the consumer is ultimately going to be the one who’s taking the brunt of it, especially because retailers are going to have to raise their prices. … Or you may see some retailers closing because they just can’t afford to do business in Hawaii anymore.”
The current rate for shipping a car weighing less than 2,500 pounds from Honolulu to Hilo or Kawaihae is $295.83. Under the proposal, that rate will go up more than $66, and at least two Big Island used car dealers have submitted written testimony in opposition.
Richard Otani, president of Hilo Auto Sales LLC, called the proposal “absolutely appalling and ridiculous.”
“How can a company ask for 34% when fuel costs have remained the same, wages haven’t increased by 1/3 (and) equipment and other costs … are made and amortized over years to offset taxes?” Otani wrote.
John Caudell, vice president of Pre-Owned Motor Cars in Kailua-Kona, said his company buys five to seven vehicles a week in Honolulu, and his shipping costs over the past 25 years have risen “from about $85 per vehicle to now up to $500 and beyond for pickup trucks” and said the proposed increase “will add a tremendous burden to our already very high cost of doing business.”
“We often don’t receive our shipments on time because vehicles aren’t considered a priority compared to shipping a more profitable commodity,” Caudell wrote.
A Jan. 7 letter to PUC Chairman James P. Griffin from Phyllis Shimabukuro-Geiser, chairwoman of the state Board of Agriculture, said the proposed rate hike “is seen as broadly detrimental to the business activities and welfare of farmers and ranchers, particularly those on the neighbor islands.”
“It directly raises the costs of doing business and further weakens the local agricultural industry that (is) struggling to survive against lower-priced imported products,” Shimabukuro-Geiser wrote.
She added the price of transportation “represents a significant driver of Hawaii’s high cost of living, particularly for food expenses.”
“It is not a mere coincidence that Congressman Ed Case recently introduced three bills in Congress to reform the Merchant Marine Act of 1920 (the “Jones Act”) which is widely believed to artificially inflate the cost of shipping goods to Hawaii from the U.S. mainland,” Shimabukuro-Geiser wrote. “Likewise, any increase in shipping rates within the state will lead to a higher cost of doing business on all islands … resulting in higher consumer prices statewide.”
Asked about Young Brothers’ request, Case, who represents urban Honolulu, said, “I have no basis for judging whether a 34% increase is warranted or not. It seems very, very high for a one-time increase.”
“The biggest difference between Young Brothers and our Jones Act shippers to and from the mainland is that in Young Brothers’ case, it’s a state-created monopoly, but a regulated monopoly, so there’s supposed to be some oversight over the price structure.” Case said. “There’s supposed to be some linkage between the fact that Young Brothers has a monopoly and the actual cost it takes Young Brothers to operate that monopoly. But that’s not the case with the Jones Act at the federal level, because there’s virtually no regulation of price.”
According to the 2017 Census of Agriculture, Hawaii County has 57.6% of the state’s farms and 58.5% of the state’s agricultural acreage, and the Big Island’s farmers and ranchers depend on interisland shipping to get their crops and livestock to market.
The Waimea-based Hawaii Cattlemen’s Council Inc., in a Dec. 19 letter signed by three officials including HCC President Keith Unger, said a group of livestock shippers met Young Brothers leadership in August “to address the issues livestock shippers are facing.”
The group of 150 ranchers, which represents more than 60,000 head of beef cattle, 75% of beef cattle statewide, said any rate increases “should happen over time at incremental rates” and the large hike, if granted, “will be detrimental to all interisland shipping and has the potential to put operations out of business.”
“We oppose a rate increase of such a large rate when Young Brothers has a track record of inconsistent service,” HCC leadership wrote. “Putting financial burdens on the customer will be detrimental for Hawaii. It will hinder the growth of local food production, and jeopardize the future of Hawaii’s cattle industry.”
The PUC approved a 4.3% rate increase in February 2019 which, according to Young Brothers was its first significant rate increase in five years. That increase was in response to a 2017 request for a rate hike of 13.3%. The interisland cargo shipper was granted cumulative rate increases of 4.9% between 2014 and 2019.
Strong opposition to the proposed rate hike was voiced in meetings previously held in Honolulu and on Maui, Molokai and Kauai, and written testimony online also is overwhelmingly in opposition.
Written testimony on the proposal, docket No. 2019-0117, can be submitted online at puc.hawaii.gov or mailed to Public Utilities Commission, 465 S. King St. #103, Honolulu, HI 96813.
Email John Burnett at jburnett@hawaiitribune-herald.com.