Young Brothers rate-increase request deserves scrutiny

If you’re like me, you probably think of Young Brothers Ltd., the inter-island shipping company, as a public utility, much like the water department, Kaua‘i Island Utility Cooperative, Hawaiian Telcom or Spectrum cable.

If you go to the Young Brothers website, you’ll find a story of how the company came into existence in the early 20th century after two guys, Herb and William Young, arrived in Honolulu on a steamer and started a small business carrying goods and passengers around the harbor. In the minds of most people, Young Brothers probably remains a Hawai‘i company.

Exercising the slightest initiative on three different corporate websites, however, will quickly lead to realization that Young Brothers is actually part of Saltchuk Resources Inc., a huge conglomerate based in Seattle that has operations in air freight (think Aloha Air Cargo), marine transportation, logistics and energy distribution. It does business in Hawai‘i, Alaska, Florida, Puerto Rico and across the Mainland. All of this information is public.

Saltchuk bought Young Brothers in 1999, but it’s a little more complicated than that. In 2014 Saltchuk made Young Brothers a wholly owned subsidiary of one of its other wholly owned subsidiaries, Foss Maritime Co., which Saltchuk acquired in 1987. Foss owns and operates more than 60 harbor and ocean-going tugs, including four assigned to Young Brothers, along with barges.

This complexity is relevant because, as Young Brothers has pressed its case over the last few months for a 34% statewide rate increase, it has described the situation in strictly local terms. That increase would generate an additional $27 million in annual revenue, the company estimated.

For example, a company rate increase fact sheet says the hike it seeks is justified by continuing losses. Young Brothers says it last made money in 2017, then lost $11.4 million in 2018 and $9.6 million in 2019. The company projects losses of $12.3 million this year. “This situation is clearly unsustainable for Young Brothers,” the company says.

Where this gets murky, though, is in trying to bore down into how Young Brothers figures in the larger profit-loss profile of Saltchuk. So I asked the company for information on its overall financial results and whether it breaks out results for its individual components, figuring that if Young Brothers was willing to disclose the magnitude of its claimed losses, Saltchuk would also be forthcoming about the bigger picture.

Not so. In a statement responding to questions about Saltchuk’s financial results, including revenue and profit or loss, Saltchuk said: “As a privately held company, we are not in a position to share much of the information you have requested.” Actually, the company responded to none of the questions. It raises yet another question: If Young Brothers will identify specific alleged profit-and-loss figures to the public, why won’t Saltchuk do the same? Seeing that big picture would provide a more-accurate image of how costs are allocated for the various Saltchuk components.

The Young Brothers rate increase request, which is pending before the Hawaii Public Utilities Commission, notes that the company received rate increases in 2011, 2013, 2014, 2016 and 2019, but that increases since 2014 have been miniscule. In 2017, it asked for a 13.3% increase, but ultimately the PUC only gave it 4.3% after paring the original proposal in response to objections from consumer groups.

Still, 34% is a big bite for shippers throughout Hawai‘i. But, more important, the rate increase stacks the deck against small shippers and businesses. According to Young Brothers, while shippers of full containers — companies like Costco, Foodland, The Home Depot or Ross, for example — will only pay 25% more. But people and businesses shipping less than full container loads would see their rates increase by an average of 60%.

That would broadly injure small businesses that send or receive goods and merchandise by water statewide.

For example, according to figures released through Young Brothers’ public-relations firm in Honolulu, shipping four tires from Lihu‘e to Hilo would increase from $70.15 to $112.24. Sending the same tires from Honolulu to Maui would go from $54.03 to $86.45.

The cost of shipping a crate that was four-by-seven-by-three-feet — a size that might commonly be used by gift, clothing or surf shops to send or receive merchandise — would rise from $147.32 to $235.71. The same crate going from Honolulu to Maui would go from $113.46 to $181.54.

One thing many of us do from time to time is ship cars, which would be included in the 25% rate average increase category. In actual terms, according to Young Brothers, a small car going from Lihu‘e to Hilo would go from $262.71 to $420.34. The same car from Hilo to Honolulu would jump from $210.17 to $336.27.

Young Brothers says its proposed rate hike “does not favor large-volume shippers. Rather, the proposed increases are determined by the commodity category and based on the cost required to provide that type of service.” Containers that are less than full cost Young Brothers more than full ones, the company said, because they require “much more handling by personnel.” A full container, the company said, “is less costly because it is moved less times on the pier.” The cost of shipping a full, dry container would increase by $250.50, the company said.

In all, said Sandra Larsen, a Young Brothers vice president, “we know that any rate increase has a real impact on the customers and communities we serve. Steadily increasing operational costs and nearly eight years with no significant boost in revenue makes it necessary for us to reset our rates.”

That may well be true, given the rising prices of almost everything. Still, it’s hard to see how spikes in the cost of diesel fuel, as just one example, make it necessary to stick small businesses on Kauai with a 60% increase in their inter-island shipping costs. The PUC will be well advised to give this proposal the close scrutiny it deserves because the commission is acting on behalf of hundreds of thousands of individuals shipping cars and small businesses replenishing their inventories throughout the state.

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Allan Parachini, a freelance journalist, Kilauea resident, furniture-maker and retired public-relations executive, writes periodically for The Garden Island.