Young Brothers Seeking Rate Increase

The cost of living on the islands continues to rise as Young Brothers, Ltd. (YB) seeks to increase their shipping rates. During a visit to Molokai last week, YB’s Vice President of Strategic Planning and Government Affairs Roy Catalani explained that dropping volumes of cargo are forcing the company to apply to the Public Utilities Commission (PUC) for a rate increase of about 24 percent. Their last rate increase was in August 2009.

Along with lower cargo volume, a second shipping company, Pasha Hawaii Transport Lines, has entered the Hawaii market. They are “cherry-picking” service to larger harbors but not serving smaller ports like Molokai, according to Catalani. Pasha began service in February; their presence could also affect YB’s rising costs of operations.

“Young Brothers has lost about 30 percent of its over-all cargo volumes since 2008,” said Catalani. It came down, he said, to whether the company would increase its rates or decrease its services.

Matthew Humphrey, YB general manager, said Young Brothers has already decreased frequency of sailing to larger ports, while maintaining a minimum of twice-weekly trips to smaller harbors like Molokai.

Breaking Down the Digits
Last December, YB applied for a rate increase of 18 percent without taking Pasha’s presence into consideration, and 24 percent taking into account Pasha’s effect on the market. For a local farmer shipping produce out of Molokai, that means a raise of about one cent per pound. While it may not sound like much, the numbers do add up quickly. It currently costs about $70 to ship a 2,000 lb. refrigerated pallet of produce from Molokai to Honolulu. With the proposed increase, it would cost about $97, including a 30-35 percent agriculture discount.

The same goes for goods shipped to stock Molokai stores. A 40 cubic foot pallet holding almost 2,000 soup cans currently costs a little over $34 to ship from Oahu to Molokai. With the proposed increase, that number would rise to about $47.40.

Those buying food at the local food stores will also notice the difference. Jeff Egusa, co-owner of Friendly Market Center, said you will see the increase on your grocery bill.

“A 5-lb. box of chicken that costs $5.99 [now] would be $6.49 [with the increase] – about 50 cents difference,” he said. “But if you look at it, Young Brothers is not that much,” adding that the cost to ship by air is “another $4 or 5 bucks.”

The rates for Molokai are calculated for a “less than container load,” or LCL. Because Molokai is such a small market, YB cannot fill an entire container with goods, which is less cost effective for the company.

Catalani said they had hoped for a decision on the rate increase by August, but because of some delays in the process, he said the latest would now be December that the increase would take effect if approved.

Those with concerns or comments on the rate increase may submit testimony for the PUC hearing, may contact the state Consumer Advocate, or contact Young Brothers directly.

New Law
YB took a stand against Pasha’s operation last fall, and since then, the state legislature passed Act 213, also known as Senate Bill 98, which clarifies the state’s laws on carrier services. The state has chosen a regulatory system, rather than a competitive system, to govern Hawaii’s cargo services. By favoring a regulatory structure, the state can ensure all ports are served in a small market and lower average costs for users.

“By law, a new carrier may be allowed to enter a regulatory market only if it can show that its service is a public necessity,” said Catalani.

While Pasha was allowed to begin operations with a three-year interim license, the case is also scheduled to appear before the Court of Appeals before then. Act 213, in clarifying the state’s position on enforcing a regulatory system, may affect Pasha’s legitimacy in the market. Catalani said it remains to be seen how the new law is applied to the case.