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Young Brothers Granted 46% Rate Hike

By Catherine Cluett Pactol

In the latest in a saga of Young Brothers barge troubles, the company was granted a 46 percent rate increase, with conditions. The increase, approved last week by the Hawaii Public Utilities Commission (PUC), will be effective Sept. 1. YB must fulfill several mandates as part of the rate hike, which has been granted on a emergency basis for 12 months.

“We understand that Young Brothers is the only carrier required to serve all islands and discontinuation of service would discontinue all service to Molokai and Lanai,” said Molokai Councilmember Keani Rawlins-Fernandez in an informal virtual community meeting she held to dis-cuss the rate increase last Thursday. “Even our grocery stores are still waiting to hear what that will look like for each pallet…. That is something that we’re following up on.”

Gas prices on Molokai will not be affected, however, as PAR Hawaii, the company that supplies fuel to the island, has its own barge, according to Lori-Lei Rawlins-Crivello of Rawlins Service station.

The PUC was up against a decision that would bring either huge increases to the cost of essential goods in Hawaii — or likely bring a halt to the transportation of those goods altogether — at least for Molokai and Lanai.

“The Commission reviews Young Brothers’ request for temporary rate relief during an unprecedented and tumultuous time due to the COVID-19 pandemic, but also notes, as it has in a number of other recent proceedings, that Young Brothers’ financial issues, including rising operating expenses and declining cargo volumes and revenues, began well before the current economic downturn,” the PUC stated in its Aug. 17 decision. “The Commission must note here that it is compelled to make this decision in an unusually condensed time frame (i.e., 41 days), under the weight of YB’s statements that if YB does not obtain emergency rate relief from the Commission by Aug. 17, 2020, it may discontinue regulated intrastate water carrier service in the State. It is from this extremely difficult position that the Commission makes the decision to grant YB’s temporary rate relief request….”

The rate increase will allow the company to break even, but not make any profit, according to the filing.

An independent financial audit was one of the PUC’s conditions in granting the emergency rate hike.

“The Commission’s expedited review of Young Brothers’ Motion for Temporary Rate Relief has highlighted financial and management practices that appear to contribute significantly to YB’s current financial condition and remain a concern to the Commission,” the PUC wrote in its decision. “The Commission will initiate an audit of Young Brothers’ financial and management practices by an independent party.”

Additionally, six months’ advance notice to the PUC and state if YB decides to discontinue regulated interisland service in the future. The company is not permitted to apply for additional generate rate increases for 12 months. Finally, YB must develop and implement a comprehensive customer service plan by Nov. 15 of this year.

In September of last year, YB filed for an unprecedented general rate increase of 34 percent, for which it held public hearings at the end of 2019 and beginning of 2020. Final action on the re-quest was delayed by what followed during the COVID-19 pandemic.

What YB had already claimed was a precarious financial position — “more than $21 million in losses for YB from 2018 and 2019” — was made worse by the pandemic and reported drops in cargo volume. YB stated it was told by its parent company that it would no longer receive “additional infusions of cash” to keep the failing company afloat.

In May, YB reduced weekly sailings in Maui County, leaving Molokai with a once a week barge for a month.

At the end of May, YB threatened the state that if it did not receive $25 million in federal CARES Act funding, it would not be able to continue operations through the end of the year. To date, the state legislature has not said whether or not it plans to grant the company funding.

“Young Brothers had previously requested emergency financial assistance in the form of CARES Act funding and funding from other State or County sources, as well as third-party fi-nancing, in an attempt to alleviate its liquidity crisis, but was unsuccessful in obtaining it,” stated the PUC in a press release.

The PUC said in granting YB’s 46 percent emergency rate request, it also requires the interisland shipper to “resume the full ‘pre-COVID’ sailing schedule” by Sept. 1, which will not affect Molokai — which is currently back to a twice weekly barge — but will restore an additional sailing from the ports of Hilo and Kahului to Honolulu.

There are still a lot of unknowns as to how much the rate increase will affect prices for Molokai residents, but one thing is certain: costs will rise.

“We’re thankful to have YB service Molokai, but it’s a large increase to bear,” said Kit Okimoto, CFO of Friendly Market Center. “Since most of our goods arrive via YB, our freight costs will increase almost universally. We realize times are especially tough for our customers during this time and we’ll do our best to minimize the impact on prices, but ultimately some of the freight increase will end up being passed on. As always we’ll continue to look into any and all avenues to keep prices down as much as possible.”

Zhantell Lindo, who works in Rawlins-Fernandez’s Molokai office, reminded the community to also keep YB’s employees in mind.

“The way we express ourselves about the disappointment needs to be in a very compassionate way to the [more than] 300 employees [of YB statewide] because they are also local families,” said Lindo. “Molokai has always been resilient because we always function with aloha.”

“We sincerely appreciate the service Young Brothers continues to provide our community, and their dedicated employees who keep our freight moving between Molokai and our neighbor is-lands,” Rob Stephenson, president of the Molokai Chamber of Commerce said, via email. “We are happy to hear they are continuing our twice weekly barge and Less than Container Load service, which is very important to our Molokai businesses and our community.”

Though specifics are yet to be determined, the rate hike will have an undeniable impact on the island.

“Forty-six percent increase is going to affect everything from retail goods, construction, supplies, agriculture, shipping cars back and forth — everything that we as a Molokai business community and as Molokai residents and families and our neighbors and friends all have to manage through,” Stephenson said during the virtual meeting.

Rawlins-Fernandez invited community members to brainstorm solutions to the barge situation at her meeting. Residents discussed ideas such as starting an locally-owned independent shipping service to bypass the need for the barge altogether, ways to become more sustainable as a community to reduce the island’s dependency on shipments, and incentives to continue support-ing local businesses through inevitable price increases.

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