The cargo shipper will ask the PUC to reconsider granting limited competition
POSTED: 01:30 a.m. HST, Sep 29, 2010
Hawaii interisland cargo shipping company Young Bros. Ltd. said yesterday that it will ask the state Public Utilities Commission to reconsider its Sept. 20 decision to open up the regulated market to limited competition from Pasha Hawaii Transport Lines LLC.
Young Bros. said it will file a motion next week asking the regulatory agency to reconsider the impact of its ruling that unlocks a more than 50-year-old monopoly.
Often, such requests don't lead to reversals, though PUC rules allow appellants to introduce new evidence under certain circumstances.
Last week, Young Bros. reserved comment on the PUC's decision until it could carefully review the ruling.
Yesterday in a press release, Young Bros. largely reiterated and elaborated on arguments it had made previously in the PUC case.
The company said its ability to subsidize unprofitable routes and services is threatened by Pasha's entry, and that it might seek approval to raise rates and reduce or eliminate service.
Young Bros. hasn't made a determination on service changes, and would need PUC approval for such changes. The company also suggested that perhaps Hawaii's interisland shipping business should be deregulated.
"If competition is the goal, then regulation should be eliminated," Glenn Hong, president of Young Bros., said in a statement.
The PUC is allowing Pasha to transport cargo between Honolulu, Kahului and Hilo harbors every two weeks, with additional stops on Kauai and two other Oahu harbors -- Kalaeloa Harbor and Pearl Harbor -- upon customer request.
Pasha's cargo is limited to vehicles and other wheeled cargo that can be driven onto its ship, which is designed for roll-on and roll-off loading. Livestock and refrigerated cargo won't be carried.
Pasha, which serves Hawaii ports from San Diego, expects to start the interisland service in the fourth quarter.
If launched as planned, the new service would introduce competition to shipping between the Hawaiian islands for the first time since statehood.
However, Pasha's service would be a test. The PUC only granted Pasha approval to operate through Dec. 31, 2013, pending an analysis leading to a final determination that could retract the approval or make it permanent.
The PUC said it will assess the impact on Young Bros. and customers during the three-year period and could terminate Pasha's service at any time if there is substantial harm to the public.
The PUC's analysis is expected to show whether interisland shipping in Hawaii is a "natural monopoly" where one company can provide service at a lower cost, or whether limited competition can better serve customers.
Young Bros., which carries cargo statewide on barges making 12 neighbor island port trips from Honolulu every week, said Pasha's service amounts to "cherry picking" more profitable routes and cargo.
The incumbent carrier said it subsidizes the cost of service to Molokai and Lanai in addition to 30 percent to 35 percent discounts for farmers and ranchers.
Hong said cargo carriers should have to provide the same types of service to all islands under regulation, or be free of regulation.
The commission in its ruling said the purpose of the Hawaii Water Carrier Act is to ensure fair, regulated competition -- not a governmentally protected monopoly.
Pasha said its 579-foot ship is too big to dock at Molokai or Lanai harbors and that the ship's design limits the type of cargo it can carry.
Young Bros. said it is already struggling to maintain profits in the weak economy. The company said its profit margin last year was 0.94 percent.
Under PUC regulation, Young Bros. is entitled to a roughly 11 percent rate of return, though the company has achieved actual returns between 1 percent and 7 percent during the past several years.