Hawaii’s only regulated interisland ocean cargo company, Young Brothers LLC, is appealing to the state for a bailout it claims is necessary to avoid ceasing operations.
Young Brothers sent a letter to local government leaders Tuesday conveying what it calls “extremely dire” financial constraints related to coronavirus impacts, and is publicly asking for $25 million from the state’s share of federal COVID-19 emergency funds.
Jay Ana, company president, said the firm’s parent company, Seattle-based Saltchuk Resources Inc., will quit putting cash into Young Brothers to cover operating shortfalls beyond May 31 after covering losses for the last two years.
“Young Brothers expects that, absent immediate relief from the state, it will soon be unable to pay its expenses or continue operations,” Ana said in the letter to the state Public Utilities Commission and copied to Gov. David Ige, Hawaii’s four county mayors, leaders in the Legislature and several state agency executives.
“I and my colleagues would be heartbroken if Young Brothers were forced to stop operating,” Ana said in the letter. “We want to keep going and we’re confident we can weather this crisis, but we can only do it with help and support from the state and the commission.”
Ana did not mention a possible shutdown timetable if no help is received, but said Young Brothers will sail on schedule Monday.
The company, which employs 370 people statewide and has served Hawaii since 1900, said it hasn’t received any federal aid, unlike airlines and thousands of small businesses.
A disruption to Young Brothers’ service could wreak further havoc on neighbor island economies during the pandemic, especially smaller ones such as Molokai and Lanai that depend more heavily on the tug-and-barge service from Young Brothers.
“This is our lifeline for the neighbor islands,” said Maui County Mayor Mike Victorino. “It is so important to keep Young Brothers viable.”
Victorino also expressed concerns for livestock exports from neighbor islands carried by the company, and said consumers and businesses on Molokai and Lanai are particularly vulnerable to losing their supply of everyday goods.
“If something happens to Young Brothers, these two small communities would be tremendously impacted,” he said. “I worry about that.”
The state’s biggest ocean cargo transportation firm, Matson Inc., primarily carries cargo from the mainland to Oahu but also serves the larger neighbor islands with service from Honolulu.
Young Brothers, however, is the only ocean cargo carrier serving Molokai and Lanai among weekly port calls from Honolulu to neighbor island ports that include shipments of agricultural products between islands.
Hawaii island Mayor Harry Kim said service from Young Brothers is critical.
“This is a situation which the state of Hawaii cannot allow to occur,” he said in a statement. “The sole inter- island barge system must be maintained. It is not just a matter of receiving goods; it is a lifeline for exporting. I will communicate with the governor to see what the plans are.”
Ige said in a statement that Young Brothers is a component of critical state infrastructure and has been affected by the pandemic like every business in Hawaii.
“We will be considering the request as part of the recovery and resiliency efforts underway,” he said.
The plea from Young Brothers follows changes the company made in April to reduce operating costs that included a cutback to sailing schedules for Maui and Hawaii island expected to save $6 million, reduced port operating hours and salary cuts for senior leadership.
The company said government stay-at-home orders and other impacts to the economy related to combat the spread of COVID-19 have resulted in a 30% drop to its cargo volume and an $8 million loss this year through April.
Before the pandemic, Young Brothers was projecting a $12.3 million loss this year that it hoped would be avoided by obtaining PUC approval for a 34% average rate increase generating $27 million.
The pre-coronavirus loss projection for this year followed losses of about $10 million last year and $11 million the year before.
Under PUC regulations, Young Brothers is entitled to a reasonable rate of return on its regulated operations. The rate increase proposal filed late last year is pending before the PUC.
“The mounting losses at Young Brothers are more than any parent company can absorb,” Jason Childs, chairman of Young Brothers’ board of directors, said in a statement separate from the letter. “We’re in a shared crisis that is far from over and are losing more than $3 million a month. This is not sustainable.”
Ana, Young Brothers president, said Saltchuk has been gracious and generous to cover prior losses but that the parent company is not in a position to cover what has become a staggering deficit.
“We know they have deep aloha for Young Brothers — and for Hawaii — and we are grateful to them for carrying us through the challenging times,” Ana said. “But we must now find a cooperative solution with the state that allows YB to continue to operate.”
Young Brothers said $25 million from the state would allow it to sustain operations through the end of this year.
Without the help, the company said it would have to prioritize higher-revenue areas of service starting June 8 with PUC permission.
Such initial proposed cutbacks include ceasing to carry dry and refrigerated goods if a shipment doesn’t fill a whole container on routes to or from Kahului, Kawaihae, Nawiliwili and Hilo ports.
A second phase of proposed cutbacks would include the same limitation for all ports served by Young Brothers in addition to further cuts to sailing frequency and elimination of livestock shipments that aren’t big enough to fill a container.
“We hope to avoid any disruption in service,” Ana said in his statement. “Support from the state Legislature would put the company on solid ground while we seek solutions from the Public Utilities Commission to achieve a more sustainable future for the company. Our goal is to ensure Young Brothers is here to serve all of Hawaii beyond 2020 and into the future.”
State lawmakers are exerting control over federal aid received by the state.
House Speaker Scott Saiki acknowledged the critical role Young Brothers plays in maintaining commerce between islands and said in an email that the PUC must take immediate action to stabilize the current situation as the entity that regulates interisland ocean cargo transportation.
“The PUC must act now to protect neighbor island residents and businesses,” he said.
Senate President Ronald Kouchi said in a statement that it’s imperative to have a viable interisland barge and shipping company.
“It is my hope that the PUC will be able to promptly address Young Brothers’ issues to prevent any interruption of desperately needed services,” he said.