How has the COVID-19 pandemic disrupted interisland shipping and Young Bros.?
The threat of COVID-19 to lives and livelihoods changed almost everything about how we do business. As the pandemic reached Hawaii, we took immediate action to protect our customers and 370 employees across the state and align our services with government guidance suspending nonessential business activities. Throughout this challenging time, Young Brothers (YB) has provided uninterrupted deliveries of the cargo our communities need to survive and thrive, whether it’s protective equipment or cleaning supplies for first responders, or the food needed to replenish empty shelves in grocery stores.
But more importantly, COVID-19 dramatically impacted our customers. As hotels, restaurants and other nonessential businesses shuttered, demand cratered and shipping volume dropped by 30%. Before March, we expected to lose $13 million this year, and now we project losses will grow to at least $25 million — unless we can chart a new course with the Legislature and the state Public Utilities Commission (PUC).
YB is a regulated entity entitled to a reasonable rate of return. How did it get to the point that the company needs a 34% average rate increase to survive?
Rate increases are a standard in the shipping industry to allow labor and asset-intensive businesses like ours to keep up with rising costs and make investments in operations. For unregulated companies, these increases are generally incremental, annual events that are seen as just a part of doing business.
Young Brothers filed for rate increases in 2016 and 2018. In both cases, certain cost increases that were difficult to forecast by YB were not included in the rates. This included work grievance settlements with the union and a flattening of cargo volumes rather than the anticipated increase. Our current challenges also have been amplified by the fact that, by 2016, YB’s allowable rate of return decreased significantly due to aging shoreside and marine assets. The result is that in 2020, we needed to increase rates to include all of the past labor increases that weren’t in the 2018 rate case, as well as the cost of adding two new tugs to our fleet.
Young Brothers’ current rates simply cannot generate enough revenue to cover necessary investments and operating expenses at our current level of service to customers.
Besides a rate increase, what internal changes does YB need to make to become a thriving business again?
Young Brothers is committed to reducing costs and implementing operational efficiencies because we know that any rate increase has a real impact on our customers and communities. We have already implemented a number of measures to streamline operations and reduce operating costs, including temporarily reduced sailing schedules for Maui and Hawaii counties, reduced gate hours for non-barge days in all major ports, a hiring freeze and salary cuts for senior leadership, suspending nonessential travel, eliminating discretionary expenses and deferring nonessential maintenance and related activities.
As we look ahead, I want to be clear: All options are on the table if they will help us achieve a stronger, more sustainable future for Young Brothers. In the short term, we need to solve our cash shortfall caused by the steep drop in cargo volumes due to COVID-19, as well as seek regulatory and rate relief that will create the conditions allowing the company to prosper in the long term.
If the Legislature denies your $25 million emergency request, what will be YB’s options, and how would those affect consumers?
I want the people of Hawaii to know that Young Brothers is committed to serving our customers as long as we can while we pursue every avenue of assistance. Our goal is to avoid any disruption in service and ensure our legacy can continue beyond 2020 and into the future.
If we are unable to secure relief, YB would take a phased approach to service modifications that would allow us to reduce costs and provide continuity of service for as many customers for as long as possible. Though we will have to make hard decisions, we will continue to listen to feedback from our customers and neighbor island communities and adjust course where possible to ensure continuity of service for those who rely on us the most.
The next few weeks will be critical tests as we work to ensure Young Brothers can continue being a crucial partner in Hawaii’s economic recovery and renewed prosperity. I remain hopeful that our work to find solutions with the Legislature and PUC will yield progress to the benefit of the small businesses, families, and communities we serve.
How will the public be affected in the near term?
We know that businesses and industries of all sizes and on every island depend on our service to connect them with markets and consumers. From our farmers to construction companies, car dealerships and more, we are committed to shipping what matters most to our customers.
As we have since 1900, Young Brothers will continue to provide the vital interisland shipping service linking our island communities and economies as we work toward a solution. Our top priority is ensuring uninterrupted service to every island we serve.
Asked by Stephen J. Downes, Star-Advertiser