Editorial: Young Brothers needs to reform

Almost two years ago, even before anyone in Hawaii had heard of COVID-19, the interisland ocean cargo carrier Young Brothers LLC was already staring into an economic abyss. Fast-forward to the present, and prospects have improved enough that it soon should be time for the company to give its customers a break.

Young Brothers executives met with the editorial board of the Honolulu Star-Advertiser in November 2020. They explained that the shipper had weathered a lot of management changes over the previous five years, and the need for incremental rate increases had not been attended to.

The result was that only one rate hike was made during that period, which they said created a big financial hole and was driving a petition for a steep increase.

Of course, things only got worse with the disruptions of the global pandemic, and in July 2020, the state Public Utilities Commission (PUC) finally approved a 46% rate increase on an emergency basis. At the time, the state Consumer Advocate had weighed in with the opinion that the projected $27 million in additional revenue was excessive.

Whether that was true was debatable, with the company asserting that $30.4 million was needed to break even. However, now it’s time for a reassessment — and a downward adjustment in the rate.

An audit of the company, performed by Munro Tulloch, was commissioned by the PUC as a condition of last year’s emergency increase. The new report shows Young Brothers now is making a profit.

The auditor correctly observed that the emergency rate hike was meant to keep the company solvent, not to recoup losses from past mistakes.

While the company has acknowledged those mistakes, executives also cited the drop in business precipitated by the coronavirus as a significant cause of its troubles. But long before that, the PUC was on record faulting Young Brothers for underestimating revenues it needed under utility regulations.

What’s critical at this point is that the PUC hold the shipper accountable for fixing its own problems that are unrelated to the pandemic.

The regulatory agency should move quickly toward setting lowered shipping fees for business customers, who then could pass on savings to consumers. The commission also should put the company on a timetable for making reforms to enable a more sustainable operation, rather than relying solely on the ratepayers to keep the shippers afloat.

Young Brothers executives have said they already have implemented some changes, including one to develop a new five-year strategic plan, and is working on improving cost-efficient services to customers. The company has requested that the emergency rate increase remain in place through the end of 2023 as it develops cost-containment initiatives.

The auditor also suggests that the increase could remain for two years from the filing of the audit, but based that recommendation on the adoption of a long list of proposed changes. Assuming the PUC seriously considers mandating many of the changes, as it should, Young Brothers still has a lot of work to do.

Among the proposals, the commission would have to appoint an independent observer to provide oversight. Young Brothers also would need to move away from its current risky business model in which it turns to unregulated cargo to increase its business volume — but with regulated customers bearing costs disproportionately, especially for labor.

The short-term injection of extra revenues was needed. Among the state’s imperatives is a well-run cargo utility providing service on which all counties, the neighbor islands in particular, truly depend. Now it is time for Young Brothers to make the fresh start toward fulfilling that role.