Hawaii’s Young Brothers seeks rate increase to stay afloat

Young Brothers said it needs to dramatically increase its shipping rates this summer if it is going to break even financially and keep its services operating through year’s end.

Hawaii’s sole inter-island ocean carrier, which is regulated by the state’s Public Utilities Commission (PUC), said the coronavirus pandemic is already expected to leave it with a loss of $30 million by the end of 2020 at current rate levels.

Even before the state implemented its COVID-19 travel restrictions earlier this year, Young Brothers lost money and the company asked the commission in 2019 to approve a rate increase valued at $13 million.

Young Brothers said its latest rate increase request to the PUC, valued at $30 million, aims to recover a portion of the company’s projected loss after operating and labor expenses are factored. The company asked state regulators to approve the rate increase from August through the end of the year.

“I want to be clear that this proposed rate increase would only allow the company to break even in 2020 if the rates were in place for a full year,” said Young Brothers President Jay Ana in a statement. “We are not seeking an allowed rate of return or any sort of profit as part of this request.”

The company, which in the spring unsuccessfully sought $25 million in federal government CARES Act relief funding, said since April its cargo volumes have dropped 30% due to Hawaii’s stay-at-home orders and the decline in tourism. Young Brothers officials estimate the company is losing more than $3 million a month in revenue as the virus continues to plague the state’s economy.

In April, the company, which operates eight multipurpose barges and six tugs and has a staff of about 130, began cutting costs by reducing its weekly sailing schedules among Maui, Kahului and Hilo for a savings of $6 million. It has also reduced gate hours at its barge terminals, instituted a hiring freeze and reduced executive salaries.

Young Brothers warned the PUC that its parent company, Saltchuk, which also owns U.S.-flag domestic ocean carriers TOTE Puerto Rico, TOTE Alaska and Foss Maritime, will no longer cover its losses as it has in years past due to its own “staggering” COVID-19-related financial losses.

“We know our customers and small businesses across Hawaii are struggling to cope with the unprecedented challenges brought on by COVID-19,” Ana added. “That’s why we pursued all available avenues of relief before making the difficult decision to accelerate our request for higher rates. But this request is vital for Young Brothers to stay in business and continue connecting our island economies.”

Young Brothers started marine transport operations in Hawaii 120 years ago. Today, the Honolulu-based shipping company provides last-mile transport of vehicles and containers loaded with groceries and other consumer goods aboard ocean barges to the island communities of Hilo, Kawaihae, Kahului, Kaumalapau, Kaunakakai and Nawiliwili. Most of these goods are initially delivered from the U.S. mainland to the Port of Honolulu by U.S.-flag ocean carriers Matson Navigation and Pasha Group.

In other news, Matson (NYSE: MATX) reported on July 9 that it expects its ocean transportation services to generate a second quarter operating income of $40.5 to $42.5 million, compared to $19.7 million in the second quarter last year.

Matson Chairman and CEO Matt Cox credited the company’s overall success during the pandemic to its U.S.-China container transport service. The carrier’s U.S.-China service attracted numerous shippers and non-vessel-operating common carriers when other container carriers canceled their trans-Pacific sailings. 

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Click for more FreightWaves/American Shipper articles by Chris Gillis.