Island ranchers, businesses oppose hike to shipping rates

A pair of Young Brothers lift operators load shipping containers onto the barge Ho’omaka Hou during a windblown rain squall at Kahului Harbor on Thursday afternoon. The Ho’omaka Hou was scheduled to leave the harbor Thursday night, under tow from one of Young Brothers’ new $20 million tugboats, the Kapena Jack Young. The Maui News / MATTHEW THAYER photo

WAILUKU — Testifiers on Tuesday night were strongly opposed to Young Brothers’ request for a general rate increase of 34 percent, saying it would have “astronomical impacts” on farming communities and local businesses.

During a public hearing before the state Public Utilities Commission that drew more than 40 people to the Velma McWayne Santos Community Center, 12 Maui County residents and business owners spoke for an hour on how the burdens of a price hike would fall on the community.

“We are writing to oppose Young Brothers’ proposal to increase shipping rates,” said James Gomes, vice president of Hawaii Cattlemen’s Council Inc. “We appreciate Young Brothers being open to communication in finding solutions, but there are still many concerns we have regarding proficiency for customer service. A price increase is not ideal in most situations.”

Gomes said that the HCC is composed of five county-level Cattlemen’s Associations, which include more than 150 ranchers who represent more than 60,000 beef cows, over 75 percent of all beef cows in the state, and a price increase would be “detrimental for all interisland shipping.”

Ranchers are the stewards of more than 25 percent of Hawaii’s total land mass, so “it’s unreasonable to burden customers with such a large increase at one time,” he added.

Young Brothers containers are stacked at Kahului Harbor on Wednesday. Local ranchers and business owners are opposing Young Brothers’ proposal to increase shipping rates by 34 percent. The Maui News / MATTHEW THAYER photo

Gomes suggested that rates should slowly rise over time, otherwise small businesses and stakeholders in the food industry may quickly fail.

PUC Chairman James Griffin said Tuesday that commissioners will determine at a later date whether the proposed revenue increase of 34 percent in the 2020 test year and the requested return on equity of 10.7 percent are reasonable, while also taking into consideration public testimony. Young Brothers expects the rate increase to generate an additional $27 million on top of its current intrastate revenues, which are expected to be nearly $79 million in 2020.

Dylan Beesley of Young Brothers said the company’s tenative time line for a decision by the PUC is August to September.

Dean Nishina, executive director for the state Department of Commerce and Consumer Affairs’ Division of Consumer Advocacy, said that “we are already engaging” by requesting data and further information from Young Brothers.

Following public testimony, Nishina said that the DCCA will be submitting recommendations and an evaluation to the PUC.

State Public Utilities Commission member Jennifer Potter (left), Chairman James Griffin and member Leodoloff Asuncion Jr. listen to the community’s concerns on Tuesday night over the potential impacts of Young Brothers’ increased prices. The Maui News / DAKOTA GROSSMAN photo

The interisland shipping company, which operates between Oahu, Hawaii island, Kauai, Maui, Molokai and Lanai, filed a request on Sept. 25 saying that the rate hike is necessary because of increased operating expenses, replacement of aging vessel fleet and equipment, continuing decline in intrastate cargo volume and an increase in the proposed cost of capital.

“Young Brothers is essential to Hawaii’s economy, and what we do affects nearly every business, every person, every day in Hawaii,” said Sandra Larsen, the company’s vice president of legal, regulatory and governmental affairs. “We are committed to providing our customers with safe, reliable, efficient, economical and environmentally responsible service.

“As a company, we also understand that any increase in rates will have a real impact on you — the customers and communities we serve,” Larsen added.

Young Brothers ships cargo of all sizes, from household goods to vehicles to livestock, and also charters whole vessels. Each year, there are 156 barges to Maui, plus 26 auto barge sailings, as well as 104 barges to Molokai and 52 to Lanai.

According to Young Brothers, the company’s annual cost to operate is $130 million, and since 2016, it has spent $15.6 million each year to maintain its facilities, vessels and equipment.

More than 40 people filtered through a state Public Utilities Commission public hearing on Tuesday night at the Velma McWayne Santos Community Center in Wailuku, with 12 testifying against Young Brothers’ request to increase general rates by 34 percent. The Maui News / DAKOTA GROSSMAN photo

In the future, the company hopes to invest in new items like ramps, lifts and hustlers, which cost about $3 million, and three more Kapena class tugs, which total about $60 million. Vessel and harbor improvements would cost $2.8 million and shoreside fleet equipment — containers, platforms, reefers and chassis — would total $2.7 million.

One 123-foot, $20 million tug — the Kapena Bob Purdy — was purchased in August and put into service for Young Brothers’ interisland fleet. During its blessing, Young Brothers captain Jim Flanagan said the tugboat’s two General Electric engines produce more than 6,000 horsepower, burn less fuel and are 50 percent more powerful than the engines on the former tugs.

If Young Brothers’ application is accepted, the estimated cost to ship a compact car would increase by $66.34, a full dryer container would rise $250.50 and a minimum mixed-cargo with a volume of 40 cubic feet would rise $29.08.

“Steadily increasing operational costs and nearly eight years with no significant boost in revenue makes it necessary for us to reset our rates,” Larsen said. “This proposed increase will place Young Brothers on a more sustainable path for the future, ensuring that we can continue to provide this critical service connecting our island communities.”

However, members who attended the meeting on Tuesday night felt otherwise, raising concerns over how increased shipping prices would affect not only Maui County communities, but groups statewide, such as canoe clubs and the equestrian community, which involves polo, rodeo, county fairs, farming and more.

“Intrastate transportation is the lifeline of . . . Neighbor Island agriculture. While it’s not the only challenge facing agriculture today, it is one that has created the most difficulty for most farmers and ranchers,” said Warren Watanabe, executive director of the Maui County Farm Bureau. “It is most certainly the tipping point that forces farmers and ranchers to downsize or simply leave the industry.”

William Jacintho, president of the Maui Cattlemen’s Association, added that the Young Brothers should focus more on improving its loading/unloading procedures before price.

“We’ve been working with Young Brothers for several years to improve shipping practices for the livestock industry,” Jacintho said. “There are several easy, fixable, ongoing issues that keep occurring and we are patiently working with them regarding safety and efficiency when shipping cattle and other livestock, such as goats and horses.”

Operators of businesses like Miranda Fence Co. LLC, Pacific Biodiesel, Diamond B Ranch and the Kihei Ice Co. were also against Young Brothers’ proposal.

“I’m speaking in opposition to this because it’s not only a ludicrous price increase for any business, but it’s also bad business,” said Kihei Ice owner Mike Wildberger, who suggested a gradual 4 percent increases instead. “I make ice, everybody has a recipe, we have to do a good job every day. If you go to my factory now, it’s the same price as it was 20 years ago, meanwhile doubled my employees’ wages. So I don’t want to hear that it can’t be done.”

Molokai resident Stacy Crivello, a former Maui County Council member who is now a community liaison in the Mayor’s Office, said that the island’s concerns were no different during its public hearing in Kaunakakai on Monday night.

With fewer options for shipping on the island, Molokai residents rely more so on Young Brothers to supply large materials like lumber.

The 34 percent increase “will not help,” Crivello said. “The problems we face today are high costs of living. I truly can understand the necessity to meet your expenses with operations, especially when you have employees and trying to modernize your fleets. . . . But can you imagine what kind of impact on how this will further increase the costs of building affordable homes for our people?”

Haiku resident Stan Franco spoke on behalf of working families and small businesses, adding on to the affordable housing conversation.

“We cannot add more costs to our people,” Franco said. “We’re going to lose our people, we’re going to lose our culture, and we’re going to lose our aloha. This will be a different island for me growing up as a kid.

Young Brothers Vice President Larsen issued a response to community concerns later Tuesday evening.

“We at Young Brothers take seriously our responsibility to safely and efficiently transport our customers’ cargo, especially the livestock that we carry between the islands,” she said via email. “Young Brothers remains committed to continuing our close collaboration with the livestock industry to optimize our practices and ensure the safety and well-being of the livestock we have been entrusted to transport on our vessels.”

Written public comments on Young Brothers’ proposal may be submitted to [email protected].

To view copies of Young Brothers’ application online, visit dms.puc.hawaii.gov/dms and enter the docket no. “2019-0117” in the “Docket Quick Link” box. Copies of the application also are available for review by contacting Young Brothers’ legal counsel, Watanabe Ing LLP, at (808) 544-8300, the PUC Honolulu office at (808) 586-2020 or the Division of Consumer Advocacy at (808) 586-2800.

* Dakota Grossman can be reached at [email protected].