Young Brothers has deferred suspending less-than-container-load and mixed cargo shipping service for the time being, company president Jay Ana told the state Public Utilities Commission Wednesday.
Like the decision to change the Hilo barge day back to Monday, Ana said the interisland shipping company made the choice not to scale back the service on June 8 after hearing from its customers and the community in the wake of Young Brothers announcing May 26 it needed millions in funding from the state to stay afloat.
“Since then, internally, we’ve made a conscious decision not to accelerate or pursue that timeline, again, because of the importance and understanding of the vital service that we provide to our communities and customers,” he told commissioners during the PUC’s first-ever live-streamed status conference. “We’ve deferred that for the time being, and we’re going to do everything that we can to hold the line and ensure that service is provided to our communities.”
However, he cautioned, the company needs to find a way to provide the LCL-mix service at a compensatory level in the longterm. As an example, Ana pointed to a front-load washing machine that the company charges $63 for next-day service whereas ocean or air freight forwarders can charge more than double that with two- to four-day delivery.
“It would cost the consumer, or our customer, anywhere between $72 and $165 for ocean freight and $122.50 to $150 by air freight,” he said. “And the point of this is they are just cited examples of YBs ability to have performed this consistent, reliable, low-cost service for nearly 120 years, but we are at a point in our history, due to the changes in our volumes, due to the changes in cost structure, due to changes in consumer behavior, that price mechanism no longer can be suppressed for an extended period and not at that differential.”
Young Brothers on May 26 notified the state it needed $25 million in federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funds and other relief to stay afloat through the end of the year. Without a bailout, the company said — with PUC approval — it would have to maintain the now extended reduced sailing schedule and make additional cuts.
The shipper cited a 30% drop in cargo volumes and losses expected to reach $25 million by year’s end. That’s despite efforts made to cut costs, including saving $6 million from reduced sailings to Maui and Hilo and another $1 million by through workforce reductions, hiring freezes and salary cuts for senior leadership, among other initiatives. Its parent company also stopped covering losses effective June 1.
Contingency plans filed days later outlined how the company would operate under immediate receipt of funding, delayed receipt of funding or no receipt of funding.
Should the company immediately receive $25 million, Young Brothers anticipated it would meet expense obligations through 2020. That reflects the reduced sailing schedule remaining in effect and the company securing permanent rate relief, regulatory flexibility, long-term financing, regulatory tracking mechanisms and the phased partial suspension of LCL-mix to certain ports, including Kawaihae and Hilo, if approved by the PUC.
A delay in the receipt of funding may require Young Brothers to immediately further reduce sailings to neighbor island ports and eliminate dry and refrigerated LCL-mix cargo options, among other services to sustain operations until funding arrives. Per Ana’s statement during the PUC status conference elimination of the LCL-mix options has been deferred.
Without the funding, the company stated the phased suspensions and service cuts would need to be immediately implemented at once.
Ana said Wednesday that conservative 13-week cash flow projections have the company running out of money by July 31.
“We believe that this is in some ways a ‘worst-case scenario’ and that our cash will run us likely through the middle part of August or into the latter part of August,” he said. “Again, this is if we do nothing and most definitely our intention is to take measure that are necessary in order to preserve and develop the cash needs that we need to run our business.”
Following Ana’s 30-minute presentation, commissioners grilled the Young Brothers president and other executives for nearly two hours on the company’s unsuccessful attempts to secure third-party financing; need for more rate relief following two rate increases in recent years; accounting of actual COVID-related expenses; cost-cutting measures; community outreach efforts; and more.
“This has been and this will continue to be a high priority of our commission,” said PUC Chairman James P. Griffin. “We have an enormous number of our staff working on this we will continue to expedite investigate the matter — we’re aware of external timelines to us with the Legislature reconvening shortly and the importance of this matter, so we will continue to work toward resolution.”
The Legislature, which is awaiting a report from the PUC’s emergency investigation into the company’s request and financial condition, is currently set to reconvene June 22.