Young Bros. seeks raise in shipping rates again

The previous increase did not cover all expenses, the company says

Just two weeks after increasing its rates 5.5 percent, Young Brothers Ltd. told the state Public Utilities Commission it plans to seek another increase.

Young Brothers' notice of intent did not say how big an increase it will seek this time. The company plans to file an application by Dec. 2 or later.

In arguing for the 5.5 percent rate increase that the state approved last month, the interisland shipper cited rising fuel costs and operating expenses. The notice of intent for the last increase was filed on Oct. 2.

Catherine Awakuni, executive director of the state Division of Consumer Advocacy, said the latest filing caught her off guard.

"I was not expecting to see the notice of intent filed so soon on the heels of the increase that was granted, so I guess I was a little surprised by it," Awakuni said. "We can offer more reaction to it once we see what their actual rate case looks like."

A Young Brothers official said yesterday that the company is seeking another rate increase because the last one did not cover all of the company's expenses involving fuel, repair maintenance, equipment and cost of labor.

"What our 5.5 percent increase allowed us to do is recover some of these increased costs but not the entire amount," said Roy Catalani, vice president of strategic planning and government affairs for Young Brothers.

Brian Nishida, president and chief executive of Maui Pineapple Co., said he was not happy to see the price of interisland shipping going up, because transportation costs are a significant component of the price that Maui Pineapple charges its customers.

"With the increasing cost of fuel, any rate increase has a negative impact on the competitive posture of neighbor island producers," Nishida said. "Given the importance of agriculture, particularly on the neighbor islands, this is not good news. We hope the PUC will consider the mounting disadvantage this rate increase would pose to shippers like Maui Pine."

Stacey Djou, chief counsel for the PUC, said Young Brothers sought a fuel-price adjustment late last year, which the state agency denied. However, she said Young Brothers made an argument in its recently approved rate-increase filing that its financial results were below its authorized rate of return.

Young Brothers said its rate of return, or what it earns on assets, is only 8.3 percent with the 5.5 percent rate increase, and is "substantially below" its authorized level of 11.1 percent approved by the PUC in 1997. In other words, if Young Brothers had $100 million worth of assets and had an 8 percent return, it would earn $8 million.

Young Brothers was capped at asking for no more than a 5.5 percent rate increase earlier this year under the PUC's "zone of reasonableness," an expedited process that is part of a pilot program initiated in 2001 and renewed in 2004.

Under the "zone of reasonableness," the PUC is required to issue a decision within 45 days or suspend the filing for further investigation.

However, Young Brothers' newest request for a rate increase will be a rate-case application similar to other applications reviewed by the state commission, and likely will involve public hearings on all affected islands, Djou said.

Catalani said Young Brothers expects to file its application in mid-December, and hopes for the new rate increase to be approved around July. He said Young Brothers might try again to include in its application a fuel-adjustment clause that would allow it to alter the rate it charges depending on fuel costs.

Ocean shippers Matson Navigation Co. and Horizon Lines Inc., which both conduct interstate commerce, announced rate increases last November averaging 3.9 percent that went into effect at the beginning of this year. But unlike Young Brothers, Matson and Horizon already both tack on fuel surcharges, which were as high as 21.25 percent earlier this year. The fuel surcharges have since been lowered twice and will go down to 18.75 percent next month.

Young Brothers has its rates regulated by the state because the company conducts intrastate business. Matson and Horizon can set their own rates and fuel surcharges but need to file them with the Washington, D.C.-based Surface Transportation Board.

Catalani said fuel is a huge component in a transportation business, and the big difference for Young Brothers is that it is a cost that is absorbed and cannot be passed on through a fuel surcharge the way Matson and Horizon do.

"18.75 percent is a significant surcharge, and I think it reflects that fuel is still a major issue with delivering transportation services," he said. "Other carriers are passing it on through an 18.75 percent surcharge, but Young Brothers doesn't currently have the authority to pass on any surcharge."