Young Bros. gets approval from the PUC to raise rates
STORY SUMMARY »
Shipping goods interisland is about to become more expensive -- again.
Young Bros. Ltd. has received approval from the state Public Utilities Commission to increase its rates 7.5 percent -- the shipper's third increase in three years. The company says the extra $4.4 million in annual revenue will help pay for $186 million in capital improvements.
Also, for the first time, Young Bros. is being allowed to implement a fuel surcharge that can be adjusted -- up or down -- every three months. The company will adjust the surcharge whenever its price of fuel increases or decreases by 15 cents per gallon or more from its base rate.
The 7.5 percent rate increase was approved Friday by the PUC, following a settlement between Young Bros. and the state Division of Consumer Advocacy.
Young Bros. initially had sought a 10.7 percent increase.
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The state Public Utilities Commission has given interisland shipper Young Bros. Ltd. approval to raise rates 7.51 percent and implement a fuel surcharge for the first time.
Costly cargo
Young Brothers' most recent rate increases:
» 2007, 7.51 percent
» 2006, 5.5 percent
» 2005, 5.5 percent
» 2002, 3 percent*
» 1996, 3.9 percent
*For noncontainerized cargo
Source: State Department of Commerce and Consumer Affairs
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The increase will give Young Bros. $4.4 million in additional annual revenue and help it pay for its 10-year, $186 million plan to improve its equipment and infrastructure.
"We have increases in a number of areas," said Roy Catalani, vice president of strategic planning and government affairs for Young Bros.. "We certainly have increased operating expenses, including steel replacement; labor costs; repairs; maintenance; and fuel. At the same time, Young Bros. is undertaking a substantial capital improvement strategy that includes significant vessel improvements as well as shoreside improvements."
Young Bros.' rate increase is its third in three years and follows a settlement with the Division of Consumer Advocacy, a department of the state Commerce and Consumer Affairs. The Consumer Advocate had opposed the initial 10.7 percent increase that Young Bros. sought in its rate application, filed last December.
The higher rates will go into effect after Young Bros. files revised tariff sheets and rate schedules with the PUC, which approved the increase Friday.
For different cargo types, Young Bros.' rate increases range from zero to 15 percent -- down from the zero to 24 percent it requested in its initial application with the PUC. The highest increase, 15 percent, will be for less-than-container-load cargo, such as G-vans (small containers), pallets and mixed cargo.
Young Bros.' stipulated rate of return, or what it earns on assets, is 10.76 percent on a revenue requirement of $68.9 million. The PUC wrote in its ruling that the 7.51 percent increase will provide Young Bros. the opportunity to earn that 10.76 percent return.
Catalani said yesterday he expects the revised tariff sheets and rate schedules to be filed with the PUC today and the new rates to go into effect "shortly."
Young Bros.' fuel surcharge will be automatically adjusted up or down every three months to reflect fluctuations in its diesel fuel costs. The adjustments will be triggered whenever the price per gallon increases or decreases by 15 cents or more from the unit price included in Young Bros.' established base rate.
"With the fuel market as volatile as it is, we need to react to changing fuel prices," Catalani said. "What this does, basically, is it allows us to adjust to the reality of the market without going in for a rate increase every time there's a substantial increase in fuel."
Catherine Awakuni, executive director of the Division of Consumer Advocacy, said her agency protested the 10.7 percent rate application because it felt Young Bros. had not provided enough supporting evidence to justify that big an increase and that the application needed to be supplemented.
She said the Division of Consumer Advocacy was now satisfied with the adjusted increase request after the PUC urged the two sides to work together.
"I think that rate increases are always difficult for consumers, and we at the Consumers Advocate office are always mindful of that," she said. "But we did find support in the record justifying a rate increase."
Under its recapitalization plan, Young Bros. said it intends to make necessary improvements to cargo transportation, develop needed additional cargo capacity and enhance customer service with the acquisition of as many as eight new barges, six tugboats, containers, cargo handling equipment and freight information systems.
Young Bros. also said it plans to reconfigure, expand and improve harbor facilities in Honolulu, Kawaihae (Big Island) and Kahului (Maui) and develop a new Hilo pier.
The shipper said the expansion is needed to meet present and future cargo demand. Young Bros. said upon the completion of its 10-year plan, its tug fleet age will be reduced from a current average of 25 years to 10 years by the year 2015, and its barge fleet will be reduced from a current average of 26 years to seven years by 2015.
Awakuni said one of the sticking points that the Consumer Advocate had with Young Bros. was the shipper's initial request for a 24 percent rate increase for less-than-container-load cargo.
Catalani said the 24 percent increase is what Young Bros. would need for such cargo service to break even.
Among other cargo, reefer containers and straight-load racks will see increases of 4.5 percent, as will automobiles. Dry containers will go up 2.25 percent, while there will be no increase for roll-on/roll-off cargo.
