Shipping most goods between the main Hawaiian islands will get more expensive Jan. 1 under a decision issued Monday by state regulators.
The state Public Utilities Commission granted a request by Young Brothers LLC for the interisland tug-and-barge service operator to boost its annual revenue from regulated cargo rates by 25.75%.
The company was denied a request for automatic annual increases up to 5% tied to inflation.
Because an interim 18.1% rate hike approved by the PUC earlier this year went into effect July 1, the size of the new increase from current rates amounts to 7.65%. However, it follows a 46% hike in 2020.
The unanimous decision by the three-member commission followed a quasi-judicial proceeding that ran four days through Oct. 2 and included testimony from Young Brothers executives and consultants who were at times challenged by attorneys representing the state Division of Consumer Advocacy and the PUC.
Many consumers and businesses, mainly on the neighbor islands, will have to deal with the extra cost for goods delivered by Young Brothers, which the PUC said was necessary to avoid an abrupt loss of service from the monopoly carrier in financial distress.
As a condition of the granted rate increase, the PUC is prohibiting any additional increases for two years, after which the shipping company may only seek an increase if it has demonstrated business transformation progress.
The company is expected to make operations more efficient under a new business plan aimed at breaking what had been a cycle in recent years of seeking big, urgent rate hikes.
Another condition imposed by the PUC will have a “special overseer” appointed to monitor Young Brothers operations with power to examine company financial records, interview employees and attend board meetings.
The PUC, in a fact sheet about its approval, said Young Brothers, which is owned by Seattle-based transportation conglomerate Saltchuk, is incurring a net loss financially, in arrears with vendors, and in a state of default with lenders.
Unpaid obligations include wharfage fees owed to the state Department of Transportation.
“To break this cycle of requests for expedited rate increases, the commission is conditioning this latest rate increase with strict oversight of YB’s operations and demanding measurable progress before considering any future rate increases,” the commission said.
Lanai resident Sherri Williams said she’s pleased with the overseer condition and no increases for at least the next two years, but she still said Young Brothers’ rate increases since 2020 have been tough.
“These are hefty increases,” she said. “It’s not like 10% or 20%.”
Williams, who has lived on Lanai for over 20 years, said so much of what people buy on the island is delivered by the company, and that even some cars needing repair have to be shipped off island. “It’s painful,” she said. “It’s painful.”
Frank Almaraz, who has been Young Brothers’ interim president since July 3, said in a statement that the company appreciates the PUC decision and views it as an important first step toward addressing financial strain created by what he described as delayed rate updates after years of rising costs.
“These new rates address our most immediate financial solvency risk by better aligning customer rates with the costs to provide and maintain reliable service across every island,” he said. “There is still significant work ahead, and we remain committed to further improving our operations and working with state leaders and our regulator to build long-term stability for Young Brothers and Hawaii’s supply chain.”
Almaraz also expressed disappointment at the PUC’s imposition of a two-year rate freeze and rejection of automatic inflationary rate increases.
“Our customers, businesses, and community organizations have made clear that more predictable adjustments would help them plan for shipping costs,” he said. “We are deeply disappointed the Commission did not give us this critical tool to help break the cycle of financial distress and secure the private capital needed to keep the ships sailing and reinvest to maintain reliability. Additionally, by adding a two year ‘stay out’ period, the Commission is recreating conditions that will likely lead to large, unpredictable, and urgent customer rate increases in the future.”
The 26% increase over what was being generated before the interim hike took effect July 1 is expected to boost Young Brothers’ annual revenue by $26.1 million to $127.4 million from $101.3 million previously.
The state Consumer Advocate had recommended a 19.4% increase boosting revenue by $19.7 million.
Young Brothers has previously said its requested change represents a 20% average rate increase on most cargo and up to 45% for some service. A 20% average rate increase, the company said, roughly amounts to 3.7% a year since 2020 and is less than general inflation.
The PUC, in its order, said it had “grave concerns with YB’s cycle of escalating financial instability.” The commission said its concerns stretch back to 2016 when the company began seeking a general rate increase every two years, and then got worse in 2020 when the company asked for a 34% increase.
A sharp downturn in business early on in the COVID-19 pandemic actually resulted in the company receiving a 46% emergency rate increase in 2020.
At the time, the Consumer Advocate considered the increase excessive. And in 2021, a state-ordered audit said the emergency increase was producing profits for Young Brothers, in part by over-allocating costs to its regulated business versus its nonregulated business. The audit also said a strong argument existed for the emergency increase to be reduced.
Company officials said operating costs have since 2020, including investments in new tug boats and barges, increased by about 44% while cargo volume declined by about 14%. Also since 2020, no general rate adjustments had been made until July following multiple requests.
In October 2024, Young Brothers applied for its 26% increase, then in February asked the PUC to approve interim increases of 20% effective April 1 followed by an additional 5% by July 1.
Also, in April, the company applied for annual inflationary increases, and asked for the first one by July.
On June 27, the PUC approved an 18.1% interim increase effective July 1.
Young Brothers said that from 2022 to 2024 its expenses for regulated service rose by about 20%, or $20 million, while revenue from the same business fell 1%.
The company told the commission that it expected a $26.4 million financial loss in 2025 after losses of $835,997 in 2023 and $14.3 million in 2024, and that a 25.1% increase would allow the company to break even.
On Monday, Young Brothers said it expects a financial loss in 2026 topping $6 million even with the approved higher rates.
“While their views may differ in detail, both YB and the Consumer Advocate acknowledge that something must be done to ‘break the cycle’ of frequent rate cases or other rate relief requests and allow YB to regain financial stability in a manner that does not overly burden customers,” the PUC order said. “The Commission agrees.”
Source: The Garden Island