Young Brothers audit ignores the elephant in the room

The following article was first published Oct. 5, 2021, in The Honolulu Star-Advertiser.

Young Brothers needs to get its act together, according to an audit released last month by the Hawaii Public Utilities Commission, which regulates the state’s only interisland waterborne cargo carrier.

Conducted by independent consulting company Munro Tulloch, the audit cited problems with the company’s labor management, cost controls and information technology.

But don’t expect the audit’s recommendations to be of much help. They amount to tinkering at the margins, considering Young Brothers has no competition — nor even the threat of competition. State law virtually guarantees Young Brothers’ monopoly, and the company has long fought to keep that privileged status.

In 2011, for example, in response to the PUC allowing Pasha to operate in the interisland trade, the Legislature amended the law and upped the barriers to entry. Any prospective competitor now has to meet almost impossible requirements under Act 213’s four-pronged test.

In 2018, state Rep. Sylvia Luke proposed a bill to amend the entry requirements, to remove some of the 2011 law’s most restrictive language.

Ironically, ocean carrier Matson, which shares with Pasha a virtual monopoly on all goods shipped between Hawaii and the mainland, supported the bill.

“Having the whole system limited to a single carrier can cause significant delays to essential cargo deliveries to the neighbor islands,” a company representative testified.

Luke’s bill did not pass, but it spoke to the real problem at hand.

“This bill recognizes that increased competition may be a benefit to intrastate cargo customers and the state,” said Dean Nishina, Hawaii’s consumer advocate, in support of the measure.

The audit by Munro Tulloch was a part of an August 2020 deal between Young Brothers and the state PUC that granted the tug-and-barge company a 46% rate increase to help make up for heavy financial losses it blamed on the COVID-19 crisis.

In addition to requiring an audit after one year, the commission required Young Brothers to refrain from rate increases for at least a year and develop a customer service plan.

Fast forward to September 2021, and the completed audit tells us that even though coronavirus-related losses were a factor, the company’s problems did not begin in 2020.

“Though the 2020 financial issues faced by the company were blamed on the dramatic decline in regulated cargo resulting from the 2020 COVID-19 pandemic,” Munro Tulloch stated, “in reality the crisis was much deeper and structural, building over several years.

It said labor costs, overreliance on rate increases and lack of concern by Hawaii politicians and regulators were all partially to blame for Young Brothers’ situation.

The audit also noted that port wait times of over an hour “are not unusual, unfortunately, and this is a major source of complaints from customers.”

Munro Tulloch’s recommendations included:

>> Developing new cost-control strategies.

>> Revisiting labor costs, which “represent over 60% of total operating costs.”

>> Crafting an information-technology plan to be implemented over five years.

No doubt adopting these recommendations could help, but they ignore the elephant in the room — which is that Young Brothers has no competition and thus no incentive to cut costs, improve efficiency, better serve consumers and keep its rates low.

Moving forward, the Legislature should look for ways to liberalize Hawaii’s interisland shipping regulations to encourage competition and foster a financially viable intrastate cargo transportation system.

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