Audit Finds That Young Brothers Failed To Offset Rising Labor Costs – Honolulu, Hawaii

Honolulu, Hawaii 2021-09-20 22:33:19 –

September 16, 2021

When Hawaii regulators forced the state’s monopoly island shipping company to raise its rate by a whopping 46% in August 2020, orders were similarly tied – like ropes – audited.

Objective: To see what went wrong, a 100-year-old company needed an additional $ 27 million to reach its objectives.

Exactly a year later, the audit was over. Its main finding: Young Brothers management dropped the ball when it came to catching up with the sharp rise in labor costs as outlined by the collective bargaining agreement with the company’s collective bargaining agreement.

Young Brothers, one of Hawaii’s oldest and most important companies, faced a financial crisis in 2020 before regulators forced interisland shippers to raise rates.Corey Lamb / Civil Beat

“The 2020 financial crisis we faced was blamed for the effects of the 2020 Covid 19 pandemic, but in fact the root cause was much deeper and had grown for several years,” said Munro Tulloch. The person said in the report. It was submitted to the Public Utility Commission earlier this month.

Young Brothers are very important to Hawaii’s economy. Because Hawaii is the state’s exclusive interisland shipping company and a common carrier for everything from milk to cars.

The Public Utility Commission regulates shipping charges in the same way that utilities are regulated. Rising Young Brothers rates often affect the economy as a whole in the form of rising retail customer prices. In the states where living expenses are already the highest in the country, it is a considerable deal.

With such high interests, the company’s financial predicament should be sufficiently alarming, and in 2020 Hawaiian legislators considered subsidizing the company’s business. Immerse yourself in a special fund Used to maintain and operate state ports. Proponents said the bill was needed to prevent significant increases in food and other necessities on neighboring islands.

But some big questions were left unanswered, and Specification Eventually he died on the committee. Instead, PUC has approved an increase in urgent charges to keep Young Brothers on, provided that the auditor scrutinizes the company.

The 217-page audit report explored areas such as information technology systems and financial management, as well as corporate governance, management, marine and terminal operations.

Pass rising costs to customers

The future details of Young Brothers may be unclear, but Audit provides insights into how the company, founded in 1900 and once part of the Hawaiian Electric Industries conglomerate, sailed on the brink of failure. Offers.

In essence, according to audits, Young Brothers management was accustomed to passing on increased labor costs to customers through rate increases regularly approved by the Hawaii Public Utility Commission.

But by 2016, PUC’s compliance has declined, and according to a contract with Young Brothers’ major union, International, Young Brothers’ approved tariff increases have not kept pace with labor costs, which increase by more than 10% annually. .. Long Shoreman and Warehouse Union, Local 142.

Labor costs were not the only issue identified in the audit, ILWU officials declined to comment. Still, audits pointed out that the cost of hiring workers, combined with no plans to reduce costs elsewhere, is a major issue.

“This has had a significant impact on our financial performance since 2016, as the workforce accounts for almost 60% of YB’s total operating costs,” Munro Tulloch reported.

Some cargo carried by Young Brothers is unregulated. That is, PUC does not have to set the price. Auditors said Young Brothers tried to make money by transporting more unregulated cargo, but again the problem was that costs also went up.

“Despite the increasing losses, former YB management made minimal efforts to make strategic changes during this period to address operational efficiency or keep costs down. It seems, “the auditor discovered. “The company’s leadership seems to be based on the assumption that costs are fixed, instead focusing on increasing revenue by carrying unregulated cargo. This is the overall revenue. It had the net effect of increasing it, but it also brought additional costs, such as continued operating losses. Growing up. “

Here are some recommendations for Young Brothers:

  • Agree to implement cost savings of at least $ 3.4 million in the short term and not demand another rate hike until at least 2023.
  • Credit line extension.
  • I agree to hold approximately $ 10 million in cash on hand and obtain PUC approval before spending that money on investment, investment, or dividends.
  • Independent observers intervene to assist in overseeing operations.

The recommendations were not binding and it was not clear how strongly the PUC would impose them.

PUC Chairman J Gryphin declined to comment on the report and introduced the question to audit firm principal Reitalock. Mr. Tallock also declined to comment, saying he would like to meet with lawmakers first to discuss the findings.

Chris Nakagawa, Vice President of Foreign Affairs and Legal Affairs at Young Brothers, did not call for comment.

The audit report noted that Young Brothers has already taken some steps to mitigate the problem and that the company is working with the auditor.

The complete Young Brothers Audit Report can be found here.

Honolulu Civil Beat We are dedicated to fostering a gathering of informed citizens, all striving to make Hawaii a more livable place. We achieve this through investigative journalism and guard dog journalism, detailed corporate reporting, analysis and commentary, providing our readers with a broader view of issues that are important to our community.

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