signees or shippers located near the major terminal served (San Juan). This is particularly true when: (1) vessel load conditions and cost factors; and (2) the needs of shippers and consignees clearly suggest overland delivery rather than direct-call service. The importance of daily service to industrial plants and consumers located at Ponce and Mayagüez must not be underestimated.

d. Direct-Call Service at Ponce and Mayagüez and Absorption of Charges

Substituted service creates certain regulatory problems which require consideration. This service may result in the diversion of some containerized traffic naturally tributary to the ports of Ponce and Mayagüez.

In Sea-Land Services, Inc. v.s. Atlantic and Caribbean Line, Inc. 9 FMC 338, 34 (1966), the FMC found:

a substituted service rule in SACAL's tariff, was not justified, because it diverted from a port providing adequate direct-call service, traffic which is naturally tributary to it and which would normally move through it, unduly preferring the port of Miami and unduly prejudicing the port of Jacksonville, in violation of section 16 First of the Shipping Act, 1916, as amended.

In that case, Sea-Land and TMT were providing adequate direct-call service on containerized traffic from Jacksonville to San Juan and traffic was being diverted by SACAL from this service to its Miami-San Juan service. However, the circumstances in the present substituted service from San Juan to Ponce and Mayagüez are somewhat different. This service does not seem to be unlawfully diverting traffic which is normally tributary to Ponce and Mayagüez because these ports do not appear to provide adequate direct-call service for containership traffic. In contrast to the regular containerized service offered by Sea-Land and TMT from the port of Jacksonville, regular direct service is provided only by Lykes, a breakbulk carrier which operates from U.S. Gulf ports, and GPRL's breakbulk service. As previously indicated, containerships operating in the U.S. Atlantic-Ponce and Mayagüez trade move most of their traffic by substituted service from San Juan and, therefore, call at Ponce and Mayagüez infrequently. As a result, adequate container service is not now available through these ports and, for this reason, no containerized traffic is actually diverted from other domestic carriers servicing Ponce and Mayagüez to those provid

ing the substituted service. No common carrier has complained about the present San Juan-Ponce substituted service of Sea-Land, GPRL, Seatrain, and TTT.

The carrier's practice of absorbing terminal to terminal line haul trucking charges between San Juan and Ponce/Mayagüez for certain shippers could be considered as being unfair to those shippers located inland who must pay the full P/D service charge on cargo consigned to San Juan. For example, a shipper located ten miles from Ponce receiving a truckload manifested to that port as a result of the carrier's practice of absorbing 70 miles of trucking charges from San Juan to Ponce, pays P/D delivery charges only from the carrier's terminal at Ponce. This shipper in effect actually receives goods which have been trucked 80 miles, but pays for only 10 miles of transportation. On the other hand, a shipper located 30 miles inland from San Juan receiving cargo manifested to that port must pay the full P/D service charge from San Juan to his place of business. This charge may be greater even though he may be closer to San Juan than is the Ponce shipper. However, no complaints against this practice have ever been registered with the FMC; and the response to an FMC survey of shippers and consignees in Puerto Rico, by means of 2,500 questionnaires, revealed no complaints against substituted service practices in this trade.

Because the existing substituted service practices of the various carriers serving Puerto Rico may be discriminating between ports or shippers and raises certain regulatory problems under the Shipping Act, 1916, and the Intercoastal Shipping Act, 1933, the FMC's staff should continue its surveillance of this problem.

C. THE TRUCKING INDUSTRY "

The following pages attempt to identify the problem areas prevailing in the trucking industry as well as to define and measure the nature and scope of these problems. The material is based upon a survey, representing a joint FMC and PSC study, which considered the geographical distribution of firms and equipment, the relative importance of firms of various sizes, the nature of customer industry demand (type of customers), the business trends in industry viewed in terms of revenues and tonnage, the wages and employment patterns pre

27 FMC and Commonwealth of Puerto Rico Joint Survey of Puerto Rican Trucking Industry-1968.

vailing, and the problems of the industry as viewed from three points of interest: (1) the ocean carriers utilizing the trucking services; (2) the shippers and consignees (customers); and (3) the truckers themselves.

The study revealed certain pickup and delivery transportation problems which may cancel some of the efficiencies gained on the ocean portion of the movement. These problem areas appear to include a relatively low P/D rate structure which may be a result of the unrestrained competition of many small unregulated island truck operators; inadequate maintenance and safety standards prevailing on trucking equipment and operations, also traceable to the foregoing; a wide spread lack of cargo insurance, according to the water carriers and large trucking firms. New regulatory procedures, particularly in the field of rate-regulation, were suggested as a solution to these problems by various respondents to the FMC/PSC trucking survey.

1. Survey of Common Carriers by Water

To identify problems between water carriers and the trucking industry of Puerto Rico and to better evaluate the service of Island trucking, the FMC conducted a special survey including field investigation of the principal containerized water carriers in the Puerto Rican trade. 28

The survey indicates that the common carriers and principal trucking firms believe that the trucking industry faces many serious P/D service problems in Puerto Rico. The water carriers and principal truckers maintain that the following are their most severe P/D service problems:

(1) There is an absence of rate regulation.

29

(2) Irrational ratemaking practices are forced on the large and some medium sized trucking firms, or so-called organized truckers, by small and one-truck operators, or independent operators, who; do not pay minimum wages; do not pay labor union wages; carry no insurance on cargo or equipment; enjoy special licensing at a reduced cost; and do not observe any of the rules regarding safely operat ing vehicles including loading and inspection.

(3) There are too many quasi-contract carriers that have obtained financing from import firms. These firms set the

23 Three ocean common carriers which represent the principal users of P/D service in Puerto Rico included: a containerized operator offering P/D service throughout the Island, principally from San Juan (Sea-Land); a roll-on/ roll-off carrier performing through a subsidiary much of its own P/D service but also employing several medium sized trucking services (TMT); and a barge operator, which did not employ any trucking service whatsoever, but operated closely with several trucking firms (Berwind).

20 It is interesting to note that certain of the independent truckers blame the organized truckers for precisely the same set of circumstances.

level of rates regardless of whether some rates are compensatory.

(4) Unfair rebating practices are used by some truckers. (5) Low rates compel most truckers to overload equipment, thus reducing the equipment's normal life expectancy. (6) Most Island truckers charge less than fully distributed cost.

(7) All traffic movements are short-haul operations, negating the economies of long-haul operations.

(8) Poor roads and the topography of the terrain places an undue burden on equipment and results in rapid depreciation of tractors and trailers.

(9) Puerto Rico's highway and road weight limits are unrealistically low.

In collecting comments from the water carriers and principal truckers concerning proposals to improve the quality of service and to control rates charged by Island trucking firms, the following recommendations were received:

(1) Establish rate regulation which in turn would insure that rates are reasonably related to per-unit cost factors;

(2) Establish measures to insure that safety regulations covering tractor and straight trucks are enforced including vigorous policing to make compulsory the periodic inspection of equipment;

(3) Establish rational road weight limits;

(4) Restrict carriers to specific routes and services; (5) Grant "certificates of convenience and necessity" to truckers only upon a finding that existing carriers cannot render adequate service; and,

(6) Establish improved policing to enforce all new regulations relating to Island trucking.

The organized truckers, generally selected by water carriers to move containerized traffic, are required by agreement to maintain certain standards relating to the vehicle's safety, cargo insurance, and PSC license. Unlike the organized truckers, the independent truckers which comprise most of the Island's trucking industry often do not obtain vehicle inspections, cargo insurance, and licenses to operate as public carriers and, for this reason, are not employed by the water carriers. These trucks, however, serve certain consignees. Because many truckers may be operating with poor equipment, lack of insurance, eratic rate levels, and without the experience or facilities needed to maintain efficient economic performance, it was suggested that the enforcement of vehicle inspections and more positive regulation including rate regulations would do much to insure adequate trucking service in Puerto Rico. Ocean carriers, truckers, and the PSC have suggested stronger controls be used to regulate the trucking industry and improve, among other things, safety and insurance factors affecting vehicles and cargo. Establishment of

uniform rate regulation and stronger policing measures was suggested in the survey as methods to eliminate unfair competition between truckers and to improve the service offered to the public. In addition to the ocean carriers and principal trucking firms, representatives of the PSC have indicated that uniform rate regulation and stronger policing measures may be needed.

The organized truckers on the one hand provide services under water carriers P/D rates and, on the other hand, compete against these same services by negotiating rates directly with the consignee. For example, in the case of TL shipments in certain areas, the rates which the truckers negotiate a consignee may be $5 to $10 lower than the corresponding rate listed in the water carrier's published tariff. On LTL shipments the trucker's rate on a shipment weighing over 8,000 pounds also may be lower than those published in the water carrier's tariff but higher on volumes weighing 6,000 pounds or less.

2. Survey of Puerto Rico's Industries

The survey of Puerto Rico's shipping public examined mainly EDA-sponsored factories which are primarily served by the organized truckers (large and medium size trucking firms) on cargo moving from and to U.S. mainland ports.30 The results of this survey, therefore, primarily reflect the type and quality of service rendered by this segment of Puerto Rico's trucking industry. A significant portion of the sample, 28 percent of those responding complained of high trucking rates, indicating that numerous P/D rates in 1967 assessed by the water carriers under their tariffs for services performed by motor carriers with which they have contracted were substantially higher than the equivalent rates charged by common carrier truckers when they negotiated directly with the customer or of contract truckers providing individual services for the customer. For example, the water carrier's LTL P/D service rates often were about 50 percent higher than the corresponding rates assessed by truckers negotiating directly with the shipper. On TL shipments, the water carrier's trucking rates averaged approximately 25 percent higher than those of common carrier truckers dealing directly with the shipper or consignee. In addition, a special study of 28 industrial plant's shipments shows that contract truckers assess rates

30 The 160 questionnaires including interviews by field investigators, represented a 6.6 percent sample of Puerto Rico's 2,400 industries.

which are considerably lower than the corresponding trucking rates published by the water carriers. The responses, however, indicated that quality of service provided by the predominantly large and medium size trucking group in 1967 was generally good. Of 147 shippers responding, 138 or 94 percent indicated that they had no complaints about the quality of trucking service. Of the 134 shippers who responded to the question on cargo insurance, 117 or 87 percent indicated that it was provided by the truckers. Thus, only 13 percent of all manufacturing plants had their cargo transported by truckers who failed to obtain cargo insurance.

It is important to mention, however, that the organized truckers (large and medium firms) comprise only 1.4 percent of all trucking firms operating in Puerto Rico while the independent truckers (small and one-truck operators) allegedly operating without PSC license, cargo insurance, safety inspections, and at various rate levels are numerous (app. I, table 1).

3. Length of Haul, Licenses, Insurance and Relative Volumes of Service

a. Length of Haul and Equipment Utilization

Distances from ocean terminal to final destination within Puerto Rico are necessarily limited by the Island's small physical dimensions. Nevertheless, such traffic patterns can be segregated into identifiable zones which reflect the existing socio-industrial situation on the Island. Approximately 36 percent of the delivery destinations exists within ten miles of the San Juan ocean terminal reflecting the large amount of industry located in the San Juan Metropolitan area and adjacent areas such as Río Piedras. Relatively few shippers are located further inland than 30 to 50 miles from the port areas. There was a substantial increase between 1959 and 1967 in traffic moving through San Juan to the groups located 50 or more miles from the port area, reflecting the prevalent practice of handling cargo destined for the Ponce or Mayagüez areas overland from San Juan (substituted service).

Although it would be possible to calculate an absolute utilization index for most truckers based on their fleet capacity (small and one-truck operators), the results would not be sufficiently meaningful to justify its inclusion in this report. The average annual absolute utilization (i.e., simply the number of tons carried per unit) or the revenue earned per vehicle has been cal

1968.

to the question, 83 percent enjoyed the benefits of cargo insurance on their shipments. The businesses and firms represented in the shipper/consignee sample were almost entirely manufacturers which tend to patronize the large and medium-sized truckers.

(2) Insurance Practices-Liability Insurance.

31 For a description of large and medium-sized trucking firms, refer to paragraphs 4 and 5, respectively, of this chapter.

32 The size of vehicles utilized by these operators varied from 4 ton pickups to tractor-trailers, hence utilization with respect to load capacity is difficult to ascertain. Moreover, differences in types of customers and nature of cargo will also influence the weight utilization of a firm's vehicles.

33 For a description of small and one-truck operators, refer to paragraphs 6 and 7, respectively, of this chapter.

34 Approximately $5,000 at best.

Liability insurance coverage shows a definite downward trend from larger to smaller operations as shown below. The most common coverage for large, medium and small operators was $50,000, $100,000 bodily injury, and $10,000 property damage. Table VII-4 shows the insurance coverage on equipment by size firm.

Only a handful of insured one-truck operators specified their degree of coverage. Those having bodily injury coverage tended also to have property damage insurance although slightly fewer had such coverage. Accepted practice in the United States calls for liability insurance for all motor vehicles and many states have made it a legal requirement for operation.

c. Relative Volumes of Service by Contract Carriers and Common Carriers

Approximately 36 percent of the industries sampled reported that their business was exclusively with contract carriers while an equal number dealt exclusively with common carriers. About 16.5 percent reported a mixture of both types while about 11.5 percent operated their own trucks.

In 1967, the large truckers earned approximately $3,645,671 or about 35 percent of their total revenue from the carriage of contract cargo whereas medium truckers earned about $637,290 or about 20 percent of their total revenue from contract carriage (app. I, table 3).

Fifty-six percent of large truckers reported that they carried cargo under both common and contract carriage while only 38 percent of medium truckers carried both types. One large trucker was exclusively contract while eight were exclusively common carriers. Of the medium carriers, nine were exclusively contract while fourteen were exclusively common carriers.

4. Description of Large Trucking Firms

Appendix I, table 1, shows the size and geographic distribution of Puerto Rico's trucking industry (large, medium, small, and one-truck operating firms) for 1959 and 1967. This table shows that in 1967 Puerto Rico's trucking industry including large, medium, small, and one-truck operators, comprised 4,001 trucking firms operating 4,607 trucks, 1,021 tractors, and 892 trailers. The industry's power units increased about 50 percent between 1959 and 1967. It is noteworthy that tractors used to haul trailer chassis increased from 373 in 1959 to 1,021 in 1967, or by 174 percent, while large trucking firms registered the largest increases in tractor and trailer equipment.

a. Size of the Group and Distribution of Business

Trucking firms are described as large for the purpose of this study when they operate 16 or more power units. Appendix I, table 1 shows that there were 20 such firms in Puerto Rico in 1967 35 and the geographical distribution of this group. Nine of these firms were in the San Juan metropolitan area and four in the

25 The survey of the 20 firms comprising this group resulted in 16 replies comprising an effective sample of 80 percent for the following categories: distribution of business, equipment, employment, wages, unionization, and distri bution of customers by industry. The sample returned on business volume and number of customers was 75 percent.

Ponce metropolitan area. None were reported as being based in Mayagüez. The remainder were based in outlying areas.

Appendix I, table 3, shows that the total 1967 freight revenue earned by large firms was approximately $10,400,000 36 compared to about $5 million in 1959,37 representing an average increase of about 13.5 percent per year. About 65 percent of this revenue was earned on general cargo including consumer and intermediate goods, the remainder being earned on so-called specialized cargo.38 The general cargo revenues were split approximately 62 percent to 38 percent 39 between TL and LTL cargo, respectively. As nearly as can be determined, this ratio has not changed significantly since 1959. The amount of LTL cargo moving by specialized operator (i.e., trucker hauling primarily bulk traffic) was small and, thus, was not reported in the survey.

With one exception, most carriers tended to derive their revenue from either general or specialized carriage. Six of 16 reporting firms carried predominantly specialized cargo while nine carried mostly general cargo.40 In 1959, five firms were engaged in general trucking and six emphasized specialized cargo carriage. Revenue from carriage of specialized cargo has declined relative to general cargo. Among other things, this may be traced to the trend away from dependence on sugarcane culture in the Island's agricultural sector while the industrialization of Puerto Rico resulted in the consumption of greater quantities of consumer and semimanufactured goods. Most large trucking firms now count manufacturing plants including Fomento plants, as their most important source of revenue. Manufacturing plants provided $7.3 million dollars of revenue in 1967, or approximately 70 percent of total revenue earned by large trucking firms, while specialized cargo accounted for only 15 percent of the revenue derived from these same manufacturers.

b. Variety and Distribution of Business

The survey program divided shippers into five categories: sugar centrals and farmers, shipping companies (ocean carriers), retailers and wholesalers, manufacturers including Fomento plants, and all others

38 Based on a projection of the reported revenues of 16 firms responding to the survey.

37 Robert R. Nathan Associates, Inc. The Puerto Rico Trucking Industry Report On a Survey (Washington: November 1960), p. 12. 38 For example, sugarcane, oil, etc.

39 This compares reasonably close to Sea-Land's TL, and LTL ratio of

75 to 25.

40 Estimated numbers of firms engaged in specialized and general cargo carriage are 8 and 11, respectively, with one mixed.