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are located at Puerto Nuevo; their Ponce container terminal is located on property within the Ponce Municipal Terminal; their Mayagüez container terminal is located on property adjacent to the Mayagüez Municipal Pier (ch. VI). Seatrain's San Juan terminal is located at Isla Grande. GPRL's terminal is located at pier 11, Old San Juan (ch. VI); like Sea-Land's facility, their Ponce container terminal is located on property within the Ponce Municipal Terminal; their Mayagüez container terminal is located on property adjacent to the Municipal Pier.

(1) Sea-Land's Substituted Service.-Sea-Land's direct calls at Ponce and Mayagüez have been less than one per month due to its lack of vessels with shipmounted cranes capable of handling containers at these ports. In 1967, Sea-Land's direct service to Ponce moved only 14,000 tons through this terminal. Of Sea-Land's 1,001,550 tons landed at San Juan in 1967, 111,939 tons or about 11 percent of this traffic was trucked by substituted service from San Juan to Ponce; 21 approximately 26,504 tons or about 3 percent of its cargo was trucked to Mayagüez. Appendix C, table 4 shows that Sea-Land trucked 6,465 containers from San Juan to Ponce on traffic manifested to the latter port; most of this traffic consisted of TL shipments (4,585 TL containers versus 1,880 LTL containers). When this substituted service was performed at the water carrier's option, the trucking charge of $45 per loaded trailer (22.5 tons), or $2 per ton, from San Juan to the Ponce terminal was absorbed by the water carrier.

In 1967, Sea-Land's direct call service to Ponce employed either the SS Azalea City, SS Mayagüez, or SS Bienville, C-2-type vessels, which docked at San Juan to unload San Juan cargo first and which then were sent around the Island to Ponce or Mayagüez. In contrast to the 3 hours by road, the total sailing time from San Juan to Ponce is 15 hours.22 As indicated in chapter II, frequent and fast service is important to Puerto Rico's industrialization, among other things, because it not only facilitates production but also reduces inventories and the expenses involved with main. taining large inventories. The water carrier's substituted

service from San Juan to Ponce, which takes less than one-half day, facilitates the fast and frequent delivery essential to stores and factories located on the southern and western regions of the Island. Sea-Land's San JuanPonce traffic is trucked between these two points on a daily basis.23 At best, these consumers could expect only weekly service if all 111,939 tons had to be moved by sea.

(2) Cost Differential (Road versus Sea) and Rate Levels.—It is probable that Sea-Land has employed substituted service not only because sufficient vessels with onboard cranes are not presently available to maintain frequent direct-call service but also due to the lower cost of using motor vehicles from San Juan to Ponce and Mayagüez.

To determine the probable cost differential of substituted service relative to sending a ship from San Juan around the Island to Ponce, the Bureau of Financial Analysis of the FMC conducted a special study of costs to have a vessel call at Ponce. This study considered the number of days at sea and in port of a ship and projected the additional costs including dockage reported by Sea-Land in its 1968 G.O. 11 reports for its East Coast:Puerto Rico service. The additional costs were then distributed over an average load factor of about 2,300 tons (103 containers) per voyage assuming a weekly service.

Comparing this cost to the cost of moving one container load by road from San Juan to Ponce, the study found a cost differential favoring delivery by substituted motor service. It is important to observe, moreover, that consignees in Ponce and Mayagüez desire service more frequently than once a week in order to adequately supply consumer needs in these communities. If the costs of biweekly service were analyzed, the cost differential favoring delivery by road would be even greater. It is recognized that there are other factors of cost affecting the movement by land and sea which were not included in this study. These factors, however, were not considered significant enough to change the con. clusion concerning the cost differential derived from the Bureau of Financial Analysis study. It is important to mention that the lower costs are important not only to the carrier but also to the consumer because, generally speaking, low costs of transportation are reflected in lower ocean rate structures over the long run ultimately allowing for lower pricing of imported goods and, thus, benefiting the consumer in Puerto Rico.

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21 The loaded container was trucked from shipside at San Juan to the car. rier's Ponce terminal where it was deposited. The trucker picked up an empty or loaded container for return to the San Juan terminal.

22 The total time between departure from San Juan and unloading at Ponce amounts to approximately 15 hours. The vessel departs from San Juan at 5 p.m., or at the end of straighttime working hours for stevedores. In order to arrive at Ponce the following day and be ready to start offloading at the start of straighttime working hours for stevedores, or 8 a.m., the vessel often varies the time of departure, speed of maneuvering in the inner and outer harbor of San Juan, and speed of advance over the 120 nautical miles distance between San Juan and Ponce and docking at Ponce to be ready for unloading at 8 a.m.

23 Sea-Land's containerships, which call at San Juan six times per week, generally carry traffic destined for consignees located at Ponce.

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(3) Other Containership Operators.--As indicated previously, TTT and GPRL can not provide direct-call containership service at Ponce and Mayagüez. TTT's SS Ponce de Leon is incapable of making such calls as is GPRL's SS New Yorker, a small roll-on/roll-off con. tainership. Moreover, the New Yorker's size, range, and speed permit scheduled calls at San Juan only. Seatrain's 3 vessels permit only biweekly service to San Juan. Unlike Sea-Land, these carriers therefore provide no direct-call service to Ponce and Mayagüez and serve these ports exclusively by truck from their San Juan terminals. In 1967, GPRL's Ponce container traffic amounted to approximately 1,000 tons (based on 26 SS New Yorker calls at San Juan and 2 to 3 trailers per visit). Although no precise 1967 intercity traffic information could be obtained on Seatrain's and TTT's San Juan-Ponce or Mayagüez operations, it is estimated that this traffic was relatively small compared to that of Sea-Land. 24

Wednesdays of each week. As indicated previously, delivery from San Juan to Ponce and Mayagüez by road takes less than one day. In contrast, to the im. mediate dispersal of containers which upon offloading at San Juan move by truck to Ponce, a C-2 requires 14 hours to offload at San Juan and another 15 hours by sea between San Juan and Ponce. Further, only three C-2 Sea-Land vessels are outfitted with ship cranes which would make it possible to load and offload at Ponce. In addition, deliveries by road are made daily; whereas by sea, only weekly service would be possibleat best, and then, at a higher cost than by road. Therefore, grocery stores and the EDA-sponsored factories located in the southern and western regions of the Island appear to have benefitted by Sea-Land's practice of delivering by road. The foregoing discussion of substituted service has been largely based on economic considerations. It is recognized that there may be certain social and institutional factors which have not been considered. These include employment of some labor at Ponce and Mayagüez, excessive wear and tear of highways, and danger to private vehicle traffic.

b. Benefits to the Public

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c. Containerization and Distribution Patterns

Knowledge concerning the relationship between SeaLand's substituted service and the benefits of such service to the public is of particular significance in considering whether substituted service is warranted. In this connection, the extent to which this service may be needed by the shipping public is important.

As indicated previously, the Ponce region, which contains 16 relatively small communities, is the trading and distribution center of southern Puerto Rico. In 1966, this region contained 328 industrial firms or branch plants of U.S. based companies.

The frequent supply of semi-manufactured and raw materials provided by trucks from San Juan is very important to the plants as well as to the future dispersion of manufacturing plants to this area.25 The same is true of the Mayagüez region which serves as a trading center for 15 small communities in the western sector of the Island. Approximately 350 manufacturing plants which depend on frequent service from the Mainland are located in this area. Moreover, grocery stores in Ponce and Mayagüez depend on frequent service for prompt delivery of fresh vegetables and fruits that must be placed on the shelf on Mondays and

There is another noteworthy consideration which demands attention in any examination of substituted service in this trade. The land area of Puerto Rico, being relatively small, makes the length of trucking from San Juan to Ponce, and Mayagüez insignificant when compared with the port-to-port distance between U.S. Atlantic ports and the Puerto Rican ports. These distances and relationships indicate that the principles of the new economics of containerization may lead to a higher concentration of cargo through one-load cen. ter with subsequent distribution by truck within a 200mile radius of the terminal.26 It is important to mention that the rising costs of terminal operations and the radical changes in ship design, which are now producing mammoth containerships for this trade, indicate that Ponce and Mayagüez may receive even less directcall service in the future due to their limited capability of handling such ships. The harbor, berthing, terminal, and marshalling yard conditions at Ponce and Maya. güez do not meet the specifications of a modern container facility. The benefits inherent in new patterns in containerized movements must not be restricted to consignees 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 over. land 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.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.

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24 Seatrain estimates that its southbound Ponce and Mayagüez traffic was less than 5 percent of its total southbound traffic of 248,000 weight tons in 1967.

25 Only 14 percent of all manufacturing plants are located in the Ponce region.

24 McKinsey Co., Inc., Management Consultants, op. cit., p. 13.

d. Direct-Call Service at Ponce and Mayagües

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 pre. ferring 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.

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

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.

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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 prin. cipal 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.

(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

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 de. preciation 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 in. sure 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 can. not 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. Un. like 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. Be. cause 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

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28 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 firmg (Berwind).

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

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 pub. lished in the water carrier's tariff but higher on volumes weighing 6,000 pounds or less.

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 orga- . nized 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 vari. ous rate levels are numerous (app. I, table 1).

2. Survey of Puerto Rico's Industries

3. Length of Haul, Licenses, Insurance

and Relative Volumes of Service

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

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.

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

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