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D. CONCLUSIONS AND RECOMMENDATIONS

1. Conclusion

Trucking is practically the only economical means for intraisland movement of goods, with the sole exception of pipeline movement of petroleum products, a relatively recent and limited development. Efficient and economical trucking service is essential to the origination and termination of ocean transport as well as to the intraisland commerce and the furtherance of the Commonwealth's desire to decentralize industry. The current practice of providing substituted motor service to the ports of Mayagüez and Ponce by service through the Port of San Juan rather than actual vessel calls at the other ports appears to offer an efficient means of transporting this cargo. In addition, stores and factories located in the southern and western regions of the Island appear to have benefitted by this practice. However, substituted services create certain problems which require examination. One is the possible diversion of traffic which is naturally tributory to Ponce and Mayagüez. Another is the orderly development of terminal facilities at these ports. In addition, there is a deceptive appearance in water carriers' tariffs which indicates direct vessel service with accompanying time and cost factors, but which actually is based on another mode of service (trucking).

Recommendation

It is recommended that the FMC's staff maintain close surveillance over the substituted service practices of the water carriers in the Puerto Rican trade.

2. Conclusions

The water carriers' pickup and delivery service in Puerto Rico is a transportation service which must be included in the tariff of each carrier subject to FMC regulation. Except for TMT, all water carriers have filed their pickup and delivery service rates and charges with the FMC. It appears that TMT is providing P/D services through its wholly-owned subsidiary Trans-caribbean.

Recommendation

It is recommended that the FMC maintain close surveillance over Puerto Rico's P/D service tariff filing requirements.

3. Conclusion

The predominance of one-truck operators, many of which are unregulated, makes difficult the prescription and enforcement of accounting and reporting requirements, determination of appropriate rate levels, the policing of tariff requirements, and inspection and enforcement of safety requirements. This also has contributed to inefficiency, under-utilization of equipment, and rate-cutting below economically justifiable levels. 4. Conclusion

During the course of the survey, there were numerous allegations, in addition to those concerning noncompensatory rates, of unfair rebating practices, uneconomic rate cutting for competitive purposes, illegal rate maintenance agreements, and quasi-contractual arrangements between truckers and shippers which may in fact equate to trucker subsidies from shippers. If these allegations are true, they indicate that a need exists for rate regulation. The PSC should continue its attempt to establish more positive regulation over the trucking industry.

CHAPTER VIII

GENERAL TRANSPORTATION AND REGULATORY MATTERS

A. GENERAL

As shown in chapters IV and V, Puerto Rico has, for the past decade, been assessed relatively low ocean rates. Commodity rates between the Mainland and Puerto Rico have been maintained at a level which is considerably lower than corresponding rates on traffic transported by foreign-flag operators from the same points of origin on the Mainland to Haiti, Jamaica, and Santo Domingo or to Western Europe. As in the case of the price-transportation relationships discussed in chapter V, it is important to note, however, that such a comparison alone is not conclusive that ocean rates to Puerto Rico are reasonable. The handling costs, type of vessel employed, frequency of service, volume of traffic, and frequency of damage claims to points of destination such as Haiti, Jamaica, and Santo Domingo are considerably different than those applicable to the Puerto Rican trade. For example, in 1968, the total traffic in terms of value shipped from U.S. ports to Jamaica, Dominican Republic, and Haiti amounted to only some 12, 10, and 2 percent, respectively, of the traffic handled from U.S. ports to Puerto Rico. It should be recognized that transportation is often characterized by reduced unit costs when the volume of trade increases; and, therefore, commodities moving in large volumes may be transported at a lower unit cost than can those moving in smaller volumes. A determination as to reasonableness of rates to Puerto Rico can be made

1 The provisions of the Shipping Act, 1916, which are administered by the FMC, require every common carrier by water in the domestic offshore trade to establish, observe, and enforce just and reasonable rates.

only upon consideration of all the factors involved, particularly those related to costs of transportation. Nonetheless, it is a fact that food stores and EDA-sponsored factories in Puerto Rico pay the lowest ocean transportation charges in the Caribbean region (chs. IV and V).

Because a comparative rate analysis is inconclusive, it is of special importance to the understanding of ocean transportation and carrier practices in this trade to consider, in more detail, certain factors which may affect Puerto Rico's transportation system. These factors include: carrier agreements, shortage of vessel space, demurrage, credit regulations, nonvessel operating common carriers (NVOCC's), developmental rates, and U.S. Coastwise Laws.

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2 Section 15 of the Act states, "That every common carrier by water, or other person subject to this Act, shall file immediately with the Commission a true copy, or, if oral, a true and complete memorandum, of every agreement with another such carrier or other person subject to this Act, or modification or cancellation thereof, to which it may be a party or conform in whole or in part, fixing or regulating transportation rates or fares; giving or receiving special rates, accommodations, or other special privileges or advantages: controlling, regulating, preventing, or destroying competition; pooling or apportioning earnings, losses, or traffic; allotting ports or restricting or otherwise regulating the number and character of sailings between ports; limiting or regulating in any way the volume or character of freight or passenger traffic to be carried; or in any manner providing for an exclusive preferential, or cooperative working arrangement. The term 'agreement' in this section includes understandings, conferences, and other arrangements."

One of the most anticompetitive and, therefore, important type of agreement is the ratemaking agreement. There is no such agreement currently in effect in the Puerto Rican trade, primarily because the reasons which compel the formation of these agreements in the foreign commerce of the United States, as noted in the following pages, do not apply to the Puerto Rican trade. There is considerable control exerted over domestic rates and carriers in this trade by the Shipping Act, 1916, which requires every common carrier by water in interstate commerce to establish, observe, and enforce just and reasonable rates, and by the Intercoastal Shipping Act, 1933, which empowers the FMC to suspend new rates and, after notice and hearing, to establish maximum and/or minimum reasonable rates.

As previously indicated in chapter III, during the 1950's, the Puerto Rican trade was dominated by two ratemaking conferences, the U.S. Atlantic and Gulf Conference and the Pacific Coast-Puerto Rico Conference. Rate monopolies were established by these conference organizations. These conditions were strengthened by the fact that none of the members of the conferences served the same U.S. mainland ports and one conference member (The Bull Line), as already noted in chapter III, dominated a substantial portion of the trade. In chapter III, it has been pointed out that some of the conference carriers seemed to offer the Island more tonnage that it was able to utilize. This excess shipping capacity was apparently possible because conference rates were maintained sufficiently high to permit some operators to make money with only partially loaded vessels. Low-cost members were able to offer excess shipping capacity to discourage nonconference operators from entering the trade route. In either case, the disadvantages to consumers in Puerto Rico were obvious. Although it could be argued that the conferences provided excellent service, these conferences.

3 In the Puerto Rican trade, there are two section 15 agreements, DC-8 and DC-38. DC-8 permits carriers to meet only for the purpose of discussing the advisability of establishing a conference in this trade but does not authorize fixing rates nor the exchange of information on rates. DC-8, therefore, has a lesser anticompetitive effect. DC-38 permits certain carriers to establish uniform practices in connection with the movement of property between Mainland ports and Puerto Rico.

In addition to the conference carriers offering excess shipping space, Pope and Talbot which also functioned as a proprietary carrier in this trade increased the amount of space available.

"Domestic conference carriers in the Puerto Rican trade seemed to offer the Island more tonnage that it was able to consume. This is not an uncommon feature on routes controlled by conferences *** It is apparently possible because rates are sufficiently high to permit some operator or operators to make money with partially loaded vessels. A low-cost conference member or one with a goodly share of the more remunerative traffic can afford to offer redundant service in order to discourage outsiders from entering the route" (source: S. E. Eastman, and D. Marx, op. cit., pp. 223–24).

protected the high-cost operators by setting rates high enough to satisfy the least efficient carrier and offered no prospect of reducing rates in the U.S. mainlandPuerto Rican trade. On the contrary, the additional carriers entering the conferences, which reduced load factors and efficiencies, eventually led to increased rates during the 1950's. (These rates doubled during the 1950's.)

As a result of the rise in containerization and accompanying competitive factors in the Puerto Rican trade during the early 1960's, the Puerto Rican conference system collapsed by 1962. Since that time, the Puerto Rican trade has become highly competitive. It not only has seen tremendous technological advances, but also rate levels that have generally remained steady or declined (ch. IV). As a matter of policy within the staff, therefore, conference agreements for fixing or regulating transportation rates or fares have been discouraged in the domestic offshore trades. This policy is strongly supported by the Commonwealth of Puerto Rico. Although, section 15 allows common carriers by water to enter into agreements, Congress did not make this privilege absolute but instructed the Commission, as the regulatory agency charged with enforcing the Shipping Act, to disapprove, cancel, or modify, any agreement which it finds after hearing will operate to the detriment of the U.S. commerce or is contrary to the public interest.

In an analysis of the need for conference agreements in the domestic offshore trades, the starting point is the antitrust laws. Although section 15 type agreements are contrary to the antitrust policy of the United States, approval of these agreements by the Commission gives antitrust immunity. Before approval, however, the Commission must be convinced that approval of the agreement is warranted. The antitrust laws represent a concept of the public interest in which an attempt is made to keep channels of competition open to allow prices and the value of services to be determined in a free market. In allowing a limited departure from that concept, Congress has required that the regulatory agency exempting agreements from the scope of the antitrust laws will impose proper controls consonant with the public interest. The FMC has recognized its duty in this regard.

On May 1, 1962, Waterman of Puerto Rico (Waterman) became the sole remaining member of the U.S. Atlantic and Gulf Conference which thus effectively became inoperative. Waterman withdrew from the Pacific CoastPuerto Rico Conference on Mar. 8, 1963, thereby effectively dissolving this conference.

In Mediterranean Pools Investigation, 9 FMC 264 (1966) the Commission stated at 290:

“*** presumptively all anticompetitive combinations run counter to the public interest in free and open competition and it is incumbent upon those who seek exemption of anticompetitive combinations under section 15 to demonstrate that the combination seeks to eliminate or remedy conditions which preclude or hinder the achievement of the regulatory purposes of the Shipping Act."

and in Investigation of Passenger Steamship Conferences Regarding Passenger Agents, 10 FMC 27 (1966) at 34, the Commission directed that:

** parties seeking exemption from the antitrust laws for the agreement must demonstrate that the agreement is required by a serious transportation need, or in order to secure important public benefits." (Italic added.)

Although the definition of what constitutes a "serious transportation need" has not been definitively tested. or answered, it is, however, obvious that the history of the trade and experience with conferences may be an important factor in evaluating the transportation need. In the 1950's, rates and practices in the Puerto Rican trade were governed by the two conferences active in the trade. Prior to the demise of these conferences, their rates rose substantially while technology remained stagnant. In the years 1954 to 1960, rates nearly doubled. On the other hand, following the demise of the conferences, rates remained fairly stable; and there were no general rate increases during the 1960's. Since 1962, the Puerto Rican trade has been highly competitive and shippers have been able to select any carrier (i.e., choice has often depended on a variation of a few pen. nies per 100 pounds or per cubic foot). This highly competitive situation has tended to hold rates down. Notwithstanding the fact that rates have not increased, services and the quality of rate structures (ch. IV sec. D.) have actually improved significantly. This stability of rates and the improvement of services, especially containerization, can be traced at least indirectly to the absence of anticompetitive rate-fixing agreements and the maintenance of free competitive factors. In addition, with a need to remain competitive, carriers have made large capital investments which have resulted in a greatly improved mode of transportation. In contrast under the Puerto Rican conferences, where the threat of rate competition was nonexistent, the level of capital investment and improved technology was far less.

7 As indicated in ch. III, the container revolution was initiated in the FMC-regulated domestic offshore trades by Sea-Land and Matson. These carriers expanded containerization to foreign trade routes without subsidy.

C. SHORTAGE OF VESSEL SPACE

8

As previously indicated, a survey of a wide segment of Puerto Rico's industries was conducted by the FMC in 1967-68 using some 2,400 questionnaires. This survey revealed that about 21.2 percent of Puerto Rico's consignees and shippers experienced excessive delays in deliveries of cargo from most U.S. mainland regions. apparently due to a shortage of shipping capacity. A survey conducted by the EDA of the Commonwealth revealed that 47 percent of the EDA-sponsored plants had similar difficulties. In addition, the Commission has had many individual complaints regarding vessel space shortages. Many of these complaints concern cargoes which are not susceptible to container or trailer stowage (non-containerizable cargoes) such as extra length steel, high and wide machinery and heavy lift shipments, lumber, and other commodities which generally move in non-containerizable form. These complaints indicate that there has been a serious shortage of breakbulk service.

In 1961, ocean transportation services in the Puerto Rican trade were comprised of 18 breakbulk vessels and five containerships. In June 1968, this trade had five breakbulk vessels and 21 containerships. The reduction in the number of breakbulk vessels and the large increase of containerships has been one of the major reasons for the lack of space which can accommodate non-containerizable cargoes. In addition, the general problem of space shortage has been compounded by the demand for containerships in the military conflict in Vietnam. The major carriers in the Puerto Rican trade have a number of containerships on charter to MSTS, which would have served Puerto Rico if it were not for the Vietnam situation.

The departure of Alcoa from the U.S. Gulf-Puerto Rican trade in mid-1968 caused delays in delivery of non-containerizable cargoes from Gulf ports. The general shortage of shipping capacity was also aggravated in the latter part of 1968 because shippers were attempting to build high inventories in Puerto Rico in anticipation of the longshoremen's strike which broke out in 1968 and continued into 1969.

The North Atlantic (New York) shipping space has been improved since TTT commenced service in April 1968 with its roll-on/roll-off carrier, S.S. Ponce De Leon. Moreover, Lykes added one breakbulk vessel in

8 Approximately 4,200 shippers and consignees comprise the total universe or population in this survey. If the survey response with respect to shortage of space (i.e. of 326 shippers responding, 69 complained of such shortage) is projected to the universe, it could be concluded that approximately 908 of the 4,283 shippers considered, had some difficulty with booking space in 1967.

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