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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 Is. land 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
protected the high-cost operators by setting rates high enough to satisfy the least efficient carrier and of. fered 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 reg. ulatory 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.
a 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.
6 "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 be. cause 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).
« 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 Coast. Puerto Rico Conference on Mar. 8, 1963, thereby effectively dissolving this conference.
C. SHORTAGE OF VESSEL SPACE
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 anticompeti. tive 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 pennies 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.
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 in. crease 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
? 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,
3 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.
the Gulf-Puerto Rican trade while South Atlantic Barge Lines entered this Puerto Rican trade in October 1968, providing some breakbulk service between Savannah, Ga. and San Juan with one barge and tug. Representatives of the FMC and Maritime Administration of the Department of Commerce (MARAD) have met with shippers (New York Commerce and Industry Association) and carriers in New York and San Juan in attempts to alleviate the space shortage problem. As a result of these efforts, Sea-Land added one chartered vessel to the West Coast-Puerto Rican trade and three additional containerships to its Atlantic-Puerto Rican service. The Commission has also assisted shippers of potatoes, animal feedstuffs, steel pipe, chemical fertilizers, meat, and automobile dealers to obtain some shipping space.
General inadequacies of shipping space, particularly for noncontainerizable cargo still hamper commerce moving between the U.S. mainland and Puerto Rico. As previously indicated, shipping capacity from the West Coast region is scarce, particularly on the Pacific Northwest to Puerto Rico route. There is some indication that markets on certain commodities have been diverted from the U.S. mainland to Europe because of these inadequacies.
The Commonwealth of Puerto Rico and shippers recognize that the number of breakbulk vessels available in this trade is very limited and, therefore, have suggested two possible solutions. These solutions are: (1) waiver of the U.S. Coastal Shipping Laws (the so-called Cabotage laws) to permit foreign-flag vessels to enter the domestic offshore trade, and (2) grant subsidy under section 805(a) of the Merchant Marine Act, 1936, to provide breakbulk service between the Mainland and Puerto Rico. The U.S. Coastal Laws are discussed in the latter part of this chapter (VIII.).
The Martime Administration of the Department of Commerce (MARAD) can permit U.S.-flag subsidized lines, without further legislation, to operate in the Puerto Rican trade under section 805 (a) of the Merchant Marine Act, 1936.10
There appears to be two basic transportation problems which must be answered in considering an application for section 805 (a) permission to provide service in the domestic offshore trades. It is necessary to determine: (1) whether the proposed domestic service would interfere with the applicants subsidized service, and (2) whether the present service in the domestic offshore trade by nonsubsidized carriers is adequate or whether additional services by subsidized carriers are needed.
Because of the FMC's regulatory responsibilities and expertise in domestic offshore services, it would seem appropriate to transfer that part of section 805(a) authority which requires a determination of whether the existing service is adequate to the FMC. It appears that the FMC could deal more effectively with the examina. tion of common carrier service in the domestic coast. wise trade and related competitive factors. On the other hand, it would be necessary for MARAD to control the residual provisions of section 805(a) dealing with the administration of subsidy to any contractor and person applying under authority of title VI and VII respectively of the Merchant Marine Act, 1936. MARAD should decide whether the proposed domestic service would interfere with the carrier's subsidized service.
D. CONTAINER/TRAILER DEMURRAGE
The FMC has conducted a number of informal in. vestigations into the practices of carriers engaged in the Puerto Rican trade with respect to the collection of demurrage charges on trailers and containers which are being detained under the present free time and demur. rage regulations contained in the carrier's published tariffs. These investigations have shown that in many cases the carriers have neither collected demurrage bills properly payable under tariff regulations nor taken reasonable steps to collect such charges.
Section 2 of the Intercoastal Shipping Act, 1933 provides that a common carrier by water shall not:
charge or demand or collect or receive a greater or less or different compensation for the transportation of passengers or property or for any service in connection there. with than the rates, fares, and/or charges which are specified in its schedules filed with the Board (Commission) and duly posted and in effect at the time; nor shall any such carrier refund or remit in any manner or by any device any portion of the rates, fares, or charges so specified, nor extend or deny to any person any privilege or facility, except in accordance with such schedules."
There appears to be a widespread practice with respect to the carriers' failure to collect and enforce their published demurrage and detention charges. The primary reason for the carrier's failure to collect such charges is that, hitherto, the shippers have not been required to pay for demurrage and detention and have become accustomed to not being billed for such services even though carrier tariffs provide for these charges. As previously indicated in chapter VI. C., consignees in Puerto Rico do not have a sufficient amount of warehouse space to handle large container loads arriving on the Island and have attempted to resolve this problem by retaining the trailers or containers beyond the normal time allowed. Four common carriers in this trade allege that 25 percent of all of their containers, includ. ing chassis, have been retained by consignees in excess of the free time allowed; to one carrier, this meant the tieup of 53 percent of its rolling stock. In attempts to alleviate this demurrage problem, representatives of the FMC and Puerto Rico Ports Authority have met with carriers in Washington, D.C. and San Juan. For example, in 1968, the FMC conducted a special field investigation in San Juan of container movements, container demurrage, and related billing and collection procedures maintained by carriers, to facilitate the flow, and/or turn-around time, of containers and trailers. In addition, the Commission attempted to determine whether demurrage was being applied in a just and reasonable manner. There have been numerous discussions involving the carriers, and the situation is improving. But it appears that some carriers may be using demurrage and detention charges as a device to attract traffic from other carriers; and that the shippers, themselves, are playing one carrier off against another in order to benefit from the use of carrier. owned trailers in excess of free time.
* In New York, representatives of the FMC and MARAD met with carriers and members of the New York Commerce and Industry Association. In San Juan, representatives of the FMC met with shippers at the Puerto Rican Department of Commerce.
10 “It shall be unlawful to award or pay any subsidy to any contractor under authority of title VI of this act, or to charter any vessel to any person under title VII of this act, if said contractor or charterer, ... shall own, operate, or charter any vessel or vessels engaged in the domestic intercoastal or coastwise service, ... or operate any vessel or vessels in the domestic inter. coastal or coastwise service, without the written permission of the Commis. sion ... The Commission shall not grant any such application if the Commission finds it will result in unfair competition to any person, firm, or corporation operating exclusively in the coastwise or intercoastal service or that it would be prejudicial to the objects and policy of this act "
As already noted, under Agreement No. DC-38, Sea-Land, GPRL, Seatrain, and TTT may collectively agree, among other things, to establish uniform practices in connection with the movement of property between most U.S. mainland ports and Puerto Rico. 11 Hopefully, the carriers will use this forum to establish rules and procedures to substantially resolve the problem of excessive free time and demurrage through the enforcement of these rules.
lowing provision is one which is published by most carriers:
“All freight and other charges due the carrier are pre-payable in United States currency, but at the option of the carrier may be collected at destination. The carrier may extend credit to shippers who furnish evidence of financial ability deemed by the carrier to be sufficient to assure payment of such charges within the credit period so granted.”
Under this tariff provision a carrier may demand prepayment from one shipper while extending credit to another. There is no quarrel with respect to the right of the carrier to exercise judgment as to which shippers it can reasonably extend credit without fear of financial loss. On the other hand, when the carrier does choose to extend credit to certain groups of financially responsible shippers, it should be extended to all such shippers on an equal basis. As the credit provisions are presently applicable, however, they permit a carrier to discriminate between shippers who have comparable credit standings. For example, one shipper may, because of volume of traffic, be in a position to influence a carrier and receive whatever credit period he demands.
In a 1965 informal investigation of credit practices, various carriers indicated that it is often the large sol. vent shipper who is tardy with payments. This may be due to two factors. First, large firms gear their internal billing and accounting procedures to longer periods. Second, the superior bargaining position of large firms allows them to play carriers off against each other in order to obtain the most favorable credit period.
Under present carrier credit rules, the credit period could extend for an indefinite length of time. On the other hand, a shipper with equally good financial standing but with less influence could be required to pay his freight bill within a restricted period of time; for example, from 15 to 30 days, depending upon the carrier's desire. Moreover, the vagueness in present credit rules may be used as a competitive device by a carrier. More precision than is afforded by the present credit rules is required to prevent or at least inhibit actions which permit the carrier to discriminate between shippers.
During the credit period, the carrier's operating capital is "tied up”. The carrier must meet its operating expenses from other means while waiting for payment. There is at least an indirect relationship between this credit situation and rates because the longer the accounts remain outstanding the more operating capital the carrier requires.
E. CREDIT REGULATIONS
The majority of the carriers in the Puerto Rican trade maintain rather vague provisions in their tariffs with respect to payment of freight monies. The fol
11 This agreement gives parties no authority to fix ocean rates and charges.
The Shipping Act leaves common carriers free to exercise their rights and privileges with respect to the extension of credit so long as that is not done in an unlawful manner under the Shipping Acts. However, the present situation as to credit rules opens the door to unlawful practices.
Under the FMC's tariff circular rules, the FMC can require carriers in the domestic offshore trades to publish in precise terms all provisions affecting carrier services. The present carrier credit rules do not meet this criterion. Moreover, it follows that if a carrier will extend credit to shippers it must extend the same credit to all shippers with comparable standings.
Rules for extension of credit, therefore, should include: (1) the period within which the carrier will extend credit to all financially responsible shippers, and (2) as a rule, carriers should give identical credit terms to all shippers. If shippers became deficient in payment, the carrier could take remedial action pursuant to prescribed rules.
F. NON-VESSEL OPERATING COMMON
There is an urgent need today for a single transportation service covering diverse transportation modes. This may be aided by the non-vessel operating common carrier (NVOCC), subject to regulation by the Federal Maritime Commission.12 As its name suggests, the NVOCC does not own or operate the vessel by which the transportation is accomplished. This may be true also where the NVOCC offers a service requiring use of several transportation modes. Then the NVOCC employs rail, water, or air carriers, or a combination of such carriers, to provide the line-haul transportation necessary to the total or through movement. These other carriers are the underlying carriers.
This service is offered at a through, single-factor rate which may or may not be a combination of the local rates for the various transportation modes, and the NVOCC assumes liability for the entire intermodal movement. The NVOCC may add a profit factor to the aggregate of its underlying transportation costs. To make its service competitive, however, it will also endeavor to profit by its ability to consolidate small shipments into larger shipping units to take advantage of volume rates and full container carload discounts and allowances of the underlying carriers.
The NVOCC may perform many functions including preparation of waybills, bills of lading, and manifests for the underlying carriers; collection of the through charges; providing handling services; routing and tracing shipments when necessary; investigation and settlement of claims; and arrangements made for transfer service on interline shipments. The NVOCC ordinarily charges the shipper a rate approximating that which the shipper would have to pay were this shipper to move his own shipment in the small-bulk service of the underlying carrier, and the NVOCC pays the underlying carrier the lower volume rate, FAK, or per box rate as the case may be. The difference between these amounts represents the revenue of the NVOCC from which all operating and overhead expenses must be deducted. In some instances, the NVOCC charges a rate slightly higher than that which the individual shipper would have to pay to the underlying carrier. The NVOCC justifies this added charge by the extra services which he performs. In the case of the small shipper, the NVOCC is rendering some services which are normally performed by the larger shipper's own traffic department.
It appears that the primary benefit of NVOCC's is that they provide services for small LTL-type shipments at rates lower than would otherwise be available. These shippers would, for example, have to pay higher AQ rates.13 As evidenced by the large amount of business done by NVOCC's in the New York area, smaller shippers make considerable use of NVOCC operations. These NVOCC's afford at least some of the benefits of containerization, including faster delivery, less pilferage and damage, and to some extent, lower rates to the shippers. It appears that NVOCC's have not penetrated the South Atlantic, Gulf, or West Coast market to any appreciable extent.
In the domestic offshore trade, there are approximately 179 NVOCC's publishing 106 tariffs, 58 of
19 In docket No. 815, Common Carriers by Water-Status of Express Com. panies, Truck Lines and Other Non-Vessel Carriers, 6 F.M.B. 245 (1961), the Federal Maritime Board found that any person or business association may be classified as a common carrier by water who holds itself out by the establishment and maintenance of tariffs, by advertisement and solicitation and otherwise, to provide transportation for hire by water in interstate or foreign commerce as defined in the Shipping Act, 1916; assumes responsibility or has liability imposed by law for the safe transportation of shipments; and arranges in its own name with underlying water carriers for the performance of such transportation, whether or not owning or controlling the means by which such transportation is affected. The Board had previously reached the same con. clusion in docket No. 701, Bernhard Ulmann Co., Inc. v. Puerto Rican Ex. press Company, F.M.B. 771 (1952) wi respect to NVOCC operations in the domestic offshore trades.
At the time of the decision in docket 815 there were few, if any, NVOCC's in our foreign trade. However, development of the intermodal container con. cept in our international trade has encouraged carriers to offer a through, intermodal service such as NVOCC's.
13 For the difference between LTL and AQ rates see chart IV-2.