CHAPTER III

A. OCEAN RATES

1

This chapter examines the port-to-port ocean rates of Alcoa, Florida Inter-Island and Atlantic (a foreignflag operator) on traffic moving from U.S. Atlantic ports direct to St. Thomas, V.I. The chapter also compares the combined Sea-Land/Berwind New York via San Juan to St. Thomas rates with those of Atlantic from New York to the same port of destination. The rate structures of Aloca, Atlantic, and Florida InterIsland may be considered representative of the general rate levels applicable on traffic moving from U.S. mainland points of origin to points of destination in the Virgin Islands by water carrier. The examination stresses southbound ocean rate levels because the predominant amount of waterborne traffic moves in that direction. The examination also gives special attention to rates affecting principal moving commodities as well as rates affecting commodities of extreme importance to the Government of the Virgin Islands. The historical changes in these ocean rates over the past 8 years and their probable affect on price levels are analyzed.

1. Sea-Land/Berwind Combined Ocean Rates From New York to St. Thomas Via San Juan

2

Unlike the substantial rate increases which have occurred in most foreign trade routes over the past decade, domestic ocean freight rates from New York to

1 The combined Sea-Land/Berwind TL rate refers to the combination of the commodity rates of the two carriers. Sea-Land's line haul rate from

the Virgin Islands via San Juan have remained substantially the same or declined during the same period, reflecting the impact of containerization and new rate structures on traffic moving in this trade. Appendix E, table 11, shows 27 Sea-Land/Berwind TL rates applicable on principal moving commodities from Elizabeth, N.J. to St. Thomas via San Juan for December 19, 1961 and July 1, 1969. Of the 27 items shown, the rates on 24 items, or 89 percent, remained the same or declined during the 8-year period; two remained unchanged; and 22 declined from 1 to 50 percent. The largest rate decreases, 50 and 47 percent, were on iron and steel bars and iron and steel rods, respectively. Other rate decreases were on automobiles, 15 percent; bakery products, 23 percent; flour, 18 percent; evaporated milk, 22 percent; dry milk, 7 percent; beer, 22 percent; telecommunications apparatus, 7 percent; beef and veal, 26 percent; poultry, 29 percent; stoves, 24 percent; refrigerators, 10 percent; various iron and steel items, 1 to 5 percent; lumber, 4 percent; galvanized roofing, 14 percent; plywood, 4 percent; and builder's woodwork (millwork), 7 percent.3 The largest rate increase, 8 percent, was on trucks. These SeaLand/Berwind rates affected a substantial amount of the total U.S. mainland-Virgin Island Traffic, or ap

New York to San Juan (Puerto Nuevo) plus landing and drayage charges at San Juan were added to Berwind's corresponding line haul rate from San Juan to St. Thomas.

2 Sea-Land Service, Inc. (Pan Atlantic Series) FMC-F No. 3 Outward Freight Tariff No. 2, and Bryn Mawr Corporation Series, FMC-F No. 2, Freight Tariff No. 2.

3 Only three rates increased form 1 to 8 percent.

375-842 O 70-13

proximately 26 percent of the total 1967 traffic moving in this trade.

4

Appendix E, table 11, also compares the 1969 SeaLand/Berwind TL rates via San Juan to St. Thomas with the corresponding Atlantic volume rates from New York to the same point of destination. This comparison shows that most Sea-Land/Berwind rates are substantially lower than the corresponding Atlantic rates. From New York direct to St. Thomas, for example, 76 percent of Atlantic's volume rates are from 1 to 138 percent higher than corresponding Sea-Land/ Berwind TL rates from New York to St. Thomas via San Juan. The rate differentials favoring the Sea-Land/ Berwind combination were: iron and steel bars, 138 percent, iron and steel rods, 127 percent; iron and steel plates, sheets, and galvanized roofing, each 50 percent; flour, 63 percent; iron and steel pipe and tubing, 36 percent; beer, 28 percent; stoves, 26 percent; evaporated milk, 25 percent; and automobiles, 20 percent. The largest differential favoring Atlantic's rates were: poultry, 24 percent; and beef and veal, 18 percent; two foodstuffs of extreme importance to the people of the Virgin Islands.

In several years, as already noted in chapter II, Atlantic operated a breakbulk service from Atlantic ports to the Virgin Islands. In 1968, it inaugurated containership service. In March 1969, Atlantic increased its breakbulk rates approximately 10 percent and filed a new trailership tariff, FMC-F No. 5, which also reflected the 10 percent rate increase. In contrast to SeaLand's and Berwind's TL rates, most of Atlantic's new volume rates are predominantly AQ rates which in part may explain the reason for its higher rate levels. Of the 25 Atlantic rates examined, for example, 22 are AQ rates and three are TL rates. As previously indicated, Atlantic Lines is a foreign carrier which can operate in the U.S. mainland-Virgin Islands trade because the cabotage laws impose no restrictions on the employment of foreign-flag vessels in this trade (ch. II). The absence of coastwise restrictions does not appear to offer the Virgin Islands lower rate levels stemming from the lower costs of foreign-ship operators. The assumption that the use of foreign-flag ships in U.S. domestic offshore trades would bring about lower freight rates because of the existence of an operating cost differential between American and foreign-flag ships is not supported by the current rate conditions in the U.S. mainland-Virgin Islands trade. Examination of the SeaLand/Berwind combination rates shows that these rates

Atlantic Lines, Ltd., Freight Tariff FMC-F No. 5, various pages.

on consumer and intermediate goods to St. Thomas are generally lower than the corresponding rates contained in Atlantic's new trailership tariff.

In addition, almost 90 percent of the Sea-Land/ Berwind rates on commodities essential to the Virgin Islands have remained the same or declined from 1 to 50 percent (app. E, table 11). On the other hand, 76 percent of Atlantic's rates direct from New York to St. Thomas increased from 1 to 100 percent during the same period (app. E, table 12). In any event, the exemption from the cabotage laws and the presence of foreign-flag carriers in this trade have not resulted in a rate structure lower than that applying between U.S. mainland and Puerto Rican ports.

2. Direct Service From Atlantic Ports to the Virgin Islands, and Ocean Rates

This section discusses the rates of Alcoa, Atlantic, and Florida Inter-Island (app. E, table 12) which, combined, account for most of the FMC-regulated traffic moving in the Virgin Islands trade. North AtlanticVirgin Islands traffic is carried primarily by Alcoa and Atlantic most of it moving under approximately 25 to 30 tariff descriptions analyzed in the following pages. Florida Inter-Island is the principal carrier in the South Atlantic-Virgin Islands trade.

a. Alcoa's Ocean Rates From New York to St. Thomas

As indicated previously, Alcoa provides service to St. Thomas only. The voyage covered by Alcoa's Virgin Islands tariff is only one leg of the trade route maintained by this carrier mainly to transport bauxite northbound from Paramaribo and Trinidad to Mobile and/or Canada. In contrast to Sea-Land/Berwind rates, the level of Alcoa's rate structure from New York to St. Thomas, the principal breakbulk carrier in this trade, has increased considerably between 1960 and 1969. Appendix E, table 12 contains 25 Alcoa weight or measurement rates applicable on September 1, 1960 and July 1, 1969 to commodities which the Government of the Virgin Islands considers of the utmost importance to the economy." This appendix shows that all

5 Alcoa Steamship Co., FMC-F No. 5; FMC-F No. 9; and Leeward and Windward Islands and Guianas Conference FMC-F No. 8. On May 15, 1969, Alcoa filed a revised tariff (FMC-F No. 9) modeled after a breakbulk tariff which had been used by Atlantic serving the same trade. The new tariff raised rates on commodities by varying amounts which are difficult to determine precisely because of the variations in the application of weight against measurement rates. The new rates, however, are generally comparable to those contained in Atlantic's container tariff.

of Alcoa's 25 breakbulk rates affecting consumer goods and intermediate goods increased from 1 to 256 percent. In addition, examination of Alcoa's breakbulk rates on principal moving commodities revealed that its rates on these commodities increased substantially over the same 9 years. Appendix E, table 13 shows 28 freight rates applicable on principal moving traffic from New York to St. Thomas for September 1, 1960 and July 1, 1969. Of the 28 rates shown, 16 rose from 1 to 100 percent; eight increased from 101 to 200 percent; two climbed from 201 to 300 percent; and two jumped from 301 to 325 percent. Although Alcoa generally increased its rates in mid-1969, its rates on various basic foodstuffs and major moving commodities are lower than Atlantic's corresponding rates.

b. Atlantic Lines Rates From New York to the Virgin Islands

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Although Atlantic is a containership service, its rates are predominantly AQ rates rather than TL and LTL. Appendix E, table 12 sets forth Atlantic's rates for July 12, 1962 and July 1, 1969 on commodities viewed by the Government of the Virgin Islands as essential to the Island's economy. This appendix shows 25 rates applicable on cargo moving from New York to St. Thomas by Atlantic's new roll-on/roll-off service. Of the 25 rates shown, 19 or 76 percent, increased from 1 to 287 percent over the 7-year period. The increases included six rates which rose from 1 to 50 percent, 12 which climbed from 51 to 100 percent, and 1 which increased 286 percent.

c. Florida Inter-Island Ocean Rates From Miami to St. Thomas

Most of the FMC-regulated traffic moving from South Atlantic ports to the Virgin Islands is carried by Florida Inter-Island, a small breakbulk operator which also hauls a few small containers of 20-foot length. Appendix E, table 12 shows its rates from May 15, 1963 and July 1, 1969 on the commodities which the Government of the Virgin Islands considers of primary importance.7 Unlike the rates of Alcoa and Atlantic, Florida InterIsland's rates from Miami to St. Thomas show a favorable trend over these 6 years. Of the 27 rates applicable on various consumer goods and intermediate goods, 25 items or 93 percent, remained the same or declined from

Chester, Blackburn & Roder, Inc., Agent, FMC-F No. 1, Southbound Freight Tariff No. 1, and Atlantic Lines, Ltd., FMC-F No. 5 Trailership Freight Tariff No. 5.

Florida Inter-Island Shipping Corp., FMC-F No. 1, Freight Tariff No. 1, various pages.

1 to 25 percent. Only two rates increased during this period. The rates on most essential commodities remained unchanged while five rates decreased from 11 to 23 percent. The rate increases affected automobiles and trucks.

Examination of Florida Inter-Island's rates on principal moving commodities also revealed a comparatively favorable rate history. Appendix E, table 14, which contains the carrier's rates from Miami to St. Thomas on 15 principal moving commodities for May 15, 1963 and July 1, 1969, indicates that 11 items or 73 percent, remained unchanged or were reduced during the 6-year period.

3. Service From Puerto Rico to the Virgin Islands

Approximately 26 percent of the total U.S. mainlandVirgin Islands traffic is transshipped at San Juan and transported to and from the Virgin Islands by Berwind's roll-on/roll-off barge service. This carrier operates between San Juan on the one hand and St. Thomas and St. Croix on the other on a twice weekly schedule. It transports most of the U.S. mainland-Virgin Islands traffic which is deposited at San Juan by containership operators for further movement to the Virgin Islands. Its 1967 traffic to the Virgin Islands was comprised largely of TL shipments.

Examination of this carrier's TL rates for December 19, 1961 and July 1, 1969 on principal moving commodities from San Juan to St. Thomas' revealed that most of its rates declined substantially over the 8-year period. Appendix E, table 14 contains Berwind's TL rates on 11 principal moving items. Of the 11 rates, 10 (91 percent of the total) decreased from 1 to 52 percent. Soap and detergents, the only rate experiencing an increase, increased 4 percent.

As in the case of Berwind's rates on principal moving commodities, an examination of its rates on commodities considered by the Government of the Virgin Islands to be of primary importance to the Islands' economy revealed numerous rate reductions. Appendix E, table 15, which contains 27 TL rates for December 19, 1961 and July 1, 1969 from San Juan to St. Thomas, shows that 23 rates, or 85 percent, declined during this period and one remained unchanged. Of the 23 rates, 16 decreased from 29 to 55 percent, and seven decreased from 5 to 25 percent. Refrigerators remained un

8 Ibid.

Bryn Mawr Corp. Series FMC-F No. 2, Freight Tariff No. 2, various pages.

changed. Thus, Berwind's rates show a favorable rate trend over the 8-year period.

B. RATES AND COSTS

Comparison and histories of ocean rates indicate that North Atlantic-Virgin Islands rates of Alcoa and Atlantic have increased considerably over the past 8 years. In contrast, the South Atlantic-Virgin Islands ocean rates of Florida Inter-Island show a favorable rate history and are substantially lower than those of Alcoa and Atlantic. Combination rates from New York to St. Thomas via San Juan are also lower than those of Alcoa and Atlantic and have a more favorable rate history as do Puerto Rico-Virgin Islands rates. As was true in the case of Puerto Rican ocean rate structures, however, it is difficult to render valid conclusions regarding the rates of Alcoa, Atlantic, Florida Inter-Island, and Berwind without the detailed cost information needed to analyze their rate structures. As indicated in part I-chapter IV, such detailed cost information is important not only to the regulatory process but also to the economy of the Virgin Islands. Like Puerto Rico, the Virgin Islands may need higher rates on high-valued commodities to support the cost of moving basic commodities, including meats, milk, flour, and other essential goods. Without specific cost data on important categories of cargo, however, the FMC cannot ade

quately determine whether rates on high-valued commodities cover their cost of movement or support the transport costs on basic commodities.

C. CONCLUSIONS AND RECOMMENDATIONS

1. Conclusion

Rate structures between the U.S. North Atlantic and the Virgin Islands are predominantly breakbulk or AQ type rates.

Recommendation

All carriers should not adhere to traditional modes of transportation and rate structures which may artificially inhibit the application of the efficiencies inherent in containerization and new rate structures.

2. Conclusion

Detailed cost information from carriers serving the U.S.-mainland-Virgin Islands trade is important to the regulatory process and the economy of the Islands.

Recommendation

It is recommended that common carriers in the U.S. mainland-Virgin Islands trade develop more detailed data with respect to the cost of transporting specific categories of traffic in this trade.