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THE INTRODUCTION AND COMMENTARY
A. THE INTRODUCTION
This is a regulatory staff analysis concerned primarily with ocean transportation, terminals, and trucking services and the costs for such services and the economic effect of the same in the Puerto Rican and Virgin Islands trade areas."
These Caribbean Islands, which are deficient in natural resources such as minerals, timber, and agricultural products, depend almost entirely upon water transportation, mostly from the U.S. mainland, for their supply of basic foods, raw materials, and semifinished goods. These goods are processed on the Islands into finished products and exported by sea primarily to U.S. mainland markets. Ocean transportation is essential to the Islands because it moves about 99 percent of Puerto Rico's dry cargo traffic and most of the U.S. Virgin Islands' commerce. Insular transportation is provided by trucking service which is the only means by which goods can be transported economically between various points on the Islands. No railways are presently operating; there are no inland waterways or major pipelines, and intercoastal barge movements are limited to transportation of a few bulk commodities. Further, because of the relatively small size of the Islands, significant movements of intraisland cargo by air are limited.
There are several important factors which make the economies and ocean transportation of Puerto Rico and the Virgin Islands unique. On a per capita basis, Puerto
Rico is by far the best overseas customer for U.S. mainland-made products. The Puerto Rican trade with the United States, as a result of the U.S. cabotage laws, is restricted to ocean carriers operating American-built ships manned by American crews. The Shipping Act of 1916 and Intercoastal Shipping Act, 1933 assigned to the Federal Maritime Commission (FMC) the regulatory responsibility to supervise and control the rates, charges, and practices of carriers operating in this trade. The U.S. mainland-Puerto Rican trade, therefore, is served by privately owned carriers only, operating under a system of open and free competition, without Federal subsidy or protective ratemaking conferences.
The most important feature which makes Puerto Rico's economic system unique is “Operation Bootstrap", inaugurated in 1947 to attract capital and industry in order to develop the Island's employment and income levels. This program and the role of transportation in this program are discussed in more detail in chapters II and III, The U.S. Virgin Islands, in spite of their geographically isolated location and small industrial base, are provided a broad variety of both foreign and domestic ocean carrier services. In contrast to the Puerto Rican trade, most of the water carriers in the direct U.S. mainland-Virgin Islands trade have in the past been breakbulk operators.
? In 1968, the Island's U.S. imports were about $582 for each person living in Puerto Rico. (See table II-7. p. 20.)
3 Section 27 of the Merchant Marine Act of 1920, which is discussed more fully in ch. VIII, provides that no merchandise shall be transported by water between points in the United States including territories, in any other vessel than a vessel built in and documented under the laws of the United States and owned by U.S. citizens.
* This restriction against foreign carriers operating in the U.S. Virgin Islands trade does not apply because of a presidential exemption. This exemption is discussed more fully in pt. II, ch. II.
1 This study has been prepared in compliance with a memorandum of the managing director, dated Aug. 14, 1967, which directed the staff to make a comprehensive evaluation of economic, traffic, and transportation conditions in the Puerto Rican and Virgin Islands trades.
determine the principal transportation problems and factors confronting the shipping public in these trades. A staff representative of the Commission and eight field investigators furnished by the Commonwealth of Puerto Rico (EDA, PSC, Department of Labor, and Department of Commerce) conducted a broad survey of the Island's trucking industry, industrial plants, and principal containership operators, to ascertain Puerto Rico's transportation problems (ch. VII).
B. ORGANIZATION OF THE STUDY
This staff study has several principal objectives. First, the study undertook to collect in one volume as much basic economic and transportation information about the Puerto Rican and Virgin Islands trade areas as could be found. Second, the aim of the inquiry was to evaluate the ocean rates, charges, and practices of water carriers, examine the impact of ocean transportation on cost of living, evaluate major ocean terminals including their condition, rates, charges, and practices evaluate related overland transportation and distribution in Puerto Rico, and examine important regulatory problems. Third, the purpose of the study was to develop a historical review of ocean rates from U.S. mainland ports (U.S. North Atlantic, South Atlantic, gulf, and west coast regions) and other transportation factors in the Puerto Rican and Virgin Islands trades. Finally, this staff study sets forth findings and recommendations which may offer the possibility of materially improving the transportation system of Puerto Rico and the Virgin Islands.
The development of the material in this study involved coordination and cooperation with various shipping companies, Puerto Rican trucking companies, Government agencies, trade associations, and many of the citizens of Puerto Rico and the Virgin Islands.
The primary source material for most transportation and economic data was obtained through surveys, interviews, and statistical research. This included various United States, Commonwealth of Puerto Rico, and Government of Virgin Islands’ documents and an extensive FMC survey of major manufacturers, businessmen, shippers and consignees in Puerto Rico and the U.S. Virgin Islands using almost 3,000 questionnaires to
The Study is organized into two parts, part I entitled, The Puerto Rican Trade, and part II entitled, The Virgin Islands Trade, as well as various appendices. The final section of this Study contains the appendices and the bibliography. The appendices include various tables, statistical information and other economic data.
The Study, which is narrative in character with a heavy dose of quantitative analysis, wherever useful, generally follows a regional rather than a time or topic approach. This Study is also prospective as well as historical and, to the extent possible, has attempted to pursue a broad and innovational approach.
For the convenience of policymakers and other readers of this staff analysis, the major conclusions and recommendations resulting from the Study have been con. solidated and set forth in appendix J. It is hoped that by bringing the problems and challenges confronting carriers, shippers, and the public alike in the Puerto Rican and Virgin Islands trades to the attention of other offices and parties concerned that problems can be explored and solutions found which will materially improve economic conditions and the transportation system in these trades.
The Commonwealth of Puerto Rico's Economic Development Administra. tion (EDA), Ports Authority, Department of Labor, Department of Commerce, and Public Service Commission (PSC) provided considerable assistance in this study. In addition, the Government of the U.S. Virgin Islands' Depart. ment of Commerce (Division of Trade and Industry) also provided considerable assistance.
& The Puerto Rico Manufacturers Association and Commerce and Industry Association of New York.
ECONOMY AND TRAFFIC FLOW OF PUERTO RICO
miles from Miami.? The land area of the Island is 3,400 square miles, roughly a rectangular configuration, 35 miles wide north to south and 100 miles long east to west (chart II-1, p. 6).3
Puerto Rico is largely dependent upon the U.S. mainland for its supply of raw materials, semimanufactured and manufactured goods, and many food staples. In fiscal year 1968, trade between the U.S. mainland and Puerto Rico amounted to $2.83 billion, or about 83 percent of Puerto Rico's external trade (table II-6, p. 19). For island economies such as Puerto Rico where overland form of transport does not connect them with their principal markets for imported goods or exported products, ocean transportation services are crucial. Because ocean transportation moves 99 percent (5.4 million tons of dry cargo ) of Puerto Rico's external trade, fundamental to the promotion of economic and social development. Both the production and income levels achieved on the Island are dependent upon water transportation to link the common market existing between Puerto Rico and the U.S. mainland.
This chapter is concerned with the relationship be. tween the economy of Puerto Rico and traffic move. ments within this common market. Success in achieving or maintaining adequacy and efficiency in ocean transportation will partly depend on knowledge of Puerto Rico's basic challenges and problems, productive proc. esses, and external trade with the U.S. mainland.
Puerto Rico is located some 1,399 nautical miles from New York, 1,121 miles from Jacksonville, and 960
* The nautical miles between San Juan and other ports on the U.S. mainland are: Boston, 1,486 miles; Baltimore, 1,374 miles; Norfolk, 1,252 miles; Charleston, 1,138 miles; Savannah, 1,153 miles; Mobile, 1,488 miles ; New Orleans, 1,541 miles; Galveston, 1,715 miles; San Diego, 3,879 miles (through the Panama Canal): Los Angeles, 3,949 miles; San Francisco, 4,281 miles; and Vancouver, B.C., 5,068 miles. The distance from San Juan to the Panama Canal is 1,036 miles; and to London, 3,803 miles. (Source : U.S. Department of the Navy, Hydrographic Office, Table of Distances Between Ports Vis the shortest Navigable Routes as Determined by the Hydrographic Office U.S. Navy Department, Washington : Government Print. ing Office, 1940, p. 391.)
3 Puerto Rico is composed of 76 municipalities which are grouped into three geographic regions surrounding the Island's largest cities and the ocean terminals of San Juan, Ponce, and Mayagüez. The San Juan region contains 46 relatively large municipalities and incorporates some 55 percent, or 1,900 square miles, of the total land area of Puerto Rico. This region is composed of seven subregions, including San Juan metropolitan, Fajardo, Caguas, Cayey, Humacao, Manati, and Arecibo. The subregion of San Juan metropolitan is the center of population and economic activity and includes the municipalities of San Juan, Bayamón, Carolina, Cataño, Guaynabo, Rio Pedras, Hato Rey, and Trujillo Alto. A variety of residential and commercial complexes in this area are interconnected by relatively few arterial streets for ease of traffic circulation, particularly in Old San Juan. This city in particular is still burdened with old and inadequate structures and narrow congested roads and highways. The Ponce region which contains 16 relatively small municipalities is located in the southern sector of the Island. This region incorporates some 25 percent, 849 square miles, of the total land area of Puerto Rico. This region is divided into two subregions, including Ponce and Guayama. The municipality of Ponce, one of the oldest settlements of the Island, is the trading and distribution center of southern Puerto Rico. In recent years, various industries including cement plants, farm foundries, fishfood companies, and oil refineries have established operations in the Ponce area. The Mayagüez region which contains 15 small municipalities incor. porates the western sector of the Island. This region comprises approximately 20 percent, or 688 square miles, of the land area of Puerto Rico. This region is divided into two subregions, including Mayagüez and Aguadilla. (Source: Puerto Rico Planning Board; and Wilbur Smith and Associates; Padilla and Gracia, San Juan Metropolitan Area, Transportation Study Trans. portation Plan, Hato Rey, P. R.; June 25, 1967, p. 5).
1 Puerto Rico Ports Authority, “Movimiento de Carga Seca Y Total por Los Puertos de San Juan, Ponce, Mayaguez Y Puerto Rico, Ano Natural 1957 AL 1966", (San Juan: Ports Authority, July 26, 1968).
Source: Commonwealth of Puerto Rico, Economic
Development Administration. Overall
Puerto Rico-Virgin Islands Trade Study Federal Maritime Commission
B. THE ECONOMY
The Commonwealth's domestic production of food and raw materials is insufficient to feed its 2.7 million people and provide the materials needed to satisfy the demands of industrialization. Only a small part of the Island's land area is arable,or agriculturally productive 5 and, with one of the highest population densities in the world, the Commonwealth must import about 51 percent of its basic foods. Puerto Rico is also deficient in mineral, timber, and other natural resources which are needed to meet the Island's industrial growth. As a result of these deficiencies, producers in Puerto Rico must import large quantities of raw materials and
semimanufactured goods needed in their productive processes. An efficient transportation system is needed. This is particularly true because of the Island's pattern of importing and processing raw and semifabri. cated materials and exporting the finished goods to the U.S. mainland, involving double shipments and freight charges. These freight charges increase the proportion which ocean transportation comprises of the total cost of producing finished goods for sale in the U.S. mainland and are a factor in an industry's decision to establish production in Puerto Rico.
2. Population, Employment and Income
In the last 28 years (1940-68), the Island's growth has been one of the highest in the world, the gross prod. uct advancing at 12.5 percent per year while per capita income has climbed from $266 in 1940 to $1,129 in 1968, and the gross domestic product has jumped 1,189 percent to $3.7 billion in 1968. The people of Puerto Rico, as a result of productive specialization, American private enterprise and capital, and their own industriousness, have greatly stimulated economic development and now enjoy one of the highest standards of living in the Caribbean area. These growth and income standards, however, should not be exaggerated. Although Puerto Rico's economic progress since 1940 has been remarkable, it is still relatively underdeveloped compared to the U.S. mainland and many European countries, and is still faced with many problems and challenges which burden living conditions and development. The Commonwealth's three fundamental problems are: a rapidly rising population, high unemployment levels, and low family incomes outside urban centers despite a fairly high overall per capita income. Population growth has created an unemployment problem, which in 1968 was currently 12 percent compared to the U.S. mainland average of 3.5 percent, and family income was far below the level considered necessary to achieve a decent standard of living on the U.S. mainland.
Approximately 40 percent of the land is considered mountainous; 35 per. cent is hilly and only 25 percent of the land is filat. The Island's mountainous slope which is subject to frequent rains and erosions, has lost a considerable portion of the top soil. In addition, limited conservation methods have depleted the Island's soils of their natural nutrients and the tropical temperatures with rapid evaporation of water have raised the salinity of the soil. Thus, approximately 72 percent of the land is of poor quality and unsuitable for extensive agricultural production. (Source: Raphael Pico, Planificacion y Accion, San Juan Banco Gubernmental de Fomento Para Puerto Rico, 1962, p. 108).
5 The most productive soil for agriculture covers only 1 percent of the land mass. Sugar still provides the main agricultural produce for the Island; other principal crops include tobacco and coffee. Coconuts are grown in various areas; pineapples, on the north coastal plain; coffee, in the west mountainous area of the Ponce region and the Mayagüez region; and miscel. laneous fruits, largely in the San Juan region. Forest lands are scattered throughout Puerto Rico. The lack of arable soil has affected farm production, which has declined considerably over the last 5 years, from $298 million in 1963 to $267 million in 1968 (app. A, table 1). Agricultural production has also been adversely affected by the exceedingly small amount of fixed domestic investment in agriculture and shortage of labor. According to a recent study of Puerto Rican agriculture by the consulting firm of Horace J. DePodwin, Puerto Rico is importing 20 percent more agricultural products than she is exporting 80 that agriculture has become a significant dragon economic progress, and labor has migrated from agricultural employment to high paying work in Puerto Rico's rising industrial complex. Puerto Rico is, therefore, still dependent on U.S. mainland sources of supply for predominant quantities of fruits, vegetables, and other farm food products consumed on the Island. (Sources: Puerto Rico Economic Development Administration, (EDA) Overall Economic Development Plan for the Commonwealth of Puerto Rico, San Juan, February, 1967, p. 16; and New York Times, June 17, 1968, p. 57.)
• The 1964 value of production in mineral resources was only $45 million, half of which was accounted for by cement produced largely in the San Juan region. The mineral resources readily available for limited industrial purposes include clay, lime, salt, sand, gravel, and stone. Copper deposits have been under recent exploration within the proximity of the Adjuntas Utuado-Lares area, which is about 20 miles south of Arecibo. It is estimated that the potential production of some 100 million tons apoually may be possible for a period of more than 30 years, with mining and smelting located in Puerto Rico. In addition, sulfuric acid as a byproduct of the copper industry may be produced. Cobalt, gold, and iron ore are found in various parts of the Island, but in small quantities. (The petrochemical industry is discussed in section B.3.e.) In 1964 there were slightly less than 300,000 acres of forest and woodland, 90,000 of which were in public or private forests. In 1963, local production of wood and wood products amounted to only $5 million in terms of shipments and provided less than 25 percent of the wood used in Puerto Rico. Puerto Rico imports relatively large quantities of lumber, mainly from British Columbia. (Source: Puerto Rico EDA, Overall Economic Development Plan (OEDP), op. cit., pp. 22–24.)
? According to the Puerto Rico Economic Development Administration the goods which are most important to the Island's future industrial development and overall economic growth (as well as the reasons why selected goods are of extreme importance to the economy), are contained in app. B. The most important intermediate goods moving southbound are: acids, agricultural implements, boxboard, carbon black, electrodes, feed and feedstuff, corrugated paperboard, petroleum refining catalyst, resins, crude or natural or synthetic rubber, urea, yarn, and cured hides.
8 Puerto Rico Planning Board, 1968 Economic Report to the Governor (San Juan: Junta De Planification, Puerto Rico, “n.d.") pp. A 1-2.
U.S. Department of Labor Statistics.