CHAPTER I

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.1

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

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.

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,3 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.

2 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.

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

5 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.

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

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.

C. COMMENTARY

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 consolidated 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.