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CHAPTER III

TRANSPORTATION SERVICES

IN THE PUERTO RICAN TRADE

A. GENERAL

1. Introduction

Puerto Rico's transportation system can be looked upon as a model for containerization services in the world's ocean trade routes. This trade is served by eight common carriers competing for the available traffic without Federal subsidy 1 or protective conference systems. In 1967, approximately 81 percent of the 3.4 million weight tons of dry cargo flowing between the U.S. mainland and Puerto Rico (chart II-4, p. 11) was moved by the eight American shipping companies.

The discussion of transportation services in this chapter primarily deals with common carriers, but also considers contract carriers, air carriers, and Puerto Rico's highways and roads. The sea transportation system is illustrated in chart III-1.

Puerto Rico is served from four U.S. mainland trade regions including the North Atlantic region, the South Atlantic region, the Gulf region, and the West Coast region, each having its own unique modes and combination of carrier service, competitive situations, voyage patterns, rate levels, and commodity flow. The analysis, therefore, follows the regional approach.

1 Section 805 (9) of the Merchant Marine Act of 1936 prohibits the use in the Domestic Offshore trades of vessels whose construction and operation has been subsidized under the provisions of the 1936 Act unless written per mission is first obtained from MARAD. This permission is granted only upon a favorable finding in a hearing at which all interested parties have the opportunity to participate. Vessels operating under such a waiver may not receive operating subsidy during such operation and must refund a propor tional amount of the construction differential subsidy.

Throughout 1968, the eight carriers provided regular lift-on/lift-off, roll-on/roll-off, and breakbulk services on scheduled frequencies between the U.S. mainland and Puerto Rican ports, including San Juan, Ponce, and Mayagüez. These carriers are Sea-Land Service, Inc. (Sea-Land); Seatrain Lines, Inc. (Seatrain); Transamerican Trailer Transport, Inc. (TTT); Motorships of Puerto Rico, Inc. (Motorships); 2 South Atlantic & Caribbean Line, Inc. (SACAL); TMT Trailer Ferry, Inc. (TMT); Gulf Puerto Rico Lines, Inc. (GPRL); and Lykes Bros. Steamship Co., Inc. (Lykes).

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Sea-Land, the principal carrier in the Puerto Rican trade, provides containerized services from and to three regions. In the North Atlantic region, it provides connecting services from the ports of Elizabeth, N.J. and Baltimore, Md. Sea-Land also provides service from the South Atlantic. In this region, Sea-Land provides connecting service from and to Charleston and Jacksonville. Seatrain has moved containers and railcars from New York since 1963; Motorships has operated from New York since 1963; and TTT, operating a new large roll-on/roll-off trailership, commenced operations from New York in April, 1968. At that time, TTT's predecessor, American Union Transport, Inc. (AUT), a breakbulk carrier, discontinued regular service from New York to San Juan, Ponce, and Mayagüez. In the South Atlantic region, TMT, which inaugurated service in 1953, provides roll-on/roll-off service from Jackson

2 In 1968, Motorships temporarily discontinued service to and from Puerto Rico.

3 Waterman of Puerto Rico, GPRL's predecessor, operated in this trade between 1940 and 1965.

CHART -|

MAJOR TRANSPORTATION SYSTEMS AND REGIONS:

U.S. MAINLAND PUERTO RICO and THE VIRGIN ISLANDS

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PUERTO RICAN VIRGIN ISLAND TRADE STUDY FEDERAL MARITIME COMMISSION 1969

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since the early 1920's connects Houston, Galveston, and Lake Charles to San Juan, Ponce, and Mayagüez. The West Coast region, including Oakland, Long Beach, and Seattle, are connected with Puerto Rico by Sea-Land's service only.

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Sea-Land, TTT, Seatrain, TMT, and SACAL are containerized operators; GPRL is partly containerized; and Motorships mainly hauls automobiles. Sea-Land, which moves about 60 percent of the common carrier traffic, sails almost daily from U.S. mainland ports to San Juan. The five containerized carriers generally move the bulk of their traffic under trailerload (TL) rates. These carriers tend to publish TL rates to attract volume movements, which has resulted in relatively low rates for large quantities of basic foods, semimanufactured goods, and raw materials (ch. IV). As a result of the competitive services in this trade, new technology including efficient and fast lift-on/lift-off and roll-on/roll-off vessels have been developed, thus providing faster deliveries to retail outlets and factories in Puerto Rico with lower handling expenses and less damage to cargoes. The people of Puerto Rico and EDA-sponsored factories on the Island, have greatly benefitted from the competitive and improved services in this trade which, as before stated, can serve as a model for containerization now developing in the world's ocean trade routes. Containerized service has not been available from the western half of the Gulf Coast where Lykes provides only breakbulk service to and from Puerto Rico. Before discussing the structure of common carriers' services between the U.S. mainland and Puerto Rico, as well as the other transportation systems, it is deemed advisable to discuss briefly the history of common carriers in this trade.

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the Pacific Coast-Puerto Rico Conference, transported most of the dry cargo flowing between the U.S. mainland and Puerto Rico. Like conferences in other world trade routes, these conferences constituted agreements between member lines to observe the same rates and practices. Thus, rate competition and other competitive practices were effectively reduced within each conference.10 Competition between the Pacific CoastPuerto Rico Conference and the Atlantic and Gulf Conference was limited by the relatively few commodities differentiating the traffic flow of the West Coast and East Coast trade regions, the most important of which were rice and lumber. These conferences transported approximately 80 percent of cargo moving to Puerto Rico and about 99 percent of traffic moving in the opposite direction.

In addition, new carriers entering the trade preferred to preserve the prevailing rate structure by joining the conference. For instance, in 1951, Alcoa Steamship Co. (Alcoa) entered the trade with weekly service from Gulf ports and promptly joined the U.S. Atlantic and Gulf Conference. The lack of competition was further aggravated by traffic and port specialization both by conferences and carriers in the transportation of cargoes important to each. For example, in Ships and Sugar: An Evaluation of Puerto Rican Offshore Shipping, it was pointed out that in 1950 none of the members of the Atlantic and Gulf Conference served the same mainland ports, thereby strengthening the monopolistic elements provided by conference organizations.11 All conference cargo from and to U.S. North and South Atlantic ports was carried by the Bull Insular Line (The Bull Line) prior to the time Alcoa entered the trade; all traffic to and from Mobile and New Orleans was transported by Waterman-Gulf Line (Waterman); and all traffic to and from Lake Charles, La., and Texas ports was carried by Lykes. Waterman also provided service from the West Coast, and Pope and Talbot Line operated from the same region to Puerto Rico. In traffic moving from Puerto Rico to the Mainland, little competition existed among the conference members. Three carriers handled the raw sugar, while two handled the refined sugar; but, for the most part, the major part of all northbound traffic was carried to the U.S. mainland

The Pacific Coast-Puerto Rico Conference consisted of Waterman Steamship Corp., and the Pope and Talbot Line.

10 Samuel Eastman and Daniel Marx, Jr., Ships and Sugar: An Evaluation of Puerot Rican Offshore Shipping (Hato Rey, Puerto Rico: University of Puerto Rico Press, 1953), pp. 54-61.

11 Samuel Eastman and Daniel Marx, Jr., op. cit., p. 69.

by The Bull Line, the dominant carrier.12 Consequently, for all practical purposes, neither competition from within the conference, nor competition between conferences, nor competition between the conferences and foreign carriers, nor competition between specific traffic or ports existed in Puerto Rico's transportation system. For these reasons, no real prospects were offered to encourage cost reductions that would tend to reduce the price of imported goods and, as a result, redundancy of service with low utilization (ch. VI) and other inefficient practices prevailed in Puerto Rico's transportations system.

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2. Pan-Atlantic Steamship Corp. Containerization

By the latter part of the 1950's, rising stevedoring and operating costs with growing industrial activity in Puerto Rico emphasized the need for more efficient methods of handling imported foods and semimanufactured goods. In 1956, Pan-Atlantic entered the Puerto Rican trade and generated revenues of slightly less than one-half million dollars, 13 or about 1 percent of the total trade. Sea-Land's traffic jumped from about 42,000 weight tons in 1958 to approximately 1.50million weight tons in 1967, including 1.36 million tons of containerized traffic from Atlantic ports (excluding SS Detroit), 55,217 tons of SS Detroit traffic from Atlantic ports, and 86,018 tons from Pacific ports.1 By 1967, this carrier was the largest common carrier in the trade, employing 20 containerships, one car carrier and one feeder ship, and generated approximately $55 million in freight revenues.15 (The efficiencies and rise of containerized traffic and decline of breakbulk operations will be more thoroughly analyzed in ch. VI.)

The spectacular rise of Pan-Atlantic/Sea-Land and other containerized services, and the decline and final departure from the service in the first half of the 1960's

12 The Bull Line commenced service to Puerto Rico in 1910, at the request of sugar interests, and began calling directly at nearly all the ports of the Island. In 1925, it purchased the Puerto Rico American Steamship Co. and established direct contact with Baltimore, Philadelphia, and Norfolk. In 1928, The Bull Line purchased the Baltimore and Carolina Steamship Co. and, with the additional ships, commenced service from Jacksonville, Charleston, and Savannah. By 1930, The Bull Line dominated the trade carrying the bulk of sugar and, during the following two decades, bought most of the finger-pile terminals at Old San Juan (ch. VI) and other Puerto Rican ports.

13 In 1956, Pan-Atlantic served Puerto Rico from Gulf ports as a leg of its breakbulk intercoastal service eastbound from Pacific ports. In May of that year, Sea-Land commenced containerized service to Puerto Rico with the modified T-II tanker, S.S. Maxton carrying 60 containers.

14 Letter of Frank Hiljer, Jr., Sea-Land Service, Inc., July 9, 1969 to Paul Gonzalez, Chief, Branch of Trade Studies and Special Projects, FMC, p. 2.

15 Ibid.

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Source: Data furnished to the FMC by carriers.

Sea-Land's containerized service greatly improved labor (stevedoring) 16 productivity (chart VI-2) and, as a result, vessel time in port and operating costs declined. For instance, while the tonnage carried by Sea-Land increased from some 912,000 tons in 1963 to approximately 1.50 million tons in 1967,17 there was a large decrease in its stevedoring costs per ton compared to breakbulk handling costs. Fewer longshoremen were required to handle a ton of containerized cargo, particularly in the case of TL shipments. Thus, Sea-Land's cargo handling costs were far less than those of The Bull Line and other breakbulk competitors. Containerization not only cut the costs per ton handled, despite rising labor wages, but also had a significant competitive impact on the trade. On May 1, 1962, Waterman became the sole remaining member of the U.S. Atlantic and Gulf Conference. The Conference thereby became effectively inoperative. The Bull Line withdrew from the conference on January 29, 1961; Alcoa withdrew on February 15, 1961; and Lykes withdrew on May 1, 1962. Waterman Steamship Corp. of Puerto Rico withdrew from the Pacific Coast-Puerto Rico Conference on March 8, 1963,18 thereby effectively dissolving this conference. Pope and Talbot withdrew September 25, 1962, and several other carriers which had

16 Lifting of full containers on board the ship.

17 Letter of Frank Hiljer, Jr., Sea-Land Service, Inc., July 9, 1969, op. cit.,

p. 2.

18 Although Waterman no longer carried traffic in this trade after Apr. 13, 1961, its service was subsequently carried by its successor, Sea-Land.

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