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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.
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.
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
B. WATER CARRIERS
1. Brief History of Past Carriers
Throughout most of the 1950's, five breakbulk carriers belonging to two United States-Puerto Rico conferences, the U.S. Atlantic and Gulf Conferences and
Sea-Land also operates one breakbulk vessel, the S.s. Detroit, which is especially equipped to handle vehicles, live animals, and a limited number of containers on its modified forward deck. Seatrain operates one trainship, the S.S. New Yorker.
& The conference membership included : Bull Insular Line, Lykes, Water. man Steamship Corp., and Alcoa Steamship Co., Inc., a subsidiary of the Aluminum Co. of America. (Alcoa joined the conference system in 1951.)
9 The Pacific Coast. Puerto Rico Conference consisted of Waterman Steamship Corp., and the Pope and Talbot Line.
19 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.
2. Pan-Atlantic Steamship
Steamship Corp. and 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. 14 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
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 joined this conference 19 during the latter part of the 1950's withdrew from the conference by 1961. As a result of the rise in container services and decline of breakbulk operators, the two conferences which tended to inhibit transport efficiency and lower rate levels ceased operations and most carriers involved left the trade, ending Puerto Rico's experience with price-fixing transportation systems. (See chapter VIII, Section B, entitled Agreements, in the Puerto Rican Trade.)
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,
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.
freight rates over an extended period of time might shed some light on the effects of competitive services in the Puerto Rican trade. Chapter IV, Ocean Freight Rates, contains a comprehensive analysis of Puerto Rico's overall rate structures and various detailed rate studies on leading shipments in this trade. This analysis shows that most ocean freight rates from the North Atlantic region have remained steady or declined during the period from 1960 to 1968 in spite of rising costs. There are some exceptions to these rate levels; some rates have increased considerably (ch. IV). New rates have been added that result in effective reductions and an increased number of trailerload (TL) rates also result in effective reductions. But overall, rate structures have remained relatively steady or decreased between 1960 and 1968. This demonstrates further that competition, carrier innovations, and increased efficiencies have had a beneficial effect on ocean freight rates in this trade. The study also indicates that new and beneficial rate structures have been established (e.g., maximum charge per container rates). Attractive rates available on quantity loads are likely not only to encourage new U.S. mainland industries to join Puerto Rico's growing economy but also to lower prices on imported goods. (Rates of costs of living are discussed in ch. V.)
3. The Impact of Containerization
Although the advent of containerized carriers in the late 1950's and early 1960's was a major factor in the withdrawal of the traditional breakbulk carriers which had previously served Puerto Rico, it would appear that this change had a beneficial effect on ocean transportation to Puerto Rico. The traditional breakbulk carriers, operating as previously indicated, with only limited competition because of the existing conference structure, had no great incentive to invest addition capital in efforts to become more efficient or hold down costs or rates. In contrast, the new and innovative containerized services, without any conference structure, were spurred by competitive forces to increase their efficiencies, reduce costs and hold the line on rate increases. It is understandable, therefore, why carriers utilizing the more efficient improved technological containerized service with its lower unit costs were able to dominate the Puerto Rican trade and drive out the higher cost and less efficient breakbulk operators. This technological transformation, which took place in ocean transporta tion in the Puerto Rican trade, is a most persuasive argument in favor of fair and open carrier competition in the domestic trades.20 (The containerships are discussed in more detail in section 5 of this chapter.)
Although there is no general agreement concerning the quantitative measures needed to evaluate accurately the effect of competition, a careful study of ocean
4. Service Patterns by Region
In contrast to the 1950's when most conference traf. fic from and to North Atlantic and South Atlantic ports was transported by The Bull Lines' breakbulk vessels, 21 today, six common carriers provide containerized service from these regions. Table III-2 below shows that containerized services between U.S. North Atlantic and South Atlantic ports on the one hand and Puerto Rico have not only been frequent but also quite competitive. Most of the active competition in the Puerto Rican trade has occurred between the six carriers serving these two regions.
Table III-2 shows that ports along the 1,800-mile U.S. Atlantic coastline received approximately 683 terminated voyages in 1967, or approximately 83 percent of all voyages made by common carriers in that year. In the North Atlantic region, including New York, Elizabeth, and Baltimore, these carriers provided 424 terminated voyages, or 51 percent of the total terminated voyages from U.S. mainland ports. South Atlantic ports, including Charleston, Jacksonville, and Miami, received 259 voyages, or 31 percent of all voy
19 Bay City's Transportation Co., Pacific Argentine Brazil Line, Inc., and Pan-Atlantic, which joined during the latter half of the 1950's, had withdrawn from this conference by 1961.
29 Examples include: TTT's new large 26 knot S.S. Ponce De Leon, capable of handling a combination of 750 trailers and automobiles within a 10. to 14-hour berthing time period per visit; Sea-Land's four large C4J containerships, each capable of carrying 609 containers; and, SACAL's Borincano, a new aluminum containership. In addition, Sea-Land is constructing eight huge containerships, each capable of hauling 1,200 containers at speeds of 33 knots; Seatrain is proposing conversion of four containerships which will double its container capacity in the North Atlantic-Puerto Rican trade; and, in October 1969, TTT announced that a $19 million sistership for the Ponce De Leon would be built at Sun Shipbuilding and Dry Dock Co., Chester, Pa., for the New York. Puerto Rican trade. The services and 'vessels of these carriers are discussed more fully in the following pages.
21 Alcoa carried some North Atlantic traffic during the 1950's.
ages. These sailings do not reflect the number of ports visited in each region but merely the number of voy. ages in which at least one port in each region was visited. Actual port calls would, of course, run higher than the totals shown in table III-2. Sea-Land's service 22 alone accounted for more than one-half of the terminated voyages from North Atlantic ports and carried the bulk of traffic.
On the other hand, the sailings from the Gulf region (covering the same amount of coastline as the U.S. Atlantic, or 1,800 miles) received 104 sailings or only 12.6 percent of total terminated voyages. These voyages amounted to an average of two sailings per week from the Gulf coast to Puerto Rico. GPRL is the major carrier in this region. Competition is not as vigorous in the Gulf trade as it is in the U.S. Atlantic, particularly since the recent withdrawal of Alcoa from this service and Indian Towing Co.'s discontinuance of its common carrier service.23 Lykes, which carries only a small amount of breakbulk traffic, is the only other competing domestic common carrier in the entire Gulf. In addi. tion, several small contract carriers operate to and from Gulf
ports but carry only a small amount of traffic (ch. III.B.6, discusses contract carrier service).24 GPRL offers containership service on only one of its three ves. sels, the SS New Yorker, which accommodates 66 trailers. GPRL, therefore, largely transports breakbulk cargo. Various shippers allege that shortage of space, to the extent that it has delayed movements of cargo, has impeded the flow of commerce from this region.
There is no common carrier competition from the West Coast region. Sea-Land is the only carrier providing service from this region. In 1967, SeaLand operated 40 terminated voyages from this region, or approximately 5 percent of total voyages in that year.
Viet Nam military operations have competed for shipping services, and this demand has been a significant factor in determining the level of service in the domestic offshore trades. The need for vessels in the Viet Nam effort has resulted in temporary reductions in service in the Puerto Rican trade as well as other domestic and foreign trades in which U.S.-flag vessels are normally engaged. The impact of Viet Nam requirements, however, may be of a short term nature and al. ready shows some signs of declining as new vessels become available for that service and older vessels are modified.
Examination of foreign trade routes and traffic flow indicates that foreign carrier competition on imports has become significant. In 1950, foreign carriers carried imports valued at only $51.8 million or 8.7 percent of Puerto Rico's total imports. Seventeen years later, foreign shipping lines carried imports valued at $388.5 million or 12.4 percent of Puerto Rico's total imports (table II–6, p. 19). The principal foreign shipping lines were: Shipping Line
Country Nippon Yusen Kaisha Line --
Japanese. Compania Transatlantica..
Spanish. Nordana Line----
Spanish. The Belfran Line----
French. Fabre Line..
French. The French Line..
French. The Horn Line.
German. The Royal Mail Line
British. The Pacific Steam Line---
British. The Federal Commerce Navigation Co----- Canadian. The Shaw Steamship Co.---
Canadian. The Montreal Shipping Co----
Canadian. The Seaboard Shipping Co--
Canadian. The Pall Wilson Co..
Canadian. The Transocean Shipping Co.-
Canadian. The Ivaran Line.--
Norwegian Lloyd Brasileiro.-
Brazilian, Consequently, domestic carriers face considerable competition from the foreign imports transported by foreign carriers in this trade.
5. Present Carrier Services
22 Sea-Land serves both the North Atlantic and South Atlantic regions.
23 Indian Towing Co., which maintains tariffs on file with the FMC, however, transports a considerable amount of nonregulated cargo. In 1967, this carrier moved approximately 18,000 tons between Gulf ports and Puerto Rico. This cargo consisted mainly of cast iron pipe and creosoted poles.
21 Chapter VIII discusses the shortage of vessel capacity from Gulf ports in more detail.
The importance of competition in relation to moving transport technology in the direction of innovation and
more attractive rate structures in the Puerto Rican trade is clear. There are two other factors which have combined to make this trade the ideal place for perfecting the containerization concept. The trade has sufficient traffic volume to yield adequate economies of scale when the capital-intensive methods of containerization are utilized. One of the most important elements which makes Puerto Rico's transportation situation ideal for transport research and development is the protection afforded against the competition of foreign flag operators and subsidized U.S.-flag vessels 25 by the U.S. coastal shipping laws.26 These laws enabled the investment of $28 million in the Ponce De Leon and permitted Sea-Land, Seatrain, and other domestic carriers to perfect the new transport technology without being forced from the trade during the critical initial stages of investment. The carriers in turn have provided the large vol. ume of efficient transportation services required by the Island's industrialization program. Almost all of the economy's trade in semimanufactured and finished goods is with the U.S. mainland. These carriers, therefore, are examined in more detail below.
Chart III-2 shows the total traffic transported by each principal common carrier serving Puerto Rico during the period 1960 through 1967. This chart also contains traffic projections through 1975.
subsidiary of McLean Industries, Inc. (McLean), which was established as a result of transportation concepts developed by Malcolm McLean. McLean consists of the parent company, functioning as a holding company, and a number of subsidiary and affiliated corporations in addition to its operating subsidiaries. McLean through its operating subsidiaries, Sea-Land and GPRL, operates 45 American flag vessels.27 Of the 45 vessels, 42 have been placed under Sea-Land's operating control and three are operated by GPRL.28
Since building of a containership fleet together with its attendant facilities is exceedingly expensive, SeaLand has entered into certain relationships with other companies for the purpose of financing its operations. Perhaps three of Sea-Land's most important relationships are with Litton Industries (Litton), AmericanHawaiian Steamship Co., and Fruehauf Corp. Litton, a conglomerate, controlling among other things, shipyards, typewriter manufacturers, and entire industrial complexes, has financed Sea-Land's expansion program by approximately $190 million.29 In addition, Litton, through a subsidiary has acquired a substantial part of Sea-Land's fleet and leased them back to Sea-Land. 30 Litton owned 17 of Sea-Land's fleet as of March 1968,31 and many of the conversions to containerships have been effected in Litton's shipyards.32 American-Hawaiian Steamship Co. is controlled and largely owned by Daniel Ludwig, who is also involved in financing McLean. (Mr. Ludwig is also president of National Bulk Carriers, Inc., a shipping and shipbuilding firm.) Mr. Ludwig owns approximately 12 percent of the stock of McLean and sits on its Board of Directors.33
Fruehauf Corp., which assisted in the original capi. talization of McLean Industries, has a large interest in
a. Sea-Land Service, Inc.
In 1969, Seal-Land was the largest of all common carriers in the Puerto Rican trade in terms of both tonnage and revenue. It has achieved this position in a mere 12 years since 1958 when Pan-Atlantic (SeaLand's predecessor) inaugurated service to Puerto Rico. In 1967, Sea-Land transported a total of 1.66 million weight tons (1.50 million of which were FMC-regulated), or approximately 60 percent of the traffic moving to and from Puerto Rico by common carrier (chart III2 and app. C, table 1). Sea-Land's 1967 ocean freight traffic amounted to 60 percent of all the traffic carried by common carriers in this trade. Moreover, Sea-Land's 1967 traffic is expected to double by 1975.
To understand the operations of SeaT.and, it is useful to know something of the organization and the manner in which it is related to its various affiliates. As previously indicated, Sea-Land is a vessel operating
27 Letter of Frank Hiljer, Jr., Sea-Land Service, Inc., July 9, 1969, op. cit.,
29 McLean Industries, Inc. McLean Industries, Inc. Annual Report: 1968 (New Jersey: 1968), p. 1.
29 Ibid., p. 154. 20 Certain arrangements connected with the lease of Litton's vessels guarantee Litton control over a seat on McLean's Board of Directors for the term of the lease. (Source: Securities and Exchange Commission Report, McLean In. dustries, Inc.: Prospectus.)
31 The treatment to be accorded to vessels and other property and equipment subject to sale and lease back transactions in rate base and income statements will be considered by the FMC.
:32 U.S. Maritime Administration, First Inter-American Pori Seminar; Perma. nent Technical Committee on Ports, Working Document on Containerization and Trade Routes (Washington : 1967); pp. 17-19.
33 In 1969 an agreement was reached between R. J. Reynolds Tobacco Co. and McLean Industries, in which Reynolds purchased McLean for cash or securities valued at about $530 million. (Sources: New York Times, January 19, 1969, Business and Finance Section; Financial World, January 22, 1969, “News and Opinions on Active Stocks"; and Pacific Shipper, Inc., "Sea-Land to Reynolds Tobacco", Pacific Shipper (Vol. 43, No. 49, Jan. 20, 1969),
25 (The law concerning subsidized vessels is discussed in footpote 1 of this Chapter.)
» Section 27 of the Merchant Marine Act of 1920 reserves traffic moving between the U.S. mainland and Puerto Rico for American constructed and manned shipping.