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.)

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 transportation 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

19 Bay City's Transportation Co., Pacific Argentine Brazil Line, Inc., and Pan-Atlantic, which joined during the latter half of the 1950's, bad withdrawn from this conference by 1961.

20 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 YorkPuerto Rican trade. The services and vessels of these carriers are discussed more fully in the following pages.

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.)

4. Service Patterns by Region

In contrast to the 1950's when most conference traffic 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

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 addition, 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).2 GPRL offers containership service on only one of its three vessels, 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.

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.

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 already 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

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 volume 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.

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 Sea-Land, 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

25 (The law concerning subsidized vessels is discussed in footnote 1 of this Chapter.)

2 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.

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

31

30 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 Industries, 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 Port Seminar; Permanent 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), p. 20.

a

CARRIER DRY CARGO TRAFFIC BETWEEN U.S. AND PUERTO RICO: 1960-67

the containers utilized by Sea-Land. In addition to building the majority of the containers used in the United States, Fruehauf has recently moved to acquire the Maryland Shipbuilding and Dry Dock Co. in Baltimore for use in conversion of vessels to containerships.34

(1) Sea-Land's Vessels and Containers. Today, SeaLand operates the largest containership fleet in the world. Its total fleet as of December 1969 consisted of 42 ships,35 with at least three more in the process of con

34 In March 1968, Sea-Land had one vessel on conversion at this yard. Fruehauf intends to lease both containers and vessels to steamship operators. It is also acquiring Pacific Engineering Company, builders of large shore side gantry cranes, such as Sea-Land uses in loading and unloading its containers. (Sources: Forbes, "The Box Worth Billions," April 1, 1968, p. 31; "Fruehauf Corporation, Going to Sea," Forbes, Apr. 1, 1968, p. 34; and Harold B. Meyers, "The Maritime Industry's Expensive New Box," Fortune, November 1967, pp. 152-153.)

Sea-Land's 1969 fleet of 35 vessels includes: six C2-C vessels, each with a capacity of 226, 35-foot containers-the SS Azalea City, Beauregard, Bienville, Fairland, Gateway City, and Raphael Semmes; six C2-L vessels, each with a capacity of 274 containers-the SS Arizpa, Afoundria, Wacosta, Mayagüez, Ponce, and Warrior; one C3 vessel, the SS Detroit, which carries automobiles and breakbulk cargo; nine C4-J vessels, each with a capacity of 602 to 622 containers-the SS Long Beach, Oakland, Panama, San Pedro, Pittsburg, Chicago, St. Louis, Rose City, and Trenton; two C4-M vessels, each with a capacity of 272 containers-the SS Anchorage and Seattle; one C4-X with a capacity of 325 containers-the SS Baltimore; nine C4-X with a capacity of 360 containers-the SS Charleston, Newark, Portland, Boston, Brooklyn, Galveston, New Orleans, Philadelphia, and Mobile; three T2-M vessels, each with a capacity of 332 containers-the SS Tampa, Jacksonville and Houston; and four T3-J vessels, each with a capacity of 476 containers

version. This does not include breakbulk vessels, shortterm charters, or small special-purpose vessels such as the Adda and Rio Haina which are used in Sea-Land's foreign trade operations.36 Most of Sea-Land's vessels were built between 1940-45 and modified for containerization during the 1960's. Vessel speeds are 15 to 16 knots. This fleet includes nine vessels capable of carrying more than 600 containers each. In addition, SeaLand has placed bids for constructing eight new vessels abroad, each capable of carrying 1,261 containers at a cost of $250 million. These vessels, which will move at 33 knots, should be available by mid-1970.37 Because of

SS Elizabethport, Los Angeles, San Francisco, and San Juan. (The Anchorage was withdrawn for modification during early 1969.)

36 In 1967, Sea-Land partially or fully employed each of the following vessels in the Puerto Rican trade: the Azalea City, Beauregard, Bienville, Fairland, Gateway City, Raphael Semmes, Mayagüez, Ponce, San Juan, Arizpa, Afoundria, Wacosta, Warrior, Long Beach, Oakland, Panama, Trenton, New Yorker, Detroit, and Baltimore. Sea-Land-owned vessels which were employed in the Puerto Rican trade in 1967 were: SS Azalea City, Beauregard, Bienville, Fairland, Gateway City, Raphael Semmes, Mayagüez, and Ponce. In addition, Sea-Land owns the Claiborne and Maiden Creek, and charters the New Yorker; Sea-Land charters these three vessels to GPRL.

37 In October 1969, United States Lines announced that, subject to approval of directors and Government agencies, it will turn over its 16 big new container ships to Sea-Land Service, Inc., under a 20-year, time-charter arrangement being negotiated by the two companies. At the end of the 20-year period, Sea-Land would have the option of buying the ships, capable of 20 to 23 knots. (Source: The New York Times, Oct. 4, 1969, pp. 49 and 53.