time requirements. As indicated previously, just over 55,000 tons of air cargo comprising only 1.4 percent of all dry cargo moved in both directions between Puerto Rico and the U.S. mainland in 1967. Since most vessels used in the Puerto Rican trade can carry at least 5,000 tons of cargo at any one time and the largest can carry in excess of 14,000 tons, it is obvious that air carriers will not be competing with ocean carriers for bulky cargo of low or moderate value. As the new jumbo jets come into service, however, it will be feasible to move an ever-increasing number of commodities by air. An example of this type of movement, which has already occurred, is the air carriage of quality fresh meats between the producer in an inland meat-processing area and the consumers on the east coast and in Hawaii.9 Ocean carriers find the high-rated, high-value cargo to be most attractive for obvious reasons. Because competition between air and ocean carriage involves precisely this highly attractive cargo, it is of more interest than would be indicated by the tonnages or revenues involved. Competition by air carriers, in many cases, will serve to set an upper limit to the rates which can be charged on such cargo by ocean carriers.

E. CONCLUSIONS AND RECOMMENDATIONS

1. Conclusion

The containership services in the Puerto Rican trade have been highly competitive since the demise of the two conferences which served this trade during the 1950's and early 1960's. Within the 1960-68 period, most containership operators modernized their equipment, established aggressive operations and efficient services, and improved terminal facilities. These competitive services have been beneficial not only for new U.S. mainland business relocating to Puerto Rico but also for rate structures to the Island. Open competition existing in this trade, thus, has been a factor in producing generally satisfactory services, technological advances, and reasonably efficient patterns of service from certain regions.

8 Puerto Rico Ports Authority, Office of Economic Research, 1968.

The container revolution in air freight is already underway. In 1966, the domestic airborne industry adopted four container sizes (type A of 370-500 cubic feet, type B holding 195 cubic feet, type C of 125 cubic feet, and type D of 62.5 cubic feet) made of plastic and aluminum. These expendable containers are designed as one-way arrangements but more permanent containers are being developed.

Recommendation

It is recommended that the FMC continue to encourage fair competition and utilization of new and efficient vessels in this trade.

2. Conclusion

The principle of open and free competition has in the past been an important factor contributing to the development of containerization and the dramatic improvement in ocean carrier services in the United StatesPuerto Rican trade. Transportation conditions in this trade, however, have changed radically during recent years and these changes are continuing. Under the new patterns of transportation involving huge capital investments in both vessels and shore facilities, it may well be that some regulation over entry to and exit from the trade would be in the public interest.

Recommendation

It is recommended that the Commission undertake an analysis to determine whether present conditions in the Puerto Rican trade require regulatory control over the entry or exit of common carriers in the trade.

3. Conclusion

Unregulated carrier services in the Puerto Rican trade apparently have had no adverse competitive effect on common carriage transport in this trade. These carriers provide a valuable service in moving certain cargoes which containership operators cannot carry. No complaints have been received from either common carriers or shippers concerning the unregulated carriers in the Puerto Rican trade.

Recommendation

It is recommended that the FMC continue to maintain surveillance over unregulated carriers to insure that these carriers are not operating as common carriers subject to FMC regulation on that basis.

4. Conclusion

Projected traffic indicates that demand for various common carrier containership services will greatly increase by 1975. This demand for ocean transportation, which is a function of growth in population, production, and incomes, will not only require larger and faster containerships but also more efficient modes of transport to keep rates at reasonable levels.

Recommendation

To meet the growth in traffic, it is recommended that carriers by water consider the introduction into the Puerto Rican trade of larger and faster containerships capable of operating at high speeds.

5. Conclusion

Lykes and GPRL provide breakbulk service primarily with relatively obsolete vessels of World War II vintage. These carriers should consider replacing obsolete ships with vessels of modern construction. Further, these carriers should consider expanding containership service to offset the rising costs of stevedoring and other operations in the U.S. Gulf-Puerto Rican trade. Unless the slow breakbulk vessels with large crews and relatively outmoded cargo handling equipment are replaced with more efficient vessels and/or patterns of service, it appears that general rate increases may follow each significant increase in wages or other cost of transportation.

Recommendation

Lykes and GPRL should consider the feasibility of (1) early replacement of certain obsolete vessels with those of modern construction, and (2) increasing containership service in the Gulf-Puerto Rican trade. It is recognized, of course, that in any such program the car

riers must deal with practical financial and operating problems.

6. Conclusion

These is a close inter-relationship between U.S. mainland-Puerto Rican maritime traffic and Puerto Rico's road/highway development. As indicated previously, total common carrier traffic moving from the Mainland will greatly increase by 1975. Accordingly, there is an urgent need for further improvement in Puerto Rico's road and highway system to accommodate the orderly and efficient flow of traffic to consumers on the Island. Although the Commonwealth has considerably improved the Island's road and highway system, various defects still impede the efficient movement of traffic within and between metropolitan areas. A betterment in the road and highway system should reduce the time and cost of moving containerized maritime traffic overland from the port of San Juan to Ponce, Mayagüez, and other main trading centers.

Recommendation

It is recommended that the Commission suggest to the Commonwealth of Puerto Rico (Highway Authority) improving highways and roads to facilitate the large scale intercity movement of cargoes in 35 and 40 foot trailers, particularly between San Juan and principal trading centers on the Island.

CHAPTER IV

A. GENERAL

1. Introduction

1

This chapter examines southbound ocean rates 1 from selected ports in the U.S. North Atlantic, South Atlantic, Gulf, and West Coast regions to Puerto Rico. This analysis involves rates primarily of Sea-Land because of its dominant position in the trade 2 and focuses on southbound ocean rates because of the predominant amount of traffic flowing in that direction. Examination is made of the historical development of ocean rates over the past 8 years 3 and the effect of these rates on the transportation system and economy of Puerto Rico. Terminal rates and pickup and delivery rates are covered in chapters VI and VII respectively. Whenever possible, the discussion of rates follows the regional approach.

Extensive rate histories and studies of rate differentials between carriers, between commodities, and between regions are presented. Special attention is focused on the principal moving commodities and corresponding ocean rates which generate about 50 percent of the

1 Ocean rates in this chapter refer to ocean freight rates per 100 pounds or per cubic foot (per. cu. ft.) applicable from U.S. mainland terminals (place of rest) to the end of ship's tackle at Puerto Rican ports, unless otherwise noted. For definitions of terms and abbreviations, refer to Appendix F.

2 As noted in the preceding chapter, Sea-Land not only carries 60 percent of the total common carrier traffic but also is the only common carrier serving more than one region (i.e., the North Atlantic, South Atlantic, and West Coast). This carrier transports about two-thirds of all common carrier traffic from the North Atlantic, more than one-half of the traffic from the South Atlantic, and all of the traffic from the West Coast.

3 The period generally covered by the rate histories is that between Sept. 1, 1960 and June 1, 1968.

total revenues earned by each common carrier operating from U.S. mainland ports to Puerto Rico.

Appendix C, table 2 contains a complete list of these principal moving commodities by region, and appendix E (tables 1 through 10) contains the ocean rates on these commodities. Although consideration of principal moving commodities is stressed, the southbound consumer goods and intermediate goods of primary importance to the economy of Puerto Rico identified for the staff by the Commonwealth (app. B) are also analyzed, and appendix E (tables 2, 8, and 10) is an examination of ocean rates for these commodities.

Because most of the traffic is transported in trailerload (TL) quantities, these rate studies stress TL rates.* Less-than-trailerload (LTL), any quantity (AQ), freight all kinds (FAK), maximum per container and flat container rates without regard to the weight or measurement are also discussed in this chapter. As the terms clearly imply, when the quantity of a shipment substantially fills the cargo carrying capacity of the container or trailer used, it is generally considered a TL shipment and when the quantity is substantially below the cargo carrying capacity of the container or trailer, it is considered an LTL shipment." (The specific

Commodity rates are rates that are published to apply on a specific com. modity or a group of specified commodities. Generally, tariffs containing commodity rates name the specific commodity on which such rates apply in the same section or item that names the rate. In some cases, however, these tariff items may refer to other sections of the tariff for a list of the commodities on which the rates apply (e.g., fruits, vegetables, and groceries).

5 Hawkins Publishing Co., Hawkins Index-Digest-Analysis of Decisions under the Interstate Commerce Act, Vol. 3 (Washington: Revised through January, 1968), Item 1000-1, pp. 14, 29, 30.

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weight or measurement volume required for TL and LTL shipments is defined in the controlling tariffs of each carrier.) Generally speaking, the TL rate on a specific commodity from a particular point of origin to a specified point of destination is lower than the corresponding LTL rate between the same points. The term AQ applies when the shipment is moved without regard to quantity." AQ rates in the Puerto Rican trade are an outgrowth of the traditional weight or measurement rate structures established in the age of the old breakbulk carriers discussed in chapter III. This rate structure is gradually giving way to the newer containerization concepts being perfected in this trade in the sea and land transportation of freight. The new rate structures developing in the trade are discussed in more detail in section D of this chapter.

In addition to the TL, LTL, and AQ rates, water carriers also publish FAK rates, flat dollar per container rates (those established without regard to the weight or measurement aspects of the commodity involved and those without regard to the commodity), and maximum per container rates which, under their tariffs, are not entirely dependent for application on the weight or measurement of the commodity involved. (Flat dollar per container rates, FAK, and maximum per container rates are analyzed in section D of this chapter.)

FAK rates apply on mixtures of commodities in full trailerloads. These rates usually have restrictions against a single commodity exceeding a fixed amount or portion of the shipment. The shipper must furnish the carriers with a complete manifest setting forth the contents of each container or trailer. These rates most nearly approach the concept of flat container rates without regard to the weight or measurement or the commodity carried in the container. The maximum per container rate applies when the quantity of a shipment (and its corresponding freight charge) reaches a stated maximum dollar charge, under the carriers' tariff, removing that shipment from the application of further unit charges."

6 AQ rates in the Puerto Rican trade are really like a low-volume high-rated LTL-type rate.

Flat dollar per container rates are defined in section D of this chapter. 8 SACAL offers two FAK rates on dry cargo, all kinds (with no restriction on the number of commodities which can be loaded in the container); one of $800 per 40-foot trailer, and the other of $700 per 35-foot trailer.

For example, if the maximum per container rate on beans were $400, beans having a TL rate of 95 cents per 100 pounds would reach the maximum dollar charge of $400 at approximately 42,000 pounds. There would be no further charge between 42,000 and 45,000 pounds (45,000 pounds is Sea-Land's weight limit applicable to containers moving from New York to San Juan).

B. RATE ANALYSES BY REGION

1. North Atlantic Region

Today, North Atlantic traffic, which accounts for more than 60 percent of the total FMC-regulated traffic moving in the Puerto Rican trade, is carried primarily by Sea-Land and Seatrain, most of it moving under about 75 basic tariff descriptions (app. C, table 2) analyzed below.

10

This section examines Sea-Land's ocean rates and those of Seatrain," the second largest carrier, from New York to San Juan. Sea-Land's ocean rates from the South Atlantic (Jacksonville) and West Coast (Oakland) regions to Puerto Rico are analyzed in sections 2 and 4 below.

Because of the vigorous competitive situation between the carriers, technological advances and carrier efficiencies (ch. III), rate structures from the North Atlantic are substantially at the same level or on some commodities even lower than those in effect eight years ago when this traffic was moved largely by the Bull Lines. Also, many relatively low rates on large quantity TL shipments have been established.

To evaluate the rate structures and rate relationships, first, the overall rates of Sea-Land and Seatrain were analyzed by use of cumulative frequency of rates distribution tables and charts which plotted rate levels taken from their published tariffs at each ten percentile level 12 (charts IV-1, 2, and 3, and app. D).13 These

10 Sea-Land's rates are for transport from place of rest at the Elizabeth terminal to the end of ship's tackle at the Puerto Rican terminal covered by its tariff (i.e., San Juan, Ponce, and Mayagüez). Sea-Land's rates, charges, rules, regulations, and other provisions applicable to the carrier's New York to Puerto Rico port-to-port transportation are set forth in its tariffs, FMC-F No. 3 (Pan-Atlantic Corp. Series), and FMC-F No. 10. These tariffs also name pickup and delivery rates applicable within Puerto Rico.

11 Seatrain's rates are for transport from place of rest at its Edgewater, N.J. terminal to the end of ship's tackle at the Puerto Rican terminal covered by its tariff (i.e., San Juan, Ponce, and Mayagüez). Seatrain's rates, charges, rules, and regulations applicable to the carrier's New York to Puerto Rico service are set forth in its tariffs FMC-F No. 1 and FMC-F No. 2.

12 The term "cumulative frequency distribution" refers to a continuous visual presentation of the cumulative frequency of a variable (in this case a group of rates) over a range of values usually rising from zero to a value determined by the highest sample value obtained. The term "percentile level" refers to a percentage point on the cumulative frequency distribution chart covering the ratio between the carrier's total rates and an observed group of rates from zero to the value of the highest sample value obtained. For example, the 50 percentile point on chart IV-1 shows that on June 1, 1968, 50 percent of Sea-Land's total rates were equal to or less than 141 cents per 100 pounds.

13 It is important to mention that the cumulative frequency of rates presentations used in this chapter only represent the carrier's total rate structure. These presentations were not prepared to illustrate the level of rates affecting principal moving commodities but rather to analyze a carrier's total rate structure (i.e., each chart diagrams, separately, the carrier's total weight rate structure and total measurement rate structure). Many rates which have been included in these presentations affect only small traffic volumes, a lesser number of rates affect principal moving commodities.

14

rates were separately analyzed as to TL, LTL, and AQ rates.11 Secondly, lists of each carriers' principal moving commodities from selected cities, representing at least 50 percent of the carrier's movement in terms of revenue from that port, were furnished by the carrier app. C, table 2). Rates on these commodities were plotted on bar graphs demonstrating rate changes over an 8-year period.15 The final phase of this analysis examined rates on those commodities regarded by the Commonwealth as either essential to the Island's wellbeing or important to its industrial development.16 These commodities are also considered in some detail in Chapter V which deals with the price-transportation cost relationships.

a. Sea-Land's Ocean Rates From Elizabeth, N.J.

Sea-Land's rate structure from Elizabeth to San Juan is moving increasingly toward greater TL type movements and, therefore, a relatively lower rate structure for cargo transported to the Island.

Sea-Land's overall rate profile applicable from Elizabeth to San Juan is presented in chart IV-1, a cumulative frequency distribution diagram, for September 1, 1960, and June 1, 1968. This chart shows a median weight rate," or average, of 141 cents per 100 pounds on June 1,, 1968 compared to 146 cents per 100 pounds for September 1, 1960. The median measurement rate was 56 cents per cubic foot in 1968 compared to 61 cents per cubic foot for September 1, 1960. According to these figures, Sea-Land's median southbound ocean

14 Cumulative frequency of rates presentations were also prepared on SeaLand's West Coast-Puerto Rico tariff, Seatrain's New Jersey to Puerto Rico tariff, TMT's South Atlantic-Puerto Rico tariff and GPRL's Gulf-Puerto Rico tariff.

15 Similar illustrations were prepared for TMT and GPRL rates.

16 As indicated previously, the list of Commonwealth commodities was developed by the Puerto Rico Ports Authority, Puerto Rico Department of Labor, and the EDA in 1968.

1 The median rate refers to the rate plotted at the 50 percentile level (chart IV-1, A).

TABLE IV-1

rate decreased by 3.4 percent weight and 8.2 percent measurement during this 8-year period.

Sea-Land's overall rate change from 1960 to 1968 is summarized in table IV-1 below.

Chart IV-1 shows that there were 33 percent more rates in Sea-Land's tariff in 1968 than in 1960 (1,745 weight rates compared to 1,313 weight rates) and many more of the 1968 commodity rates were TL rates, thus accounting for part of the decrease in average rate level. It is evident also that Sea-Land expanded its specific commodity rates while decreasing the amount of traffic moving under relatively high cargo NOS rates. This increase in the number of specific commodity rates was a result of the alteration of its rate structure to incorporate TL and LTL rates more nearly reflecting its container service and shipper demands.

Chart IV-2, a breakdown of the carrier's 1968 southbound tariffs by TL rates, LTL rates and AQ rates, shows that Sea-Land now has many TL rates (439 weight and 108 measurement) compared to only three available in 1960. The median 1968 TL weight rate of 100 cents per 100 pounds is approximately 29 percent lower than the median 1960 (overall weight rate) of 141 cents per 100 pounds, as shown in chart IV-1.18 This chart also shows that Sea-Land's average LTL rate level is generally one-third higher than its average TL rate level. This carrier's TL weight rates (439 rates) comprise only 25 percent of the total weight rate structure (1,745 rates) contained in its Outward Tariff No. 2, FMC-F No. 3 (Pan-Atlantic Corporation Series). In addition, the overall level of AQ rates (948 rates), which comprise about 55 percent of the total rate structure, is about 50 percent higher than the TL rate structure in this trade; but, approximately 50 percent of SeaLand's traffic moves under TL rates.

18 The 1968 median TL measurement rate of 40 cents per cubic foot was one-third lower than the 1960 overall measurement rate of 60 cents per cubic foot (app. D, table 1).