CHAPTER II

A. GENERAL

1. Introduction

Puerto Rico is largely dependent upon the U.S. mainland for its supply of raw materials, semimanufactured and manufactured goods, and many food staples. In fiscal year 1968, trade between the U.S. mainland and Puerto Rico amounted to $2.83 billion, or about 83 percent of Puerto Rico's external trade (table II-6, p. 19). For island economies such as Puerto Rico where overland form of transport does not connect them with their principal markets for imported goods or exported products, ocean transportation services are crucial. Because ocean transportation moves 99 percent (5.4 million tons of dry cargo 1) of Puerto Rico's external trade, fundamental to the promotion of economic and social development. Both the production and income levels achieved on the Island are dependent upon water transportation to link the common market existing between Puerto Rico and the U.S. mainland.

This chapter is concerned with the relationship between the economy of Puerto Rico and traffic movements within this common market. Success in achieving or maintaining adequacy and efficiency in ocean transportation will partly depend on knowledge of Puerto Rico's basic challenges and problems, productive proc. esses, and external trade with the U.S. mainland.

2. Geography

Puerto Rico is located some 1,399 nautical miles from New York, 1,121 miles from Jacksonville, and 960

1 Puerto Rico Ports Authority, "Movimiento de Carga Seca Y Total por Los Puertos de San Juan, Ponce, Mayaguez Y Puerto Rico, Ano Natural 1957 AL 1966", (San Juan: Ports Authority, July 26, 1968).

miles from Miami. The land area of the Island is 3,400 square miles, roughly a rectangular configuration, 35 miles wide north to south and 100 miles long east to west (chart II-1, p. 6).3

2 The nautical miles between San Juan and other ports on the U.S. mainland are: Boston, 1,486 miles; Baltimore, 1,374 miles; Norfolk, 1,252 miles; Charleston, 1,138 miles; Savannah, 1,153 miles; Mobile, 1,488 miles; New Orleans, 1,541 miles; Galveston, 1,715 miles; San Diego, 3,879 miles (through the Panama Canal); Los Angeles, 3,949 miles; San Francisco, 4,281 miles; and Vancouver, B.C., 5,068 miles. The distance from San Juan to the Panama Canal is 1,036 miles; and to London, 3,803 miles. (Source: U.S. Department of the Navy, Hydrographic Office, Table of Distances Between Ports Via the Shortest Navigable Routes as Determined by the Hydrographic Office U.S. Navy Department, Washington: Government Printing Office, 1940, p. 391.)

3 Puerto Rico is composed of 76 municipalities which are grouped into three geographic regions surrounding the Island's largest cities and the ocean terminals of San Juan, Ponce, and Mayagüez. The San Juan region contains 46 relatively large municipalities and incorporates some 55 percent, or 1,900 square miles, of the total land area of Puerto Rico. This region is composed of seven subregions, including San Juan metropolitan, Fajardo, Caguas, Cayey, Humacao, Manati, and Arecibo. The subregion of San Juan metropolitan is the center of population and economic activity and includes the municipalities of San Juan, Bayamón, Carolina, Cataño, Guaynabo, Río Pedras, Hato Rey, and Trujillo Alto. A variety of residential and commercial complexes in this area are interconnected by relatively few arterial streets for ease of traffic circulation, particularly in Old San Juan. This city in particular is still burdened with old and inadequate structures and narrow congested roads and highways. The Ponce region which contains 16 relatively small municipalities is located in the southern sector of the Island. This region incorporates some 25 percent, 849 square miles, of the total land area of Puerto Rico. This region is divided into two subregions, including Ponce and Guayama. The municipality of Ponce, one of the oldest settlements of the Island, is the trading and distribution center of southern Puerto Rico. In recent years, various industries including cement plants, farm foundries, fishfood companies, and oil refineries have established operations in the Ponce area. The Mayagüez region which contains 15 small municipalities incor. porates the western sector of the Island. This region comprises approximately 20 percent, or 688 square miles, of the land area of Puerto Rico. This region is divided into two subregions, including Mayagüez and Aguadilla. (Source: Puerto Rico Planning Board; and Wilbur Smith and Associates; Padilla and Gracia, San Juan Metropolitan Area, Transportation Study Transportation Plan, Hato Rey, P. R.; June 25, 1967, p. 5).

Source: Commonwealth of Puerto Rico, Economic
Development Administration. Overall

Economic Development Plan for the
Commonwealth of Puerto Rico. First

Revision. February 1967.

1. General

5

B. THE ECONOMY

The Commonwealth's domestic production of food and raw materials is insufficient to feed its 2.7 million people and provide the materials needed to satisfy the demands of industrialization. Only a small part of the Island's land area is arable, or agriculturally productive and, with one of the highest population densities in the world, the Commonwealth must import about 51 percent of its basic foods. Puerto Rico is also deficient in mineral, timber, and other natural resources which are needed to meet the Island's industrial growth." As a result of these deficiencies, producers in Puerto Rico must import large quantities of raw materials and

Approximately 40 percent of the land is considered mountainous; 35 percent is hilly and only 25 percent of the land is flat. The Island's mountainous slope which is subject to frequent rains and erosions, has lost a considerable portion of the top soil. In addition, limited conservation methods have depleted the Island's soils of their natural nutrients and the tropical temperatures with rapid evaporation of water have raised the salinity of the soil. Thus, approximately 72 percent of the land is of poor quality and unsuitable for extensive agricultural production. (Source: Raphael Pico, Planificacion y Accion, San Juan Banco Gubernmental de Fomento Para Puerto Rico, 1962, p. 108).

5 The most productive soil for agriculture covers only 1 percent of the land mass. Sugar still provides the main agricultural produce for the Island; other principal crops include tobacco and coffee. Coconuts are grown in various areas; pineapples, on the north coastal plain; coffee, in the west mountainous area of the Ponce region and the Mayagüez region; and miscel laneous fruits, largely in the San Juan region. Forest lands are scattered throughout Puerto Rico. The lack of arable soil has affected farm production, which has declined considerably over the last 5 years, from $298 million in 1963 to $267 million in 1968 (app. A, table 1). Agricultural production has also been adversely affected by the exceedingly small amount of fixed domestic investment in agriculture and shortage of labor. According to a recent study of Puerto Rican agriculture by the consulting firm of Horace J. DePodwin, Puerto Rico is importing 20 percent more agricultural products than she is exporting so that agriculture has become a significant drag on economic progress, and labor has migrated from agricultural employment to high paying work in Puerto Rico's rising industrial complex. Puerto Rico is, therefore, still dependent on U.S. mainland sources of supply for predominant quantities of fruits, vegetables, and other farm food products consumed on the Island. (Sources: Puerto Rico Economic Development Administration, [EDA] Overall Economic Development Plan for the Commonwealth of Puerto Rico, San Juan, February, 1967, p. 16; and New York Times, June 17, 1968, p. 57.)

The 1964 value of production in mineral resources was only $45 million, half of which was accounted for by cement produced largely in the San Juan region. The mineral resources readily available for limited industrial purposes include clay, lime, salt, sand, gravel, and stone. Copper deposits have been under recent exploration within the proximity of the Adjuntas Utuado-Lares area, which is about 20 miles south of Arecibo. It is estimated that the potential production of some 100 million tons annually may be possible for a period of more than 30 years, with mining and smelting located in Puerto Rico. In addition, sulfuric acid as a byproduct of the copper industry may be produced. Cobalt, gold, and iron ore are found in various parts of the Island, but in small quantities. (The petrochemical industry is discussed in section B.3.e.) In 1964 there were slightly less than 300,000 acres of forest and woodland, 90,000 of which were in public or private forests. In 1963, local production of wood and wood products amounted to only $5 million in terms of shipments and provided less than 25 percent of the wood used in Puerto Rico. Puerto Rico imports relatively large quantities of lumber, mainly from British Columbia. (Source: Puerto Rico EDA, Overall Economic Development Plan [OEDP], op. cit., pp. 22-24.)

semimanufactured goods needed in their productive processes. An efficient transportation system is needed. This is particularly true because of the Island's pat tern of importing and processing raw and semifabricated materials and exporting the finished goods to the U.S. mainland, involving double shipments and freight charges. These freight charges increase the proportion which ocean transportation comprises of the total cost of producing finished goods for sale in the U.S. mainland and are a factor in an industry's decision to establish production in Puerto Rico.

2. Population, Employment and Income

In the last 28 years (1940-68), the Island's growth has been one of the highest in the world, the gross product advancing at 12.5 percent per year while per capita income has climbed from $266 in 1940 to $1,129 in 1968, and the gross domestic product has jumped 1,189 percent to $3.7 billion in 1968.8 The people of Puerto Rico, as a result of productive specialization, American private enterprise and capital, and their own industriousness, have greatly stimulated economic development and now enjoy one of the highest standards of living in the Caribbean area. These growth and income standards, however, should not be exaggerated. Although Puerto Rico's economic progress since 1940 has been remarkable, it is still relatively underdeveloped compared to the U.S. mainland and many European countries, and is still faced with many problems and challenges which burden living conditions and development. The Commonwealth's three fundamental problems are: a rapidly rising population, high unemployment levels, and low family incomes outside urban centers despite a fairly high overall per capita income. Population growth has created an unemployment problem, which in 1968 was currently 12 percent compared to the U.S. mainland average of 3.5 percent, and family income was far below the level considered necessary to achieve a decent standard of living on the U.S. mainland.

9

According to the Puerto Rico Economic Development Administration the goods which are most important to the Island's future industrial development and overall economic growth (as well as the reasons why selected goods are of extreme importance to the economy), are contained in app. B. The most important intermediate goods moving southbound are: acids, agricultural implements, boxboard, carbon black, electrodes, feed and feedstuff, corrugated paperboard, petroleum refining catalyst, resins, crude or natural or synthetic rubber, urea, yarn, and cured hides.

* Puerto Rico Planning Board, 1968 Economic Report to the Governor (San Juan: Junta De Planification, Puerto Rico, "n.d.") pp. A 1-2. U.S. Department of Labor Statistics.

a. Population of Puerto Rico

The population of Puerto Rico has grown considerably over the years, creating severe unemployment pressures. Population more than doubled between 1910 and 1968 increasing from 1.2 million in 1910 to 2.7 million people in 1968.10 Chart II-2 (app. A, table 2) illustrates the rise in population in San Juan, Mayagüez, and Ponce between 1940 and 1968. The 1967 density of this small Island of 3,400 square miles was 806 persons per square mile (this density will climb to 1,220 by 1986). In contrast, the United States, excluding Alaska, population density of about 67 persons per square mile is about 8 percent that of Puerto Rico. The population of the United States would have to increase 11 times to equal Puerto Rico's current population density of 806 persons to the square mile. Chart II-2, p. 10, shows that, of the major areas of Puerto Rico, the San Juan metropolitan area has experienced the greatest population increase over the past 28 years.11

This population increased from 342,900 in 1940 to approximately 797,000 persons in 1968.12 In 1968, therefore, almost 29 percent of the Island's population lived in the San Juan metropolitan area, compared to only 18 percent in 1940.13 The total population in the San Juan region including the metropolitan area comprised some 65 percent of the total population of Puerto Rico. On the other hand, the population in the Ponce region increased only slightly during the past 18 years, from some 428,000 in 1950 to only 497,000 in 1968.14 The 1968 population of this region amounted to only 19 percent of the total population of the Island, and the population in the city of Ponce amounted to 162,500

10 Population increased by 140,000 persons during the 1950's and increased by another 355,000 during the 7-year period after 1960. One of the principal reasons for the lower growth of the 1950's was that a larger number of young people of child-bearing age seeking employment left Puerto Rico each year, causing a reduction in the population increase.

11 Economically, the San Juan metropolitan area is the major trading center of the Commonwealth. It is the center of population, economic activity, transportation services, and the largest center in terms of industry, tourism, and retail marketing. Many governmental, municipal, and cultural activities are centered in the Old San Juan sector. The port of San Juan is contiguous with three of the four metropolitan sectors: (1) the central sector including San Juan and Santurce; (2) the southern sector including Río Piedras, Guaynabo, Trujillo Alto; and (3) the western sector including Bayamón, Cataño, and Toa Baja. The port's facilities are centrally located and readily support the population of these developing metropolitan areas. 13 Puerto Rico Planning Board, Income by Regions, Puerto Rico 1940, 1950, 1960-65 (San Juan: Junta De Planification, "n.d."), p. 3; and letter of Juan Lopez Mangual Puerto Rico, Economic Development Administration, to Paul Gonzalez, Chief, Branch of Trade Studies and Special Projects, FMC, September 19, 1969.

13 Wilbur Smith and Associates, Padilla and Gracia, San Juan Metropolitan Area, Transportation Study Transportation Plan (Hato Rey, Puerto Rico June, 1967) p. 5.

14 Puerto Rico Planning Board Income by Regions, op cit., pp. 15-19.

representing an increase of 35,690 persons during the past 18 years (app. A, table 2). Except for the small city of Yauco, the second largest community in the region of Ponce which incorporates some 32,000 persons, the population in other cities in this region ranges from 11,000 to 35,000 persons. The population of the Mayagüez region, which comprises 15 percent of the total population of Puerto Rico, increased from 382,281 in 1950, to 423,100 in 1968.15 However, the population of the city of Mayagüez increased only from 87,000 in 1950 to 97,700 in 1968 (app. A, table 2). Most of the other municipalities in this region have 7,400 to 56,600 persons.

Thus, approximately 65 percent of the population of Puerto Rico has concentrated into the region of San Juan, particularly the San Juan metropolitan area, creating imbalances in the Island's distribution of population. Moreover, as population has increased in the San Juan region, the urban density has expanded while the rural density has declined, largely due to the movement of labor from farms to higher paying jobs in industry, which also concentrated in the San Juan metropolitan area.

Chart II-2 also illustrates the population trends in San Juan, Ponce, and Mayagüez projected to 1986. This chart shows that the population of Puerto Rico will reach some 4.14 million persons by 1986, a gain of 51 percent over the population existing in 1968 16. The largest increase of population, 829,710, will occur in the San Juan metropolitan area. This growth in population should increase both the amount of traffic moving southbound, particularly to the port of San Juan, and the Island's demand for shipping services. During the next 20 years, the largest growth is expected in the San Juan metropolitan communities of Carolina, Bayamón, Guaynabo, and San Juan proper.

b. Employment In Puerto Rico

As a result of the rising population, the Island's labor force climbed from 602,000 in 1940 17 to some 797,000 in 1968. Table II-1 below shows, however, that employment has not increased sufficiently to overcome the severe problem of unemployment.

15 Ibid.

16 Wilbur Smith and Associates, Interim Report of Needs and Finances for the Commonwealth Highway System Puerto Rico (Columbia, S.C.: June 1967), p. 3-3.

17 John T. Rigby, Direct Exhibits of the Commonwealth of Puerto Rico, U.S.-Caribbean-South America Investigation Civil Aeronautics Board Docket No. 12895, Exhibit CPR.-11 Revised (Washington: Arnold Fortas, and Porter, Jan. 25, 1965), Part I p. 11.