newspapers, electricity, gasoline, rents, fertilizers, and construction are indirect, these expenses are sizable and contain elements of ocean transportation. The unit ocean transportation-price cost relationship was not estimated for these items.

In 1967, the total transportation charges comprised 7.1 percent of the Island's total value of imports as shown in table V-2, which follows. Of this, 83 percent of the total transportation charges and import values were attributable to U.S. traffic.

On the whole, the relationship between total transportation and imports registered a declining trend between 1945 and 1967, particularly since 1964 when the ratio dropped from 7.8 to 7.1 percent in 1967. The ratio remained constant from 1965 to 1967. During this period, ocean transportation services between the Mainland and Puerto Rican ports improved considerably, as indicated previously. Although the decreased freightimport relationship evidenced from 1964 to 1967 may be in part a consequence of increased imports of consumer goods and raw materials having a high value-toweight or volume relationship, this declining freightimport relationship does reflect an actual reduction in certain ocean freight rates. Chart V-1 shows an overall declining trend existed in 1964, 1965, 1966, and 1967 on 24 important foods which comprised a substantial amount of tonnage moving from the Mainland to Puerto Rico. These rates declined about 2 percent overall. chapter IV and appendix E contains a comprehensive examination of rate reductions on specific major commodities that undoubtedly have had a favorable effect on Puerto Rico's decreasing freight-import relationship.

TABLE V-2

D. THE IMPACT OF PUERTO RICO'S FOOD MARKETING SYSTEM ON PRICES

The reasons for the high rise in Puerto Rico's 19601967 food prices are quite naturally of importance to the people living on the Island. Consequently, this increase in food prices should be explained as fully as possible. The factors already considered, including (1) the impact of transportation, and (2) the impact of the retailing markups on final prices do not, however, completely account for the rise in Puerto Rico's food prices which increased almost 16 percent on selected food staples during the past 9 years. Because approximately one-half of the food consumed in Puerto Rico was locally produced, the Island's distribution system affecting these locally produced goods requires examination. The discussion focuses on the impact of the distribution of locally produced goods on the final selling price to determine the extent to which this distribution system has affected the final retail price.

1. Relative Importance of Locally Produced and Imported Foods

The Commonwealth of Puerto Rico's Department of Labor publication, entitled, Relative Importance of the Major Groups of Goods and Services in the Consumer Price Index for Wage Earners' Families in Puerto Rico as of June 1967, indicates that locally produced foods comprise approximately 50 percent of all foods consumed on the Island; the remainder are imported foods, mainly from U.S. mainland sources of supply. The price

levels on these locally produced commodities are reflected in Puerto Rico's retail price structure. Locally produced foods include: many cereals and bakery products; 24 meats and poultry items; fresh milk; 25 various fruits and vegetables; 26 and other foods, including eggs, sugar, coffee, and beverages. These locally produced foods are largely distributed by food wholesalers on the Island.

2. Price Increases on Locally Produced Foods

A considerable part of Puerto Rico's cost of living increase may be attributed to the high prices of locally produced foods which are supplied through the wholesale marketing system. As previously noted, between November 1966 and November 1967 the overall cost of living increased 4 percent. During this period the price of locally produced foods increased almost three times as much as that of imported foods. For instance, the cost of living index on locally produced foods climbed 9.7 percent while the index on imported foods rose 3.5 percent.27 Because about 40 percent of the foods consumed were locally produced, the effect of locally produced foods on increases in retail prices was considerably higher than that of foods imported from the Mainland.

It appears that the wholesalers, who largely distribute the Island's production, have had a very significant effect on the rise in Puerto Rico's retail prices. The operations of these wholesalers are discussed below.

3. Wholesale Food Distribution of Locally Produced Foods in Puerto Rico Although Puerto Rico's retail food distribution system has greatly improved over the past 5 years, there is room for considerably greater improvement in the Island's wholesale food distribution system. Much of the food is distributed through supermarkets and other retail operations which are modern and efficient. In addition, the Commonwealth is engaged in programs aimed at improving food distribution centers and providing food inspection. During the last 5 years (1964-68) modern market places have been set up or older markets adequately modernized and the num

24 Cornmeal, flour, rice, and spaghetti, however, are imported from U.S. mainland suppliers.

25 Evaporated milk, powdered milk, and butter are imported items. 20 Beans, onions, potatoes, and canned goods are largely imported.

27 Puerto Rico Department of Labor (Cost of Living Division), op. cit., p. 6.

ber of supermarket retailing facilities now exceeds 100.28 Nevertheless, there is still considerable room for improvement, particularly in the wholesale sector of distribution. Although the Central Market, established in 1963,29 and certain warehouses, which have been built by Pueblo Supermarket, have improved wholesaling methods, in general, wholesaling methods have not changed greatly over the last 17 years.30 Food wholesaling facilities are still composed of many small-volume operations in antiquated and inadequate facilities. In 1963, there were about 540 wholesalers in Puerto Rico.31 A total of approximately 85 operators were classified as wholesalers in the San Juan area. (A large part of the population receives food indirectly through the wholesale facilities in San Juan.) Of these, 18 handled fruit and vegetables, 15 handled meat and meat products, and 52 handled grocery products. 32

The fruit and vegetable producing industry and its methods of distribution are substantially the same as in 1950. The bulk of production comes from many small producers clinging to traditional crops rather than producing items consistent with consumer demand. Distribution of the produce is inefficient. Many small wholesale truckers buy at the farm, truck the produce to market, and peddle the produce in small lots either in the plaza or to the store. Their transaction costs are high and affect many stores.33 The new Central Market area and retail supermarkets have improved these conditions, but additional new wholesale warehouses are needed.

4. Retail Food Distribution

Although a substantial portion of the sales in the San Juan area move through supermarkets, the most wide-spread type of retail food store is still the small grocery store. These small stores find it difficult to obtain credit from wholesalers and to obtain payment from their retail credit customers. For this reason, their cost

28 Letter of Jose M. Rivera, Puerto Rico EDA, November 1, 1968 to Paul Gonzalez, Chief, Branch of Trade Studies and Special Projects, FMC, p. 3.

29 In 1963, the Central Market was established in San Juan for the purpose of helping food wholesalers relocate outside the congested streets of Old San Juan. The Market, located in a modern warehouse complex at Puerto Nuevo, is adjacent to trailership service.

30 Latin American Studies Center, Michigan State University, The Role of Food Marketing in the Economic Development of Puerto Rico. (Michigan: 1966), p. 44.

31 Latin American Study Center, op. cit., p. 26.

32 U.S. Department of Agriculture, Agriculture Research Service, Improved Food Handling Facilities for San Juan, Puerto Rico, (Washington: October 1965), p. 8.

33 Latin American Studies Center, op. cit., p. 63.

34

of operation is high. These high costs have burdened price levels in Puerto Rico. However, fairly rapid changes in Puerto Rico's marketing system can be expected in the near future. FOMENTO has encouraged improvements in food distribution, and representatives of all segments of the food distribution system have been offered help, including loans and advertising. In addition, the Puerto Rico Department of Commerce has helped many small grocers in modernizing their stores.3 Further, there is, as already noted, an increasing trend toward establishing supermarkets. These supermarkets often sell certain basic commodities at or near cost; 35 and the variety of foods in these markets has increased so that consumers are buying more meats, more milk and more high protein foods. Direct shipment of Mainland cargoes is another practice that has grown rapidly, particularly since Sea-Land and other containership operators entered the trade. These carriers established low rates on trailerload quantities and per container rates. Some supermarket operators are now buying over 75 percent of their merchandise directly from the U.S. mainland. These purchases are largely from New York and Miami pricelists which are utilized particularly when wholesale prices for Puerto Rican produced items are too high. Trailerload quantities of foods and other consumer merchandise often move directly from Mainland warehouses to the Puerto Rican terminal where the trailer is off-loaded and delivered directly to the store; by-passing local wholesalers. For this reason, the retail prices of supermarkets have been lower than that of the small grocery stores. To the extent that foods are transported directly from the Mainland to supermarkets, the benefits of low rate levels on foods have been passed on to the public in the form of lower retail prices. However, as a whole, the methods of distributing food and consumer merchandise in Puerto Rico still have a substantial impact on retail prices in Puerto Rico.

5. Consumer Associations

On June 27, 1968, the Commonwealth enacted law No. 148 which created the Administration for Consumer Service to organize and protect the Puerto Rican consumer. 36 There are no private consumer unions on the Island. The wholesaler and retailer in Puerto Rico

34 EDA letter of Nov. 1, 1968, op. cit., p. 3.

Latin American Studies Center, op. cit., p. 37.

Estado Libre Asociado de Puerto Rico Administracion de Servicios Al Consumidor, Ley Num 148 de 27 de junio de 1968 (Santurce, P.R. June 1968), pp. 1-5.

37

have been relatively free in setting price levels, and have tended to fix the price level according to "what the traffic will bear" (i.e., depending on what the consumer will pay). As previously indicated, the average markup on various consumer foods amounted to about 64 percent in 1967. The retailer's markups on eggs, tomatoes, and onions were among the highest, amounting to 160, 120, and 128 percent respectively. It is clear, therefore, that a program was needed to mitigate price levels in Puerto Rico. This need led to the enactment of law No. 148 which will deal more strongly with consumer protection, education, and fixing the price of essential consumer articles. A program to protect the Puerto Rican consumer might well also include public action and private effort to encourage the development of voluntary consumer unions for the purpose of concerted action against unfair price levels. It should also make the wholesale and retailing system conscious through mass education of the adverse effects that unfair prices have on the public.

6. Regulatory Policy

As indicated in chapter III, the Commission's policy with respect to carrier competition has assisted efficient economic performance in the common carrier segment of Puerto Rico's transportation system. In addition, private enterprise and initiative as well as competition have induced great technological advances by common carriers including jumbo size container trailerships, and roll-on/roll-off operations. These advances have caused the general level of ocean freight rates to remain virtually steady and rates on essential goods to decline over the past 8 years. 38

F. CONCLUSIONS AND RECOMMENDATIONS

1. Conclusion

Although 1968 freight charges were a factor present in the Island's retail prices, they do not appear to be as significant as other factors in the final selling price of most essential foods. The low price-transportation cost relationship on these food articles reflects the efforts of the Commission, common carriers and the Puerto Rico Ports Authority to prevent a high-priced

Obviously, the high density San Juan tourist trade also has had an impact on prices, particularly in the Condado Beach sector.

38 Sept. 1, 1960 the June 1, 1968 period.

super-structure on commodities which are important to the low income groups of Puerto Rico.

Recommendation

It is recommended that the FMC common carriers and Commonwealth of Puerto Rico (Ports Authority) continue their efforts to maintain low ocean freight rates on consumer foods of paramount importance to Puerto Rico's low income groups. Appendix B (items 1 through 16) contains the list of consumer items on which the Commonwealth desires relatively low rate levels. This list reflects the Commonwealth's most recent desires with respect to commodities on which such support is desired.

2. Conclusion

Ocean transportation has a substantial effect on the selling price of many southbound intermediate goods. Although these rate levels assist the carriers in maintaining lower rates on food items, certain of the intermediate goods are of extreme importance to Puerto Rico's industrialization program (ch. II) and, as in the case of the essential foods, require low transportation charges. Maintaining lower rates on these intermediate goods should result in a healthy growth in, (1) Puerto Rico's industrial output, (2) traffic flow,

and, eventually, (3) freight revenues of common carriers, in this trade.

3. Conclusion

The direct shipments of Mainland foods and other consumer items in trailerload quantities by the containership common carriers serving Puerto Rico have greatly assisted supermarket retailing and, consequently, price levels. These direct shipments to supermarkets have permitted by-passing local wholesalers and have thus restrained some price increases.

Although Government activity (FOMENTO's assistance programs) and the growth of supermarkets in Puerto Rico have played a vital role in improving the economic performance of the Island's marketing system, various inadequacies still exist in the wholesale and retail food distribution system which contribute to the Island's high retail price structure. Puerto Rico's wholesalers and small retailers have a very substantial impact on the Island's consumer price level. They affect the cost of living (consumer goods) at least six times as much as ocean transportation, thereby burdening the Island's low income groups who spend most of their annual income on foods and other essential consumer goods.

CHAPTER VI

A. GENERAL

Puerto Rico relies heavily upon containerized movements and requires an efficient gateway with modern cargo handling and storage facilities, reasonable terminal rates and charges, and progressive port development. Efficiency in cargo handling facilities is of paramount importance to the new family of large and fast containerships now entering the trade or under construction. These containerships must load and offload in 14 hours or less to maintain their scheduled service and realize the economies inherent in their large scale and rapid, low cost mode of transportation. In addition, the Island requires adequate pickup and delivery services for the efficient circulation and distribution of cargo moving between the pier and store or market place. (Trucking and pickup and delivery are discussed in the following chapter.) For these reasons, there are four dimensions of a port which should be considered in evaluating its ability to accommodate present and future containerized traffic destined for local delivery or movement overland to inland communities. These are: (1) Adequate berthing space and facilities to load, unload, and handle cargo efficiently; (2) sufficient marshalling yard space to accommodate high volume movement of containers and other cargo with ease of movement and distribution; (3) adequate warehousing facilities for transit and storage of cargo; and (4) an efficient redistribution depot (transshipment and delivery) that will preclude fragmented and costly service. Efficient performances in these areas will quite naturally help to

CHARGES

reduce transportation costs and will assist the development of commerce and industry. On the other hand, delays in offloading and loading of cargoes will increase a vessel's time in port and stevedoring costs per ton handled. Obstacles in the marshalling yard area will inhibit the ease with which cargo flows through the terminal, and the lack of adequate warehousing facil ities may result in terminal congestion and high demurrage charges. These inadequacies eventually increase the turnaround time of containers and vessels, impede traffic movements, and result in higher transportation costs.

The primary objective of this chapter is to discuss the physical condition of terminals and warehouses in Puerto Rico and on the U.S. mainland, and the rates and charges at these facilities, as well as distribution patterns. Special attention is directed to the facilities at San Juan, Ponce, and Mayagüez. Specifically, the chapter deals with present conditions, activities, and methods of handling cargo and warehousing. In addition, the evolutionary process of containerization at San Juan, Ponce, and Mayagüez is examined with particular regard to technological trends in ocean and land transportation. A survey of physical facilities and their operations as well as harbor conditions can reveal inefficiencies or needs in port development to handle the present and future requirements of marine transportation.1

1 The Ports Authority is responsible for the development of needed terminal facilities at San Juan, Mayagüez, Arecibo, Fajardo, and Jobos to accommodate present and future marine transportation and commerce.