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Federal Maritime Commission concerned about Puerto Rico terminal agreement

By on August 30, 2019

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Will monitor Puerto Rico Terminals, Luis Ayala Colón joint venture as it may reduce service, increase cost

SAN JUAN — The Federal Maritime Commission (FMC) approved a joint venture between two adjacent terminals at the Port of San Juan. The agreement went into effect Thursday.

Under the terms of the Puerto Nuevo Terminals LLC Cooperative Working Agreement (FMC Agreement No. 201292), marine terminal operating companies Luis Ayala Colon (LAC) and Puerto Rico Terminals (PRT) will form a new company, Puerto Nuevo Terminals (PNT), with its membership units held 50/50 by the two owners.

“This agreement will allow the parties to more efficiently leverage existing assets, as well as planned, private investments in infrastructure and technology to better serve carriers, shippers, truck drivers and other port users. Additionally, it will provide carriers a modern and well-maintained terminal at the Port of San Juan, delivering significant benefits to Puerto Rico’s consumers and businesses,” reads a PNT statement.

However, concerns about the agreement and its impact on the marketplace will lead the FMC to adopt a more vigorous oversight plan than its traditional monitoring program, the commission said in a separate release.

PNT will acquire, through assignments, leases, sub-leases, transfers, and other corporate means, all terminal services agreements, land leases, cranes, yard equipment and other related assets from LAC and PRT.

Thereafter, PNT, through its single management team and board of directors, will negotiate and enter into all terminal services agreements, crane and other yard equipment purchases or leases, coordinate labor for on dock stevedoring and all other matters related to the normal operation of a marine container terminal, the FMC explained, adding that LAC and PRT will “withdraw from that business leaving PNT and the Crowley container terminal as the only two container terminal operators” in San Juan.

The commission is concerned that, once the agreement takes effect and PNT begins operation, “the resulting reduction in competition may produce an unreasonable reduction in transportation service or an unreasonable increase” in transportation cost.

The commission acknowledged that “many parties” filed comments that expressed serious concerns about the potential impact on competition as well as on transportation costs and options under this agreement. However, it said the concession maintains 2019 rate levels through 2020, “with the limited exceptions being changes in labor rates, insurance surcharges attributable to natural disasters, or an energy cost adjustment factor based on the actual cost of fuel and/or electricity.”

Despite allowing the agreement, the commission assured it intends to “examine available options to ensure the PNT Agreement does not violate the Shipping Act,” saying it will order an “enhanced monitoring regime” for the agreement with “extensive disclosure of business and marketplace information required.”

The FMC said it may order investigational hearings or a special report order requiring the parties to provide information.

“The Commission did not reach consensus on the threshold question of whether the agreement comes within Shipping Act jurisdiction. Next, a majority could not determine that we have enough information and evidence at this time to go to Federal Court to seek an injunction to prevent this agreement from going into effect. We understand what the parties are trying to achieve, but serious concerns remain about the implementation of the agreement. The Commission will take necessary measures to ensure that the agreement is not implemented in a manner that violates the Shipping Act,” Commissioner Michael Khouri said in the FMC’s release.

“Consistent with its regulatory responsibilities, the FMC will monitor this joint venture, which will share assets and planned investments that are essential to maintaining reliable and competitive service for domestic and international trade at the Port of San Juan for decades to come. We look forward to continuing to fully cooperate with the FMC, and to working with relevant stakeholders, as the PNT agreement is implemented,” PNT said about the commission’s concerns.

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