Oligopoly: When Maritime Shipping Options Shrink

The Port of San Juan (Juan José Rodríguez/CB)

A special investigative report on the Puerto Rico Trade

Editor’s note: This report first appeared in the Oct. 17 issue of Caribbean Business.It was made possible in part by a grant from the Center for Investigative Journalism and with the support of Internews, the Center for Disaster Philanthropy and NetHope.

BY YANIRA HERNÁNDEZ CABIYA | y.hernandez@cb.pr

The Federal Maritime Commission (FMC) is evaluating different alternatives to obtain more information about the agreement between two of the main companies that operate at the Puerto Nuevo, San Juan, cargo pier.

However, the chairman of the federal entity, Michael A. Khouri, warned Gov. Wanda Vázquez Garced that if, as it seems, the transaction is actually a merger of companies or a purchase of assets, the FMC may not have the authority to stop the agreement between Luis Ayala Colón (LAC), the company responsible for loading and unloading international ships at the Puerto Nuevo pier, and Puerto Rico Terminals, a subsidiary of Tote Maritime, the second-largest company that operates the domestic cargo terminals in the Port of San Juan.

The FMC’s concern over service being affected and that freight costs to and from Puerto Rico would be increased was expressed by Khouri in a letter he sent to Vázquez on Oct. 1.

The “Commission will insist on enhanced monitoring with extensive disclosure of business and marketplace information. The Commission is also exploring other avenues to develop additional information about the agreement,” such as an investigation and hearing or a special report, “(known as a Section 15 Order) requiring the parties to provide information to the Commission,” Khouri said in his letter to the governor, which her office, La Fortaleza, made available to the Center for Investigative Journalism (CPI by its Spanish initials).

Khouri was responding to the letter Vázquez Garced wrote to the FMC on Sept. 19, requesting it to intervene to ensure the transaction between Puerto Rico Terminals and LAC does not affect consumers on the island.

The governor told the commission that although former Gov. Ricardo Rosselló did not object to the transaction and refrained from submitting comments about the possible impact on the market and the island’s economy, given the concern expressed by several sectors, she must ensure “this transaction does not adversely impact the people of Puerto Rico.”

If the FMC lost jurisdiction, both the U.S. and Puerto Rico departments of Justice could intervene because the controversy would become about the possible concentration of economic power, which involves problems with the exercise of free enterprise.

“That would be the responsibility of the antitrust division of the Department of Justice of Puerto Rico and federal Justice,” explained the expert in corporate law and former director of the Ports Authority, attorney Carlos Díaz Olivo. The legal fight, the lawyer said, could be initiated by either the Government of Puerto Rico or an affected competitor.

The local Justice Department has had an investigation into the transaction underway since April.

What is the agreement about

The cooperative working agreement to create a new company, Puerto Nuevo Terminals, was presented to the FMC at the beginning of 2019. Ports Authority Director Anthony Maceira said the Puerto Rico government learned about the transaction in March, and on Rosselló González’s orders remained on the sidelines and presented no opposition. The issue was also not considered by the Ports’ board, Maceira said in his deposition to the House Committee on Federal Affairs, which is investigating the possible impacts of the agreement.

Ports Authority Director Anthony Maceira (Juan José Rodríguez/CB)

Under the Puerto Nuevo Terminals LLC (PNT) Cooperative Working Agreement, LAC and Puerto Rico Terminals (PRT) form PNT, with its membership units held 50/50 by the two owners. PNT will acquire, through assignments, leases, subleases, transfers and other corporate means, all terminal services agreements, land leases, cranes, yard equipment and other related assets from the LAC and the PRT, according to the document presented to the FMC. Much of that equipment belongs to TOTE Maritime, co-owner of the PNT.

TOTE is in turn part of Saltchuk Resources, an umbrella company that includes Foss, Northern Aviation Services, Hyak Supply Chain, Tropical Shipping and NorthStar Energy.

According to OpenSecrets.org’s database of campaign contributions, between 2015 and 2019, Saltchuk donated $15,500 to Resident Commissioner Jenniffer González’s campaign. Among donations González has received through political action committees (PACs), Saltchuk is the main contributor, followed by Crowley Maritime and Seafarers International Union. González said she has no comment on the agreement because it is a matter of “pure state jurisdiction.”

LAC is in the process of negotiating a collective bargaining agreement with its employees.

When PNT starts operating, it will be responsible through its single management team and board for negotiating and entering 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 operation of a marine container terminal. At that time, LAC and PRT will “withdraw from that business, leaving the PNT and Crowley…as the only two container terminal operators” in Puerto Rico, as put by the FMC.

The agreement to create PNT entered into force Aug. 29, but as of press time, the company did not yet appear as incorporated in the State Department registry, although the name does appear separately.

Despite its concerns, the FMC allowed the transaction, as its members “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,” Khouri previously explained.

The FMC is composed of four members, all appointed by the president of the United States.

Although its meetings are mostly public and can be accessed online, when passing judgment on the PNT agreement, the commission conducted its vote through an alternate procedure, according to the Federal Register.

“The PNT agreement was done as a ‘notation item,’ [with] each commissioner submitt[ing] a vote sheet with his or her vote. Considering items by notation is a common procedure at the FMC for handling agreements and is done frequently. There was no meeting where the PNT agreement was subject to a vote,” the FMC told Caribbean Business.

Freight costs triple after Hurricane Maria

Control over port activity in Puerto Rico is not only an element that defines the economic situation of the island, but is also a matter of survival.

After Hurricane Maria devastated Puerto Rico, diaspora groups organized to send supplies to the island. One of those groups was the Sunset Park Relief organization in New York. It had begun collecting supplies for those affected on the island after Hurricane Irma two weeks earlier. Two months later, sending supplies was still urgent.

The cargo was valued at more than $1 million, and they were charged $7,800 to transport it from Jacksonville, Fla., to Puerto Rico a month after Hurricane Maria. The Sunset Park Relief Coalition in New York had begun collecting supplies for those affected on the island after Hurricane Irma, and two months later, it was urgent to send these.

UTRA President Germán Vázquez (Juan José Rodríguez/CB)

“In the hurricane, I paid. I did. They didn’t tell me; I paid $7,800 for a [cargo] container to Puerto Rico…. That’s a lot. That’s $7,800 for a container from Jacksonville to here,” said an indignant Germán Vázquez, president of the Transportation & Attached Branches Union (UTRA by its Spanish acronym), who in coordination with Sunset Park organized the transportation and distribution of aid to hurricane victims.

The amount paid was three and a half times more than the average estimated cost for this type of transportation using U.S.-flagged ships and 10 times more than shipping the merchandise using international vessels.

According to a survey by Advantage Business Consulting—commissioned this year by the Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym)—a 40-foot container that transports nonrefrigerated cargo from Jacksonville to Puerto Rico has an average cost of $2,114 using U.S.-flagged ships, or $755 using international ships.

Among the stories about the aftermath of the recent hurricanes, one that is repeated frequently, is related to the problem of handling merchandise and donations at the piers. The issue has again become part of public discussion with the recent announcement of the concentration of power in the island’s ports—in the hands of practically two companies—Crowley, which operates eight vessels, and Tote Maritime, which runs two ships on a regular basis.

Maritime shipping companies are governed by the U.S. Shipping Act, which establishes the general rules under which the industry operates, and leaves the responsibility of establishing the applicable regulations to the Federal Maritime Commission (FMC).

When the Puerto Rico government sold its shipping companies in the 1990s, about 30 were operating on the island. That number has dropped to only four: Tote Maritime and Crowley, which between them serve 95 percent of the maritime cargo; as well as Trailer Bridge and National Shipping. These four companies transport merchandise, or commercial, industrial and private supplies, which arrive or leave the island on U.S.-flagged vessels and are subject to the Jones Act. While marine support services company Luis Ayala Colón (LAC) attends to cargo that arrives on international ships.

The Puerto Rico Ports Authority is the local government entity called upon to ensure the island’s air and maritime infrastructure serve the needs of the people of Puerto Rico—with the right to develop, own, upgrade, operate and manage them. However, in the case of the piers, it is Ports’ duty to ensure their operation does not hinder or threaten economic development by jeopardizing the entry or exit of commercial and industrial supplies, according to Act 125-1942, as amended.

Under Ports’ purview, there are 37 piers around the island. The Ponce, Mayagüez and Ceiba piers are under the jurisdiction of the Municipality of Ponce, Mayagüez Port Commission and Maritime Transportation Authority, respectively. Only the Puerto Nuevo and Isla Grande piers in San Juan are used for general cargo, or consumer goods and supplies for companies operating in Puerto Rico. Only light cargo comes through Mayagüez and Ponce.

TOTE (formerly Sea Star), rents the Puerto Nuevo pier, which pays the government $35 million for its lease, from December 2012 to 2032.

Through its Puerto Rico Terminals (PRT) subsidiary, TOTE provides cargo services to Trailer Bridge and National Shipping vessels. International ships are served by LAC employees.

The Isla Grande Pier, nearly 79 acres at the former naval base in San Juan, is leased to Crowley for $56 million for the period of September 2016 to September 2046. Crowley has the largest operation on the island.

Asked if both companies are up-to-date with their payments, Ports Authority spokesman José Carmona referred the question to the legal division.

Historical oligopoly

In the interview for this investigation, Eduardo Pagán Reyes, TOTE vice president & general manager, Caribbean Services, Puerto Rico, and president of the Puerto Rico Shipping Association, acknowledged that the island’s maritime cargo industry operates as an oligopoly, or a system in which the number of sellers is very small and, thus, control and corner sales of certain products as if they were monopolies.

“Many people make the comment that this is a monopoly. No, this is not a monopoly; it is an oligopoly. A monopoly would be a single company, when you have two, three, four, maybe you can call it an oligopoly. What people don’t know is that here there are more than 20 [U.S.] American companies that could come to Puerto Rico and establish operations, but the investment they would have to make is in the $1.5 billion range. This is not selling cellphones in a corner. These are not just ships—we are talking about ships, equipment, containers, cranes—the array of expenses is significant,” he added.

Eighty percent of the merchandise that leaves or arrives in Puerto Rico comes from the Port of Jacksonville. The other ports with service to the island, although on a smaller scale, are Pennsauken, N.J.; Houston and Philadelphia.

In 1996, however, Puerto Rico also received merchandise from the ports of Elizabeth, N.J.; New Orleans, Miami, South Carolina, New York and Baltimore.

The laws of Puerto Rico establish that the island’s ports and piers are in the public domain and cannot be sold to private entities. Until 1994, the ports were operated by the Puerto Rico Maritime Cargo Transportation Authority. That year, the government created a public corporation, Navieras de Puerto Rico, which assumed that responsibility until 2001, when it filed for bankruptcy, after which, Sea Star Line Agency (SSA) acquired the contract Navieras had with the Ports Authority in December 2012.

The contract was signed by the vice president & general manager of Sea Star, Eduardo Pagán Reyes. The agreement granted that company the use of about 59 acres in the Puerto Nuevo area of the San Juan Port, for a $35.4 million, 10-year lease with the option to extend it twice for an additional five years, or a total of 20 years.

In 2006, Sea Star established a joint agreement with the other shipping companies that use the Puerto Nuevo pier so LAC, National Shipping, Island Stevedoring, Horizon Lines and Trailer Bridge could dock and use SSA’s facilities and cranes.

The agreement with SSA was amended in 2016 to stipulate the company had become TOTE Shipholdings, which thereafter assumed the contract to operate the Puerto Nuevo pier.

For its Puerto Rico business, TOTE has two ships and six cranes for loading and unloading cargo from its ships and Trailer Bridge and National Shipping’s barges. Port operations for TOTE, Trailer Bridge and National vessels are offered through the PRT, which is also run by Pagán Reyes.

For its local operations, Crowley has four ships and four barges, cargo containers, three cranes, and trucks for land transport through its subsidiary Crowley Logistics.

In 2013, federal Judge Daniel R. Domínguez sentenced the former president of Sea Star, Frank Peake, and five other people to serve prison sentences, ranging from seven months to five years, for their participation in a conspiracy to fix rates and surcharges for freight shipped from the Jacksonville Port to Puerto Rico between mid-2005 and April 2008.

Thomas Farmer, the former vice president of price & yield management of Crowley, was indicted in March 2013 for his role in the conspiracy but a jury acquitted him in May 2015.

The executives and three companies (Sea Star, Crowley and Horizon Lines) involved in the price-fixing scheme have paid more than $46 million in fines for their participation in that conspiracy, which included setting freight service rates, rigging bids submitted to Puerto Rico freight services customers and other practices in violation of the antitrust laws of the maritime shipping industry.

Barely transparent

Finding information about these companies’ operations is an ordeal because they are mainly governed by the Shipping Act, which was amended in 1984 to deregulate the industry.

As recently as Oct. 1, a Surface Transportation Board (STB) order entered into force that requires shipping companies to make their rates accessible to the public. The website to see TOTE’s rates is www.totemaritime.com/tariffs/. There, visitors can see the rates for several customers after signing in with a provided username and password. Finding out the rate for a specific shipment is very complicated.

“The numbers [rates] we have are from a survey [of importers and exporters]. The official data are not public,” said Manuel Reyes, vice president of MIDA.

Manuel Reyes, the executive vice president of MIDA, has denounced that shipping companies keep the cost of their services hidden. (Juan José Rodríguez / CB)

The MIDA survey by Advantage Business Consulting found the average cost for a dry container (which is not refrigerated) is $2,114, while a refrigerated container could cost about $5,210.

Through its spokesperson in Puerto Rico, Nelly Cruz, TOTE told Caribbean Business and CPI that its cargo rates “vary depending on several factors, including volume and the type of product shipped, the season, equipment required and many other specifications. Almost all freight shipped by TOTE between Jacksonville and San Juan is defined within confidential shipping agreements, or contractual rates.”

In Crowley’s case, the company provides basic rates on its website, but reaches private agreements with most of its regular clients, an STB spokesperson confirmed.

“There should at least be statistics but, unfortunately, there are none. Puerto Rico lives with its back to the island’s reality. The Department of Economic Development cannot go to an investor and tell them how much the freight costs are to and from Puerto Rico,” Reyes said.

When asked about the rates that inform potential investors, who want to come to the island and establish a manufacturing plant, for example, Economic Development Secretary Manuel Laboy indicated he understood the rates were published on the respective shipping companies’ websites.

“For [Hurricane Maria], in theory, the importers had a contract with their transportation company, with a price that was already established, but what would happen is they would be told: ‘I have no capacity, so I cannot bring it to you,’” Reyes explained about businesses which, despite having contracts with a shipper, were told after the hurricanes that there was no room in their vessels, but the merchandise could be brought in rented ships, which raised the previously agreed pricing.

Asked about businesspeople who could be interviewed and provide evidence about this practice, Reyes replied: “To the extent that none of this is regulated, and is so monopolized, those affected are afraid to speak because they depend on those companies to bring in their goods.

“An importer who has no control or bargaining power because he is fighting against an oligopoly, if he faces them, the danger of an adverse reaction is too great. They say it in private, but they won’t say it publicly,” MIDA’s Reyes added.

In an interview with Caribbean Business, TOTE’s Pagán Reyes said the rates and reports on the shipper’s operations are periodically submitted to the Ports Authority and Treasury Department.

For this investigation, Ports was asked to provide the number of containers and cargo moved from 2016 to date. It sent a table with the total load per year but not by company, nor the detail of the monthly movement.

When asking about the rates, the Ports’ spokesperson said that specific information was not held by the agency.

Ahead of a new emergency

In the state of Florida, the Puerto Rican Professional Association (Profesa) recently established an initiative—with the support of Jacksonville Port and shipping companies—to educate community groups about the procedure for sending donations to Puerto Rico in case of an emergency.

Rafael González, president of Profesa, admitted that after Hurricane Maria, many of the donations never left the port, although he could not give specific numbers. He explained that some donations had to be returned due to lack of funds to pay for shipping to the island and others because they were not documented as required by federal law.

“When Maria [hit], the diaspora here [stateside] overwhelmingly gave donations and then did not know what to do with them,” said Dr. Thomas Agrait, Profesa’s vice president of Governmental Affairs.

Agrait said that after Hurricane Maria, TOTE and Crowley would charge $5,000 to $6,000 for a shipment of unrefrigerated donations to Puerto Rico.

González said they met with the administrators of the Port of Jacksonville to define protocols to expedite these shipments in emergencies. He also said that when he met a week ago with Puerto Rico Ports Director Maceira, he said any related negotiation should be done with the companies that operate the Tote and Crowley piers.

Agrait said the issue of rates for that cargo was discussed at that first meeting. “We know the rates are a crucial issue and we prefer to leave them aside to be more effective, but it is not something we should ignore facing the future,” he said.

Hands off

Puerto Rico Ports Authority Director Anthony Maceira admitted there is a need for the government to take a more active role in controlling operations, which was discussed with the private sector just after Hurricane Maria.

“But the reality for decades in Puerto Rico has been that [the ports] is operated by private entities,” he said.

Likewise, he stressed that even when wanting to change public policy so the government retakes control of operations at the piers—as it did before Navieras was sold—the island’s financial reality prevents making an efficient operation viable.

When questioned about Ports’ debt, Maceira did not want to go into detail about current figures, alleging the authority is amid negotiations with its creditors. However, in a statement, the Fiscal Agency & Financial Advisory Authority wrote that the pre-agreement with bondholders includes those issued through the Infrastructure Financing Authority (AFI by its Spanish acronym) for the benefit of the Ports Authority, and an interagency Ports loan with AFI for $190.6 million.

The Ports Authority debt, including the AFI loan, totals $455 million. The agreement for the debt has been extended several times, the agency said, as it “continues to work with internal approvals, that of the Fiscal Oversight Board and the process of gathering information necessary for closing the transaction.”

“We will always be watchful that the business that is done complies with the law and, if at any time something is detected that we understand is outside the [legal] framework, we would make the relevant referrals because we do not have jurisdiction to enforce compliance. And I have to be very careful with what I say in that regard because what I say or don’t say can have an effect on the market and I have to be responsible in that regard,” Maceira said.

Questioned about the PNT joint venture during a public hearing held by the island’s House of Representatives, Maceira admitted he did not raise concerns with the FMC about the transaction despite it threatening to increase the oligopoly in that industry, nor did he bring up the transaction with Ports’ government board for evaluation.

Part of the Ports agreement includes using the revenue generated by leasing the Puerto Nuevo area property that Puerto Rico Terminals uses for its operations as a partial source of repayment for bonds issued in the future. In return, the creditors will contribute new capital for capital improvements, in addition to using 10 percent of the annual income of said properties for capital improvements through the 25 years considered in the debt-restructuring agreement. The negotiation also requires a valuation of this income, which is still underway.

In a statement in August, one of the FMC commissioners, Daniel B. Maffei, said the PNT “agreement certainly reduces competition, so the question is whether there is a likelihood that this reduction in competition would produce either an unreasonable reduction in transportation service or an unreasonable increase in transportation cost, or substantially lessen competition in the purchase of certain services.”

Besides the FMC chairman, Maffei was the only commissioner who issued a public statement opposing the agreement.

Crowley and TOTE operations include rentals of cargo containers to transport on their vessels from Puerto Rico to the ports of Jacksonville, Houston and Philadelphia, and back; the unloading of freight and its storage, if necessary; and cargo delivery to customers.

Some of these companies, such as Trailer Bridge and Crowley, provide door-to-port or door-to-door service, which is taking merchandise from the customer’s door to the door of the recipient in Puerto Rico or from the stateside customer’s door to the pier in San Juan.

Commissioner Maffei voted against the agreement, arguing the potential effects were reason enough to intervene. He pointed to the fact that the parties in the new agreement are both carriers and pier operators, saying the “consolidation of purchasing power” in the Port of San Juan could put newcomers “at a substantial disadvantage and thus trigger a violation of the new prong of § 41307(b)(1) created by the [Frank] LoBiondo [Coast Guard Authorization] Act,” which covers antitrust restrictions on cooperation between ocean carriers and marine terminals on harbor services.

“Given that a major party to the agreement is itself a carrier, it may have incentives to keep other carriers out and would therefore not limit price increases based on this tension. Furthermore, if a carrier found the prices too high in Puerto Rico as a result of this agreement and made the business decision to stop service, it may not have a substantial negative impact on that carrier because Puerto Rico is a small portion of overall trade for any major carrier, but it could conceivably lead to an unreasonable reduction in service to the people of Puerto Rico,” he added.

The governor said in her letter to Khouri that she instructed the island’s Justice Department, “specifically the Antitrust Division, to continue its ongoing investigation” to “ascertain any violations of Puerto Rico’s antitrust statute.”

Khouri responded that the FMC was working on a statement to present to the Justice Department, but reminded her that the “Commission is prohibited from sharing some information by statute and for several other reasons I know you will understand related to the operation of a deliberative body. I assure you, however, that the Commission will be as responsive as possible to your interests and agency’s request.”

Gov. Vázquez: Unlike last administration, I’m looking at Port of San Juan agreement closely

An aerial view of San Juan Bay’s cruiseship and cargo ports three days after Hurricane María, Sept. 24, 2017. (CB photo)

Will write to Maritime Commission as Justice Dept. investigates Puerto Nuevo Terminals

SAN JUAN — In a statement Wednesday evening, Puerto Rico Gov. Wanda Vázquez said that unlike the previous administration, she was letting the Federal Maritime Commission (FMC) know she would object to the collaborative agreement it allowed between Port of San Juan terminal operators were it to affect commerce or consumers.

The governor pointed to wanting to ensure that the agreement between terminal operators Luis Ayala Colón and Puerto Rico Terminals does not affect competitiveness, reduce transportation services or increase their costs. 

If the resulting Puerto Nuevo Terminals venture is detrimental, the governor assured she would “make the corresponding determinations in the best interests of Puerto Rico.”

Vázquez further noted that although she has already requested a Justice Department investigation, she was also looking into the details of the agreement whose opponents believe could affect competition, resulting in poorer, costlier service for consumers.

“According to what I have been informed, under the public policy of the previous governor, no objection was presented before the FMC about the said merger. It is our duty to establish that [our] position is in contrast to the [previous administration’s] and that, certainly, I will promptly address the concerns and complaints about the jurisdiction of the government of Puerto Rico, as well as the scope of the agreement and its implications on consumers and commerce in Puerto Rico,” Vázquez said.

The FMC allowed the collaborative agreement between the adjacent Port of San Juan terminals to go into effect Aug. 29. However, the commission noted concern about the agreement’s impact on the market, saying it would monitor it closely.

The commission did not reach a consensus on the threshold question of whether the agreement comes within Shipping Act jurisdiction, Commissioner Michael Khouri said in an FMC press release, adding that “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.”

Puerto Rico gov’t steers clear of agreement to manage main San Juan cargo port

Junte de Voluntades spokesman Mark Anthony Bimbela (Juan José Rodríguez/CB)

Ports chief: Only Justice Dept., which is evaluating if it is a monopoly, can intervene

SAN JUAN —  A group comprising trade and labor organizations, dubbed Junte de Voluntades, asked Puerto Rico Gov. Wanda Vázquez to put a stop to an agreement that allows maritime cargo operators Puerto Rico Terminals (PRT) and Luis Ayala Colón to collaborate as Puerto Nuevo Terminals (PNT).

While Junte de Voluntades claims the entire operation at the Port of San Juan has been conceded to the PNT joint venture, the executive director of the Puerto Rico Ports Authority, Anthony Maceira, said only the Justice Department would be able to intervene with the new venture, were it to find it in violation of antitrust regulations.

At a press conference Tuesday at the Puerto Rico Bar Association building in San Juan, Junte de Voluntades spokesman Mark Anthony Bimbela, accompanied by the executive vice president of the Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym), Manuel Reyes; United Retailers Association (CUD by its Spanish acronym) President Jorge Arguelles; and Germán Vázquez, president of the Transportation and Related Branches Union, among others, said that under the agreement, known as “Agreement No. 201292,” PNT would manage about 80 percent of the containers and 11 of the 14 cranes in the Port of San Juan, with the remaining 20 percent of the containers and three cranes managed by Florida-based Crowley Maritime Corp.

(Juan José Rodríguez/CB)

“Puerto Rico is an island dependent on maritime transportation for all its commerce, economic and food viability, it’s an embarrassing scandal that the Puerto Rico Ports Authority has agreed to allow for the control of 100 percent of the Port of San Juan, precisely, with several shipping companies, that after the passage of Hurricane Maria opposed foreign-flagged ships bringing goods into Puerto Rico,” Bimbela told reporters.

For his part, Reyes said, “It is unbelievable that after such a history of abuse, the Ports Authority will reward them with the absolute control of the Port of San Juan.”

Only four companies operate in the island’s ports: Intership, Tote Maritime, Crowley and Luis Ayala Colón (LAC). The latter provides services to international ships and smaller shipping companies. 

An agreement filed at the Federal Maritime Commission (FMC) allowing the joint venture between two adjacent terminals at the Port of San Juan went into effect Aug. 29. However, the FMC noted that concerns about the agreement and its impact on the market led the commission to adopt stricter oversight that its traditional monitoring program.

Maceira told Caribbean Business that “it should be clear” that the Ports Authority’s roles is more akin to managing the real estate. “So when they ask the governor to not authorize the agreement; there is no agreement with Ports,” he stressed.

Anthony Maceira Zayas,
executive director of the Ports Authority (CB file)

Maceira said that when the U.S. Congress passed the Shipping Act in 1984, “they did so as a deregulation legislation,” establishing that cooperative agreements automatically become effective after 45 days.

“The FMC can file an injunction in Washington, D.C., and/or extend it if a request for information (RFI) is made, in which case it can be extended for another 45 days…. That is what they did, the RFI and extended the period for 45 days.”

When evaluating the agreement, Maceira said, the FMC considered whether the agreement would hinder competitiveness, if there are no reasonable transportation services and if transportation costs would rise.

“In this case, they evaluated those three criteria, framed in these facts: Puerto Rico’s market is served by a limited shipping market, the cargo volume, commercial trade, which is less than the ones [stateside], the FMC considered the overcapacity of terminal services at the Port of San Juan and that efficiencies are reached; the opposition presented to the agreement and maintaining the same rates, meaning that they won’t go up or down until 2020,” Maceira said.

Based on the evidence the FMC had, Maceira noted, it understood there were no sufficient elements or evidence that competitiveness would be affected or that costs would increase, among the other elements considered.

The Ports official said that although the different groups argue these issues could arise, evidence to support the developments has not been produced.

“It’s speculative,” Maceira said. “If in the implementation one of the elements takes place for the FMC to file an injunction, that’s another thing. But today, anything else is speculative.”

The official reiterated that Ports didn’t put the agreement into force. As for the “term monopoly, that is a legal term, which the Justice Department is currently evaluating,” Maceira said.

Asked whether the government had weighed the benefit costs for the island with this type of agreement, Maceira said, “This is a public policy discussion. The government of Puerto Rico established decades ago that the Ports Authority is basically a real estate manager; if that is adequate in terms of public policy or if Puerto Rico should be like other ports, like Jacksonville, where the Ports Authority operates the port, operates the terminal…. That entails costs, equipment, etc.; that is a public policy discussion.”

The Puerto Rico Ports Authority’s role is to make sure the companies comply with the terms of their contracts, Maceira said.

“In fact, this was a debate after Hurricane Maria…if the government should be the one that controls the ports. The reality in Puerto Rico has been for decades that it’s privately operated. So the Justice Department is evaluating through its Monopoly Division if this agreement in effect is a monopoly or if it’s a practice that they would have jurisdiction over….” 

The agreement filed with the FMC states that under the terms of the Puerto Nuevo Terminals LLC Cooperative Working Agreement, Luis Ayala Colón and Puerto Rico Terminals will form a new company, Puerto Nuevo Terminals, with its membership units held 50/50 by the two owners.

“PNuevoT will then 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 Luis Ayala Colón and Puerto Rico Terminal,” reads a statement issued by the FMC. “The Commission is concerned that, once the agreement takes effect and the new PNuevoT begins operation, the resulting reduction in competition may produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost.”

The commission also acknowledged that the parties’ negotiated concession to maintain 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 or electricity. Though allowing the agreement to go into effect, “the Commission intends to examine available options to ensure the PNT Agreement does not violate the Shipping Act,” it said.

“The Commission did not reach consensus on the threshold question of whether the agreement comes within Shipping Act jurisdiction,” Commissioner Michael Khouri said in FMC’s statement. “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.”

Puerto Rico retail, food distribution groups reject alleged shipping agreement


Warn of potential transportation cost increases; lawmaker to introduce measure requiring probe, action by Ports Authority

SAN JUAN – Saying urgent action against the potential merger of two of the companies that control the entry and exit of products to Puerto Rico, the president of the United Retailers Center (CUD by its Spanish acronym), Dr. Jorge Argüelles Morán, and the executive vice president of the Chamber of Food Marketing, Industry & Distribution (MIDA), Manuel Reyes, said the move puts at risk not only businesses but also the island’s population.

The focus of a public hearing chaired by the Rep. José Aponte Hernández on Thursday was the merger of the Luis Ayala Colón company with Puerto Rico Terminals, an affiliate of TOTE Maritime, whereby Puerto Nuevo Terminals would operate a seaport and provide services in the Port of San Juan.

“Right now, we have four shipping companies that serve Puerto Rico individually. With this merger, the TOTE company would end up dominating 70% of the transportation. This would leave in the hands of TOTE and Crowley absolute control of tariffs, container offloading, and schedules to lift merchandise from the dock, as well as who can enter the port of San Juan. Undoubtedly, this commercial union would imply a nefarious monopoly for the country,” CUD’s president said in a joint statement.

For his part, Reyes said it was “frustrating to see how in Puerto Rico we minimize the costs and difficulties that merchants have to bring their merchandise while the whole world is constantly fighting to have a competitive and interconnected maritime transportation system, through which 90% of the world trade in goods is conducted.”

At the hearing, the minority delegation favored House Resolution 1371 to reject the cooperative agreement between maritime companies. Both Aponte and the minority spokesperson, Luis Vega Ramos, questioned a lack of action by the Port Authority.

“That they have not made a formal consultation either to the Governor or to Fortaleza [the governor’s office] nor to Justice is unacceptable. I think it is an abdication of the responsibilities of the Ports Authority,” Vega Ramos said.

Rep. Aponte warned that “if the merger takes place, Puerto Nuevo Terminals will have full control of the international cargo entrance to Puerto Rico.”

The lawmaker said he was introducing a measure to initiate an investigation and that requests immediate Port Authority action before the Federal Maritime Commission, which regulates the oceanborne international transportation of the United States.

Tim Nolan named president, CEO of TOTE

SAN JUAN – Saltchuk has announced that Tim Nolan has been named president and CEO of transportation and logistics company TOTE Inc., the parent of TOTE Maritime and TOTE Services.

Nolan–who currently serves as president of Jacksonville, Fla.-based TOTE Maritime Puerto Rico, which offers integrated transportation services between the U.S. mainland, Puerto Rico and the U.S. Virgin Islands–has been with the TOTE family of companies since 2013. He will take over the helm on July 16 from Anthony Chiarello, who announced his retirement earlier this year.

Nolan’s “strong leadership at TOTE Maritime Puerto Rico and more than 20 years in the transportation and logistics industry made him a natural choice to lead Saltchuk’s largest line of business,” Tim Engle, president of Saltchuk, a family of transportation and distribution companies that include TOTE, said in the announcing release.

Tim Nolan (Courtesy)

“The TOTE team is an exemplary group of people and I am confident that together we will make this a successful transition. I look forward to working closely with customers, vendors and key stakeholders as well as all of the TOTE companies,” Nolan added.

Nolan and his family will remain in Jacksonville, shifting TOTE’s corporate headquarters to Jacksonville.

“One of Nolan’s first responsibilities will be to identify his successor – the next president for TOTE Maritime Puerto Rico,” the release reads.

TOTE owns and operates the world’s first LNG powered containerships, which serve the Puerto Rico trade.


Enough supplies in Puerto Rico to ensure food security

SAN JUAN – Uncertainty about there being sufficient food in Puerto Rico to supply a population that gets 80 percent of the products it consumes from abroad continues to worry the public after Hurricane Irma impacted Florida, from where most of the imports arrive.

However, the Puerto Rico Manufacturers Association (PRMA) and the Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym) assured that, although the weather phenomenon severely affected several of the ports from which the island receives supplies, there is enough food, gas and diesel to last at least two months.

The Puerto Rico Manufacturers Association guaranteed to the public the existence of sufficient food supplies in Puerto Rico for more than one month in the event of an eventuality in which the freights of Florida were interrupted. (Agustín Criollo/CB)

PRMA President Rodrigo Masses, accompanied by MIDA Executive Director Manuel Reyes, as well as representatives from the shipping and gas industries, assured the public that there is no reason to fear a shortage of supplies.

“There is inventory, there doesn’t seem to be a major disruption in Jacksonville. Things are still flowing there and we are waiting for the report, but I know that up to [Monday] morning they were feeling the effects of the storm strike in that part of Florida, but it does not seem to be serious so we are not at risk of a huge shortage,” Reyes said in reference to the port of Jacksonville, on Florida’s East Coast, from where most of the products consumed on the island are imported.

“There will always be a shortage of some products, especially those fresh and perishable ones that were already interrupted by the closure of both the port here and Jacksonville […] In general terms, usually in Puerto Rico there are between three weeks to one month of canned and non-perishable foods. That inventory decreased with the event that happened in Puerto Rico, but the information we received is that in general terms there are supplies and, if the supply has not been interrupted, as it seems, there should be no major problems,” he added.

However, Reyes admitted that it is very difficult to be specific about which products could be scarce in circumstances such as the arrival of a weather phenomenon of this magnitude. Currently, there is no detailed government or private inventory of the different varieties of perishable and non-perishable foods that can be used to assess more effectively which need priority.

“Unfortunately, Puerto Rico does not have an item-by-item breakdown and how much inventory there is for each. That has been one of the claims we have made consistently with the issue of food security. Now, according to our data, from surveys by our partners, normally in Puerto Rico there are between 13 weeks and a month, perhaps a little more, of food suppy,” Reyes explained as he highlighted the fact that Hurricane Irma fortunately didn’t cause an interruption that merits concern.

Regarding the availability of propane and diesel fuel on the island, Ramón González, president of Empire Gas, said the inventory of these products is “healthy” and a supply disruption is not expected.

“We are very well supplied with sufficient propane gas inventory, we still have three million gallons, which translates into 20 or 30 days of supplies. A ship is coming next week, so we’re fine in that area. The same with diesel; there is enough inventory at the terminals in Puerto Rico, which are our suppliers,” González said.

“We have a terminal of more than 14 million gallons, plus a reserve of this same amount that we do not touch precisely for emergency matters. To get to that reserve we would have to reach more than 60 days of consumption, which will not happen because a ship is coming soon. Nevertheless, we urge patience and to provide the best possible product. Turn off the generators when you can, and service them during the day,” he added.

González said that Empire Gas has 40 trucks serving the entire island, giving priority to the northern region, which was the most affected by Irma.

Meanwhile, José Ayala, spokesman for the shipping company Crowley Maritime, confirmed that the fleet interruption from Florida to Puerto Rico was minimal. The company issued a release saying regular operations had resumed Tuesday

Ayala explained how his company’s contingency plan works in emergencies such as a hurricane.

“Once a coming storm is identified, we advance two trips on what is called an accelerated itinerary. Before the storm arrived 1,000 containers were unloaded between Monday, August 4 and Tuesday the 5th. Once the [hurricane] past, two more vessels were unloaded that we had in a port in the southern area of ​​Hispaniola for security reasons. Among these vessels were 2,000 containers,” the Crowley spokesperson said.

“To date there are 2,003 containers in our terminal full of food and basic necessities and 200 refrigerated containers. We know that domestic companies like TOTE and National Shipping are already running normally so they must also have very large inventories,” he added.

Ayala said that on Tuesday morning inspection work was being carried out in the Port of Jacksonville, but said they don’t expect major inconveniences because te port was not significantly affected by the hurricane. By Tuesday afternoon , he said, a vessel was slated to sail from that port to Puerto Rico carrying 2,000 additional containers that are expected to arrive this weekend.

El Faro’s tragic ending ‘burned’ in investigator’s mind

This April 11, 2017 photo provided by the NTSB shows investigator Brian Young at an undisclosed location. Young is the chief investigator for the NTSB into the sinking of the freighter El Faro in the Bahamas on Oct. 1, 2015. The 790- foot ship sank after losing propulsion in Hurricane Joaquin. The bodies of the 33 crew members were never found. (NTSB via AP)

This April 11, 2017 photo provided by the NTSB shows investigator Brian Young at an undisclosed location. (NTSB via AP)

JACKSONVILLE, Fla. – It was just a fleeting moment, hardly noticeable amid the tumult: As the crew of the freighter El Faro fought their futile battle with a hurricane, the second mate asked the captain if she could leave the bridge to retrieve her life jacket.

But to federal safety investigators, it was a vital clue to help them understand a tragedy that took the lives of all 33 sailors aboard.

Something was wrong. The mate, Danielle Randolph, should have had quick access to life jackets on the bridge. Hearing that she did not, says Brian Young, chief investigator for the NTSB, filled him with “disgust.”

“Her request to get the life jackets is something we’re looking into,” he told The Associated Press. “That definitely raised a flag for us.”

For months, the investigators listened to 26 hours of conversations of the El Faro’s crew, captured by the ship’s voyage data recorder as they rode to their doom. The 790-foot ship sank on Oct. 1, 2015, after losing propulsion in Hurricane Joaquin. The bodies of the crew were never found.

The black box was recovered from the Atlantic last summer. The transcript of the conversations it recorded came in at more than 500 pages, and is the largest ever produced by the National Transportation Safety Board. It has provided clues to the ship’s safety culture – clues that never would have come to light without the data recorder.

The recording indicates Capt. Michael Davidson felt the need to let the ship’s owner, the international shipping company TOTE Maritime, Inc., know about his routing decisions. TOTE maintains that Davidson had the first and last word in decision-making about his route from Jacksonville, Florida, to San Juan, Puerto Rico. His route ended up taking the ship directly into the strongest October storm seen in those waters in more than a century.

“I hope we get to take the Old Bahama Channel on the way back,” Davidson tells Randolph, referring to a slower but safer route.

“Does the company want permission now?” Randolph asks.

Davidson says he was telling TOTE as a professional courtesy because the route would add 160 nautical miles to the trip. “I don’t think they’ll say no. I gave them a good reason why.”

Young said much of the audio had to be listened to 100 times to be correctly transcribed. The microphones were embedded in the bridge’s ceiling, and there was a lot of ambient noise from the storm and people would walk or turn away from them. Representatives from TOTE and the Coast Guard also conferred on the transcription.

The board’s full report is expected to be released later this year.

For everyone involved, listening to the crew bravely work to save the ship and themselves was a brutal exercise. Young and many of the others in the room had been merchant mariners.

At the end of the transcript, Davidson tries to calm his helmsman, Frank Hamm, as the ship sinks.

“You gonna leave me,” Hamm cries.

“I’m not leavin’ you. Let’s go,” the captain responded. Shortly thereafter, the audio ends.

“Speaking for everybody on our entire team, it’s something none of us will ever forget,” Young said. “It’s chilling to hear fellow mariners’ last words in such a tragic ending. It’s something that is burned in my mind.”

El Faro sinking testimony: Crew did all it could to hold on

El Faro leaves Jacksonville, Florida.

El Faro leaves Jacksonville, Florida. (File)

JACKSONVILLE, Fla. – The former chief engineer of a container ship that sank in a hurricane killing 33 sailors said Wednesday that evidence from the ship’s “black box” shows a crew working hard to keep it afloat.

Mark Gay, who served aboard the El Faro years before its final journey, became emotional at times during testimony before a U.S. Coast Guard investigative board in Jacksonville as he talked about the ship’s lost crew.

The El Faro sank on Oct. 1, 2015, after losing propulsion in Hurricane Joaquin while traveling between Jacksonville and San Juan, Puerto Rico.

Search crews recovered the ship’s voyage data recorder last summer, which captured audio of the conversations on the ship’s bridge as its engines stopped and water flooded a cargo hold.

Transcripts show that Capt. Michael Davidson said he’d lost the plant, which Gay said meant the propulsion system, about an hour before he’s heard calling crew members to abandon ship.

At the same time as he lost the plant, Davidson tells his fellow crew members on the bridge that the engineering crew was reporting that water was pouring through ventilation ducts down below.

For Gay, who worked in the same engine room years earlier, indications from the transcripts show that everyone was still doing their jobs even as a Category 3 hurricane was battering the ship with 30-foot waves and high winds. He said the water entering the room through the ducts wouldn’t have deterred their efforts.

“You have a lot of good people doing whatever needed to be done to get this thing going and get out of harm’s way,” he said. “I’ve been in conditions where things go wrong in a hurry and you have to make decisions fast. To me, they were doing everything they could to hold on.”

At about 7:30 a.m. on Oct. 1, Davidson rang the ship’s general alarm, preparing the crew to abandon ship.

“Tell em we’re goin’ in,” he says as the alarm bell rang, according to the transcript.

Moments later he yells out that the bow of the ship is down.

“Throw all your rafts in the water,” Davidson said as the ship slipped further into the water. “Stay together!”

Davidson was heard trying to soothe the frayed nerves of a frightened crew member before the audio cuts off.

Search crews found the El Faro’s wreckage near the Bahamas in 15,000 feet of water, but no bodies were ever recovered.

Glen Jackson, whose brother Jack Jackson died on board, has attended all of the Coast Guard hearings. His family is one of the few of the 33 El Faro crew members who haven’t settled legal claims against the ship’s owner, TOTE Maritime, Inc.

“It’s ruined my life. My brother and I were tight,” he said during a hearing break.

Jackson said he hopes the investigation will lead to safer work for the nation’s mariners.

“Ninety percent of everything we buy, eat and wear comes by ship. And there are a whole lot of American men and women out there at sea, and they deserve to have a safe working environment.”

2 more El Faro families settle with sunken ship’s owner

El Faro leaves Jacksonville, Florida.

El Faro

JACKSONVILLE, Fla. – Two more families of crew members who died on the freighter that sunk last year near the Bahamas during a hurricane have settled their wrongful-death lawsuits.

The families settled with Tote Services Inc. and Tote Maritime Puerto Rico, the owner and operator of El Faro, respectively, for $500,000 each plus an undisclosed sum for economic losses.

The 790-foot-long (240-meter-long) ship sank Oct. 1 after losing propulsion and getting caught in Hurricane Joaquin. All 33 aboard died, and all of their families filed claims. The number of settled cases now stands at 23.

The Florida Times-Union reports (http://bit.ly/2cDq1jU ) the latest settlements are with the families of Theodore Quammie of Jacksonville and Steven Shultz of Roan Mountain, Tennessee.

Investigators are transcribing 26 hours of audio from the ship’s bridge after crews recovered El Faro’s data recorder.

El Faro ‘black box’ recovered from 15K-feet beneath the sea

The main deck of the sunken El Faro. (NTSB)

The main deck of the sunken El Faro. (NTSB)

JACKSONVILLE, Fla – Search crews have retrieved the “black box” from the wreckage of the freighter El Faro that sank in 15,000-feet of water near the Bahamas during Hurricane Joaquin last year, officials said Tuesday.

Using a remotely operated vehicle in the pitch black deep sea, crews brought the El Faro’s voyage data recorder to the surface Monday night, the National Transportation Safety Board’s chairman said.

The 790-foot El Faro sank Oct. 1 after losing propulsion and getting caught in the hurricane while traveling between Jacksonville and Puerto Rico. All 33 crew members died.

“The recovery of the recorder has the potential to give our investigators greater insight into the incredible challenges that the El Faro crew faced,” NTSB Chairman Christophe Hart said in a news release.

Search crews found the recorder in April attached to a piece of the ship, but couldn’t remove it.

Members of the NTSB, U.S. Coast Guard, U.S. Navy and others returned to the scene Monday after leaving port in Virginia Beach, Virginia, and piloted the remotely operated vehicle down to the ship’s resting place to remove the recorder.

The NTSB said in the release that it will begin processing the audio and other data when crews return from sea around Aug. 12. The device is designed to hold 12 hours of recordings from the bridge, as well as navigational data, but NTSB said it’s possible there could be more than that. No further voyages to the wreckage site are planned.

The recovery comes after two rounds of investigative hearings by a Coast Guard marine board earlier this year.

The hearings explored the safety record of the ship’s owner, Tote Services Inc., and the decisions made by Capt. Michael Davidson to sail the aging freighter near a strong storm.

The El Faro was 40 years old and had open lifeboats, unlike many modern ships that carry closed lifeboats.

Testimony revealed that Davidson knew about Hurricane Joaquin, yet he planned to sail close to it instead of taking a slower, safer path that had been used during past storms. Tote officials said during testimony that the firm’s captains are responsible for route planning and are not under time pressure to take risks.

Lawrence Brennan, a professor of maritime law at Fordham University in New York and former admiralty litigator for the U.S. Department of Justice, said if the NTSB can retrieve the data from the recorder, it will provide “voices from the grave.” This information could greatly enhance investigators’ understanding of who, ultimately, was at fault for the deaths of 33 people and lead to new safety requirements, he said.

“The whole purpose of this, in addition to the legal ramifications to come, is to enhance the safety of life at sea,” Brennan said. “Tragedies like this have to be avoided.”

On Tuesday, the company applauded the NTSB’s recovery of the data recorder.

“We hope that the information contained will help with the goal to learn everything possible about the loss of our crew and vessel,” Tote said in an emailed statement. “We look forward to the NTSB report and welcome safety related recommendations that benefit our seafarers.”

NTSB’s Hart said the data recorder will help give more information about what happened on the ship’s bridge, including any conversations between Davidson, crew and Tote officials, but it’s just one part of the agency’s ongoing investigation.

“There is still a great deal of work to be done in order to understand how the many factors converged that led to the sinking and the tragic loss of 33 lives,” he said.