Commission Expresses Concerns about Puerto Rico Terminal Facilities Agreement

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Puerto Rico Terminal
Puerto Rico Terminal

29 August 2019

An agreement filed at the Federal Maritime Commission allowing a joint venture between two adjacent terminals at the Port of San Juan, Puerto Rico, will go into effect on August 29. 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.

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 or PNuevoT) 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 LAC and PRT. Thereafter, PNuevoT, 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. 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, Puerto Rico.

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 appreciates that the Puerto Rico market is served by a limited number of domestic and international ocean carriers transporting a relatively low volume of trade as compared to large mainland port areas. The Commission also appreciates the current overcapacity in terminal services, and the desire through the agreement to rationalize services and obtain efficiencies. Concurrently, the Commission takes due notice that many parties across the Commonwealth of Puerto Rico filed comments that expressed serious concerns about the potential impact on competition as well as on transportation costs and options under this agreement. However, the Commission also acknowledges the parties’ negotiated concession to maintain current 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.

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. Under its authority, the Commission will order an enhanced monitoring regime for the Puerto Nuevo Terminals LLC Cooperative Agreement with extensive disclosure of business and marketplace information required.

Further, the Commission may order (1) Investigational Hearings (46 C.F.R. §502.281 Subpart R); (2) an Order of Investigation and Hearing (46 C.F.R. §502.63); or (3) a Special Report Order under 46 U.S.C. §40104 (also known as a Section 15 Order) requiring the parties to provide information to the Commission.

Chairman Khouri stated, “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.”