FMC allows Puerto Rico terminals to combine

Combined container terminal operations in San Juan will be subject to enhanced monitoring by the Federal Maritime Commission.

The Federal Maritime Commission said it is allowing a joint venture between two adjacent marine terminals at the Port of San Juan in Puerto Rico to go into effect, but “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 FMC approved an agreement between two terminal operators — Luis Ayala Colon and Puerto Rico Terminals — to form a new company called Puerto Nuevo Terminals (PNT) that will be owned on a 50/50 basis. The new company will acquire the assets of the two owners, including leases and equipment, and thereafter operate the combined terminal.

The two terminals said in a joint statement that the agreement will allow them 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.”

As a result of the combination, PNT and Crowley will be the only two container terminal operators in San Juan, and the FMC said it was concerned that once PNT begins operation “the resulting reduction in competition may produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost.” 

The FMC noted that Puerto Rico 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.”

At the same, the FMC “appreciates the current overcapacity in terminal services and the desire through the agreement to rationalize services and obtain efficiencies,” it said. “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.”

FMC said the terminals made a “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,” the FMC said.

The FMC said it will order an enhanced monitoring regime for the agreement — the Puerto Nuevo Terminals LLC Cooperative Agreement — that allows the two terminals to combine. The two terminals responded by saying, “We look forward to continuing to fully cooperate with the FMC and to working with relevant stakeholders as the PNT agreement is implemented.”

The FMC said it will require “extensive disclosure of business and marketplace information” from the new terminal and may order an investigation or hearing.

Commissioner Daniel B. Maffei voted against allowing the agreement to take effect, arguing that the potential negative effects provided sufficient reason for the commission to intervene. But since the agreement allowing the two companies to combine operations will take effect despite his vote, he said he applauded the commission’s unanimous decision to conduct enhanced monitoring of this agreement.

In a statement explaining his opposition, Maffei said “this agreement certainly reduces competition,” and that he had questions about whether this 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.”

FMC Chairman Michael Khouri said, “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,” Khouri said.