THE REAL CULPRITS IN PUERTO RICO TRADE

THE REAL CULPRITS IN PUERTO RICO TRADE

I have a response to a letter to the editor (JoC Week, April 30-May 6 edition) from a purported pundit in the U.S.-Puerto Rico trade. As to the commentary of Rick Rude, I first must point out that he conveniently forgot to mention that for years as a lawyer he represented a powerful and large shipper association -- an 'elite' group that arguably tried to corner the market in reefer rates to Puerto Rico.

A few other points:l The small carrier to which Mr. Rude refers was another attempt by a group backed by some of his clients to bring down rates. Their vainglorious strategy was to start their own barge service in an attempt to break the existing carriers' rates on reefer cargo. It promptly collapsed, to the commercial and financial dismay of Mr. Rude's clients.

l The maritime security act 'caps' were a sham in that their major beneficiary, Sea-Land, lobbied the Maritime Administration to declare Sea-Land vessels' capacity at laughably low slot levels, while receiving annual escalators in said caps, thereby obviating the constraints placed on them by the caps. Sounds like Alice in Wonderland -- or was it Catch 22?

l The liner shipping companies never tried to eliminate NVOCCs from the trade. To the contrary, they continued to happily sign an increasing amount of NVO dry-cargo contracts.

But unfortunately for Mr. Rude's clients, no attempted 'cornering' of the reefer market and squeezing out of the small was to be allowed. Strategic threats are usually dealt with by successful companies, and so was this one -- in one big lowering of the boom!

The rates that he refers to as being lowered were 'paper' rates that moved no cargo. The new any-quantity rates leveled the playing field, a position from which Mr. Rude and his clients were not accustomed to playing.

As to service standards deteriorating, Mr. Rude again misses the mark by a wide margin.

The range, scope, variety and frequency of services offered to the trade are unparalleled. Actually, this probably is the carriers' biggest problem. Their services and costs are out of balance with volume and rates, and the shippers are laughing all the way to the bank.

I believe rates will continue to deteriorate even further due to financial pressures facing several of the carriers whose pockets -- or those of their parents -- may be moth-ridden and increasingly shallow.

Eight ship and seven barge sailings per week in the Puerto Rico trade yields 30% to 400vercapacity.

And Mr. Rude's emphasis on the number of ports now served leads me to believe he still equates the numbers of ports called with services rendered.

How anachronistic and quaint! He needs to be reminded that intermodalism arrived in the mid-'70s.

l Regarding Mr. Rude's comment about my being a 'pricing mastermind,' I regret that I cannot deign to wear his fool's-gold crown, but I humbly recommend that he consider the Napoleonic alternative.

The only thing my group masterminded was the purchase of Navieras in 1995, leaving its debts to the government of Puerto Rico, executing a startling turnaround to profitability, and the selling of the company to an unsolicited bidder for a stupendous ROI. But mastermind is not an appellation with which we feel comfortable.

The real historical lesson here is that subsidies, advances from parents, loans from governments, favorable allocations from affiliates or sister divisions, executives who depend on the above along with public-relations spinmeisters who count market share instead of net income and, yes, some of Mr. Rude's clients' attempts to corner markets, are the real culprits in today's situation.

This, of course, is in addition to rude lawyers obfuscating facts and confusing their advocacy with reality.

Edward O'Donnell

Former part owner,

Navieras de Puerto Rico

Westfield, N.J.

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