Ci39,0^:i '^'83 7 I I iiPORrpRnNG I DECS;- \- ■<\-M- U.S. Department of Commerce/Maritime Administration I I prepared by Paul A. Amundsen N^'^^^^co^ U.S. Department of Commerce Maritime Administration Office of Commercial Development Office of Port and Intermodal Development August 1978 Digitized by the Internet Archive in 2012 with funding from LYRASIS IVIembers and Sloan Foundation http://archive.org/details/currenttrendsinpOOamun FOREWORD Competition and enterprising self-sufficiency are the cornerstones of the American port industry. Local public control and individual decisionmaking are characteristics which differentiate U.S. seaports from their foreign nationalized counterparts. As a system, U.S. ports facilitate the movement of waterborne commerce for the world's greatest trading nation. As an economic function, U.S. ports are catalysts for the generation of local revenues, jobs and development. A key to the maintenance of self-sufficiency for ports is an intelligent pricing policy. The reinvestment of revenues are being depended upon more and more by port management as a source for developmental financing. As time progresses, the appropriate manipulation of tariff rates will become increasingly important as ports attempt to fully recover costs while still effectively competing for cargo. The identification of existing pricing practices, philosophies and trends has not heretofore been available and without such basic information it would be difficult for port management to make advantageous decisions. This apparent void in port pricing information is the primary reason the Maritime Administration accepted the proposal of an independent consultant to investigate the existing pricing practices in U.S. seaports. Paul A. Amundsen is uniquely qualified to have undertaken the subject research. As Director of the American Association of Port Authorities from 1948 to 1974, Mr. Amundsen not only acquired an expertise for seaport activities 3 but he also became quite familiar with the philosophies and politics that are inherent in public port management. His general acceptance by port management has been invaluable in his exploration of pricing practices and other relevant areas that traditionally command a high degree of sensitivity. The methodology employed in the preparation of this report was comprehensive. The focus was on pricing unique to public port usage. These rates are uniformly known as dockage in the case of the ship; and wharfage in the case of the cargo. Detailed tariff research covering 21 ports for 10 years was accomplished with the assistance of the Office of Domestic Commerce of the Federal Maritime Commission. Twenty-eight representative ports from all four coasts were visited and management was interviewed to ascertain the latest operating procedures for rate setting. Additionally, an industry re- view panel selected for its coastal and professional representation closely monitored the progress and direction of this research. The end product is a truly unique report with definitive findings regarding the overall impor- tance of pricing policy to the accomplishment of the multi faceted objectives of public seaports. INTRODUCTORY NOTE There is a minimum identification of ports in "Current Trends in Port Pricing". This began as a deliberate attempt to avoid the appearance of a catalog or shopping guide. But as the work developed it became obvious that emphasis on level and basis of rate has been nicely sharpened as a by- product of that decision and that a certain amount of fresh perspective is gained through depersonalization of the data. This is particularly valuable for the manner in which rates and practices may be compared within and between regions. It should be emphasized that (given the amount of move- ment in usage rates) prices shown will already be obsolete as this report becomes available. They illustrate a condi- tion that existed in December 31, 1977. Special attention is drawn to the explanations of the CAPA and NWMTA formulas. These are the Freas Formula deriva- tives in current use and a great deal of national port inter- est in them has been noted during the course of this research. They are set forth here in a "popular version" permissive of ready grasp of the technique for both operating and non- operating authorities. Finally, this study relates primarily to tariff-rated facilities, although basic pricing practices are also broadly treated as regards leased facilities. PAA 8/15/78 CONTENTS FINDINGS i RECOMMENDATIONS ii I Traditional Port Development Philosophy and Recent and Emerging Impacts 1 II Background on Port Pricing 12 III Port Pricing and The Market Place 16 IV Dockage and Wharfage 27 V Collective Approaches to Port Pricing 55 VI North Atlantic Port Area Approaches 69 VII Port Pricing on the Great Lakes 73 VIII Leasing of Marine Terminal Facilities 78 IX Other Usage Charges 87 X Metrification 96 BIBLIOGRAPHY 99 ii RECOMMENDATIONS The public port industry should address a revenue supported facilities assurance program as an industry-wide effort in self- regulation, without any additional Government regulation or con- trols. The effort need not and probably could not be mandated or monitored in an organizational sense. Movement should be volun- tary. Individual Ports Should (not having already done so) ; 1. Develop a careful and realistic assessment of the revenue supportive shortfall in their tariff rated facilities, taking into account depreciation factors and replacement requirements; a fair rate of return; rates of inflation; and levels of cargo volume. 2. Consider participation with existing or new regional or sub- regional Marine Terminal Conferences for purposes of discussing rates and charges. New or Existing Regional or Sub-Regional Marine Terminal Confer- ences Should (not having already done so) : 1. Work toward uniformity in the basis of assessing charges within the region. 2. Develop bridge agreements with other regions for purposes of discussion, including uniformity of rate bases. 3. Develop for the region a phased approach for overcoming the revenue supportive shortfall. Ideally such a program should be: A. Limited to the provision and maintenance of the oper- ating platform* through traditional usage charges against ship and cargo. B. Approached on a basis of manageable rate adjustments over a suitable time frame. * Defined as the physical plant provided for use in ship/cargo iii C. Participated in on a voluntary basis. Including the grouping of ports by type within the region and allow- ances for Individual situations. The common objective should be, over time, to elevate the entire plane of port usage pricing to a point of reasonable re- lationship to cost. CHAPTER I TRADITIONAL PORT DEVELOPMENT PHILOSOPHY AND RECENT AND EMERGING IMPACTS As a beginning, each United States seaport publishes a "tariff", which is a price list of its rates. Because it is not feasible to make an individual arrangement with each ar- riving user of the port, the tariff is a uniform offer to all users. Use of the facilities of the port constitutes accep- tance of that uniform offer. (It also constitutes acceptance of the rules and regulations and definitions and authorities cited in the tariff.) Within the tariff are schedules of rates, of which there are two basic types. These are: Rates involving services to the ship or the cargo, such as line handling, utilities, water; handling, segregat- ing, or marking cargo; equipment rental; etc. (These rates apply for "operating" public ports.) Rates involving simply usage of a facility by the ship and by the cargo.* These rates are uniformly known as dockage in the case of the ship; and wharfage « in the case of the cargo. They do not include any services. (These rates apply at all ports, although in some cases the revenue is retained by the lessees.) Port pricing of services follows patterns that are universal to any service enterprise. Labor, materials, and equipment costs are computed; operational and administrative overheads are added; and a margin is selected commensurate with a review of the market place balanced by immediate conq)etitive objectives and other or- ganizational revenues. * There are other kinds of usage charges that will be discussed in this study. Also "usage" has a specific meaning in some tariffs, not related to dockage or wharfage. 2. The focus of this study is pricing unique to the public port industry. Therefore, with the above comment, the pricing of port services is set aside for purposes of examination of the pricing of port usage « It is the usage pricing which, in those cost for- mulas applied in current practice, is expected to amortize the investment in land and structure. The objective of the study is to set forth new conditions as they are developing in such a manner that both practitioner and policymaker may be provided with a frame of reference rang- ing beyond daily experience and perhaps beyond outdated attitudes and fears. From such a frame of reference orderly approaches can evolve. Some of these have already begun and a wider appre- ciation of them will be found very useful. Backgrounds Historically, recovery of cost of marine terminal land and structure by means of pricing based upon cost has never been a clear-cut objective of public port administration. The public port industry of the United States has developed from the willing- ness of local seaboard communities to invest public funds in shores ide facilities for the purpose of handling waterborne com- merce. It is assumed that such investments carry many- fold re- wards to the community in the form of commerce, industry, employ- ment, and a greatly augmented tax base. Its management thrust continues to reflect that concept, remaining thoroughly oriented to public service considerations as a primary philosophy. As a well validated concept it has been quantified many times. A recent national study* finds that for the year 1977 the port industry is directly and indirectly responsible for: Gross sales within the economy of $56 billion A $30 billion contribution to GNP 1,046,800 jobs Personal income of $19.2 billion Business income of $7.4 billion Federal taxes totalling $10.4 billion State and local taxes amounting to $4 billion * "Economic Impact of the U. S. Port Industry", MarAd, 1978 3. Against those primary objectives of conmunlty Investment In facilities, the prices charged for the use of those facilities by ships and cargoes have historically remained Incidental to the greater rewards flowing to the conmunlty. Held at depressed levels as an attraction to the traffic creating the rewards, they, bore little relation to cost, and they were static for long per- iods. Within the past 10 years a remarkable change has taken place In that these charges have, almost suddenly, become dynamic. They began to show activity during the latter half of the 1960s among the major port centers and the rate of activity has become more and more rapid since. Various Impacts upon the Industry, both external and Internal, are considered to be responsible. External Impacts External Impacts upon public port usage rates are those re- lating to national and International conditions and developments. Among these are Inflation; availability of public funds; and mandated costs. The relationships of these Impacts to port pric- ing are obvious, but some specifics give background helpful to understanding of the dramatic difference In pricing activity that Is taking shape In the Industry as a result of external forces. Inflation In terms of port development, the Construction Cost Index (Engineering News Record) shows an Increase of 223.7 percent for the period 1968/1977. (See Figure 1.) In terms of channel and slip development and maintenance, dredging costs have tripled In recent years. In terms of operating equipment, the price Index for Indus- trial goods (see Figure 2) shows an Increase of 195.8 percent for the period 1968/77. Heavy equipment Items such as lift trucks have moved In cost from $4,000 to the range of $8,000 to $10,000. The above are the costs that directly relate to port usage charges as previously defined. Availability of Public Funds Social Impacts upon state and community tax revenues Include welfare, health care, education, crime prevention, public trans- portation, and a number of other broad areas which compete for the tax dollar. The degree to which public port agencies of the U.S. participate In local or state tax revenues for developmental pur- poses (and In some cases for operation and maintenance support) Fig. 1 - Construction Cost Index "Engineering News Record" Percentage to Apply Period in Which 20 Cities — U.S. to get Constructed Construction Cost Index 1977 Reproductive Cost Prior to 1930 200 1,289.6 1931 - 1940 210 1,228.2 1941 - 1945 280 921.1 1946 - 1950 420 614.1 1951 - 1955 600 429.9 1956 - 1960 750 343.9 1961 - 1965 910 283.4 1966 1,028.65 250.7 1967 1,067.88 241.5 1968 1,152.78 223.7 1969 1,284.96 200.7 1970 1,368.66 188.4 1971 1,575.05 163.8 1972 1,716.42 150.3 1973 1,903.85 135.5 1974 2,014.40 128.0 1975 2,247.74 114.7 1976 2,398.80 107.5 1977 2,579.19 100 Fig. 2 5. PRICES WHOLESALE PRICES In July, fhft wholesale price index rose 0.2 percent ffell 0.1 percent seaionally adjosfecf). Prices of form products and processed foods and Feeds declined 1.1 percent (2.1 percent seasonally adjusted). Industrial commodities prices were up 0.6 percent (0.5 percent seasonally adjusted). MDEX. 1967^ 100 (RATIO SCAU) INDEX, 1967-100 (RATIO SCAIi) processed foods and feeds Indus- trial ;oni mod- Special groupings Inter- mediate mate- Produ( Consumer linished goods excluding foods 1970.. 1971.. 1972.. 1973.. 1974.. 1975.. 1970.. 1976: July.. Aug.. Sept.. IOC. 5 110.4 114.0 119. 1 134. 7 100. 1 174.9 183. 108. 111. 7 113. 9 122. 4 159. 1 177. 4 184. 2 183. 1 106. 110. 114. 1 117. 9 125. 9 153. 8 171. 5 182. 4 110. G 118. 9 122. 7 131. 1 155. 2 219. 1 225. 1 113. 5 lis. 6 138. 6 104. 106. 9 110.8 113. 2 115.8 126. 3 Seasonally adjusted 185. 3 185.6 187. 1 190. 191.9 194. 3 195. 2 194. 4 194. 8 188. 1 181. 7 182. 9 179. 5 178. 3 183.9 184. 8 188.4 190. 9 195. 9 184. 8 186. 3 187. 1 187. 4 188. 4 189. 9 191. 6 193. 2 194. 2 194. 195.? ' Excludes crude foodstuffs and feedstuffs, plant and animal fit leaf tobacco. > Includes supplies and components; eicludes iDtonne Bianulacturiiig and manufactured animal feeds. 252. 7 254.4 253. 1 262. 4 271. 6 265.9 262. 6 273. 282. 4 277. 9 277. 8 189. 1 190. 3 192. 193. 3 194.3 195. 5 196. 3 197. 4 199. 1 200.3 200.9 201.4 202. 4 162. 5 163. 7 104.6 167. 9 169. 2 170. 4 171. 2 146. 8 146. 9 148. 14a 8 149. 4 150. 5 151. I 151. ti 152. 10.5. 108.3 111. 7 113:6 120. 5 146,8 163. 173. 3 175. 6 170. 7 178.0 178. 4 180. 3 180. 7 182. 5 183. 7 184.6 18.5. 6 185. 9 Source: Joint Economic Conimittee of Congress Indicators" "Economic 6. varies considerably by coastal area, but to that degree there Is a competitive factor with social Impacts. This applies whether a direct appropriation or a tax supported bond Issue Is Involved. While there Is some rebirth of political recognition of port development as an economic stimulus, the political appeal of the direct social services use of tax revenues remains formidable and there Is evidence that It Is one of the forces of change In traditional port pricing considerations. At bottom, Federal Gov- ernment spending equaled 23.9 percent of total personal Income In 1976, up from 14.8 percent In 1947; but state and local spending has grown even faster, from 7.6 percent In 1947 to 17.9 percent In 1976.* Taxes totaled 41.8 percent of personal Income In 1976. The difficulty of adding to the burden through the public budget or through a proposition on a ballot, In competition with more highly visible social demands. Is apparent. Greater use of rev- enue financing by ports Is a result. (See Fig. 4.) Mandated Costs Mandated costs are those costs Incurred by seaports (and others) by legislative or administrative action In such fields as environmental protection, safety, and security. The direct capital expenditures and operating costs descending upon public port development as a result of these actions has been recently quantified by MarAd** as follows: Cumulative capital costs ('70/* 76) $138,799,000 Annual capital costs (future) $ 49,890,000 Cumulative operating costs (*70/'76) $ 55,119,000 Annual operating costs (future) $ 13,954,000 It Is Interesting to note. In connection with the foregoing discussion on availability of public funds, that some 80 percent of the cumulative capital cost Is being financed from port rev- enues or revenue bonds. The balance Is being financed through state and local appropriations, with some use of general obliga- tion bonds. While many smaller type projects more applicable to port revenue allocations are Involved, the weight of revenue finan- cing Is obvious from this example. * As of 6/15/78, twenty-nine states were experiencing taxpayer efforts similar to California's "Proposition 13" which cut property levies by more than 50 percent. ** "The Effect of Federal Standards on U. S. Public Port Develop- ment", MarAd, 1977. Hidden Costs . Mandated costs are an arbitrary cost akin to Inflation, and are another factor In port pricing on a cost- oriented basis. When considered In relation to Inflation, they carry hidden cost factors of a formidable nature. For example, If the construction cost Index shows a gain of 17% percent over a 2 year period typically devoted to obtaining a construction permit, then the resulting cost of construction has Increased by that amount through the bureaucracy surrounding environmental review. An even more Important hidden cost Is the effect of environ- mental concerns upon land values In port and marine terminal areas. Because of the environmental controls Imposed, the avail- ability of such land Is reduced, which has the effect of Increas- ing the cost of land on a supply and demand basis. Land develop- ment restrictions are so rigorous as to drive up the cost on a direct basis. If land experiences a rate of return equal to that expected on structures, as It does In those uniform cost formulas which serve as a foundation for port pricing, then the effect upon pricing Is apparent. Environmental costs constitute a preponderance of mandated costs, followed by cargo security and health/safety regulations. Cargo security regulations translate Into greatly Increased costs for sophisticated lighting as well as for fencing, gate houses, and electronic and automotive surveillance equipment. Health/safety regulations apply to toilet facilities, inter- nal lighting, and other worker-oriented physical changes in struc- tures . Internal Impacts For purposes of this study. Internal Impacts are considered to be developments within the industry having a direct effect on pricing considerations. These relate to ships and cargoes and the principal ones are technological developments and trade trends. Technological Impacts The general increase in the size of vessels that has taken place over the past 10 to 15 years* has made a major technological impact upon port facility cost. The development of containerlza- tlon over a similar period pertains to that trend but has other effects of its own. See "Merchant Vessel Size in the U. S. Offshore Trades by the Year 2000", AAPA, 1969. Vessel Size . Vessel size affects the port facility in many wa ys y inc 1 uding : Deeper slips, (compounded by dredging cost increases). Deeper wharf face, which affects length of piling and height of fendering, (compounded by construction cost increases) . Larger operating areas, (compounded by construction cost increases) . Containerization , Intermodalism has created a whole new range of design standards involving large paved areas fronted by substantially longer berth units (vessels exist in the 900' range) . The central cost factor is the paving requirement re- lating to the use of much heavier equipment units. One port gives this as follows: Cost for paving, lighting, drainage, per acre: Container storage area $95,000 Conventional paving (auto storage) $55,000 Cranes and large equipment units used in the yard handling of containers are either owned by lessees or, if owned by the port, amortized through hourly use rentals. As previously stated, this type of service-oriented pricing is outside the scope of this study. In addition to paving, special facilities such as crane rails, power trench, entry complex, control tower, etc. drive the cost of one container berth to more than double that of two conventional berths. Trade Trends The steadily increasing volume of world trade through the United States ports (Fig. 3) is without doubt the major factor in the dramatic change in port pricing philosophy. To appreciate this effect, it is necessary to recall past history. Then the public investment climate and depressed port rate structure was the product of a much smaller trade influx during a period of far less liberal trade policies and limited overseas travel and communications. Fig. 3 - GROWTH OF U. S. WATERBORNE FOREIGN TRADE 1977 - 915.0 (est.) WATERBORNE COMMEF OF THE UNITED STAl (in millions of short toi 1976 - • 855.9 tCEl r800 s : 700 600 - 500 - -400 - -300 - -200 - -100 1950 1960 1970 1980 10. The general availability of healthy cargo movenent allows for more freedom of upward rate adjustment by the port, and it also allows for some selectivity as to types of cargoes to be handled. There is evidence that some ports are already takicsig a close look at costs of handling specific connodities . Good cargo movement can in some instances, have a reverse effect upon port pricing. In a smaller port, with operations conducted over well-amortized older facilities, fuller utilisa- tion will result in a satisfying net revenue picture not coDda- cive to upward price adjustment in the absence of an organised program of replacement funding. Summary Drastic impacts over a relatively short span of tine are affecting port pricing considerations to a degree i^ver pre- viously experienced. These impacts are causing radical chaoses in traditional concepts of public port development. This is illustrated in Figure 4, which shows that for the national totals, the combination of Earnings plus Revemae Icmds was responsible for 71 percent of funds available for Acqizlsi- tion of Plant Investment in the period 1974-75-76. The tradi- tional sources of G. 0. Bonds, Tax Levies, and Appropriations made up the balance of 29 percent in available capital foods by 34 ports. Just a few years earlier, reports from 20 ports* in cooraec- tion with developmental expenditures for the period 196^/72 showed a pattern of only 41 percent for the coinbinatloo of Earn- ings plus Revenue Bonds; and 59 percent from G. 0. Bonds, Tax Levies, and other traditional sources. The shift froa poblic funds to revenue financing was one of more than 180 degrees Id the period of a decade. There is a dual impact upon port pricing as a result of this trend. On the one hand a traditional source of mental financing relating to public service pricing is ing. It is being replaced by a finance resource depesKfiesEt cost related pricing. Hard money is replacing soft Source: "Public Port Financing in the United States", MarAd, 1974. Fig. 4 11. ^ 6C W 3 ' 2 w ! « £ ( o 5 < >o I i1 £^ (2 .9 o ►S 0, 3 0. w o .2 S S .o St O I a, ^ 12. CHAPTER II BACKGROUND ON PORT PRICING The trend toward self-support in port operations appears to be of world-wide dimension. Many countries that have established autonomous authorities in the recent past have stipulated in en- abling legislation that the enterprise be self-supporting.* In more developed countries, large-scale financing of modern port installations have convinced governments that port development can and should be treated as a self-sufficient enterprise. As emphasized in recent industry discussions and confirmed by a number of interviews in connection with this study, self- support also appears to be a general objective among United States ports. Port Usage and Remunerative Revenues From the point of view of the public port agency, the ob- jective of self-sufficiency is one of providing the operating platform (in "bare boat" condition) at usage rates or rents which will amortize land and structure costs and cover annual expenses and overheads applying to care and supervision of the facility. All U. S. ports face that common basic consideration. Whether the platform is being provided for the port agency's own use in conducting operations thereon, or for the use of operating entities on an assigned or exclusive basis, is in the broad sense a question of local option that is aside from direct amortization of the physical plant. While the elimination of the many operational variables from consideration allows some sense of order in approaching port pricing, it still remains difficult to deal with the sub- ject through common denominators. The platforms in question re- main of different ages, efficiencies, and degrees of obsolescence. Attitudes vary on depreciation as a book entry. The degree to vdiich there is dependency on tariff revenues versus fixed rentals is another variable, as is cargo volume or facility utilization. With that as background, the following information has been de- veloped. * Borrowings from international lending agencies are a factor. 13. The Usage Rate Shortfall A general consensus among port managers is that port usage charges Identified with perpetuation of the operating platform (dockage plus wharfage) would have to be doubled to make them self-supporting. The shortfall exists mainly in the older break- bulk type cargo facilities and the cost of maintaining and carry- ing them. The problem is more acute in some areas (estimates triple) and less acute in others (estimates: 25 percent to 50 percent increase needed) . Extent of Tariff Based Revenue In those port areas where it can be quantified with some meaning, the combination of wharfage and dockage revenue totals 40 percent to 45 percent of total port revenue. The other 60 percent to 55 percent is revenue from a number of other sources, including operations, leasing, and sources not necessarily marine related, including backland income. Review of Tariff Rates In most ports of the United States the tariff is left to the port manager and there are no policy arbitraries as regards review or adjustment. As a practical matter, however, tariffs undergo staff review on an annual basis at most ports. In some areas where there is a high level of rate consideration this re- view may be more frequent. In areas where usage charges are reviewed in conjunction with labor rate revisions as a result of union contracts, review may take place at less frequent inter- vals of as much as 3 years. In areas where there is a structured Section 15 Agreement as regards ratemaking on a conference basis, review is annual. In review or tariff rates, most ports give primary atten- tion to tariffs of other ports of the immediate coastal region. This appears to be also true in Section 15 type areas where the primary focus is on the cost relationship of the rates. Less attention is given to tariffs of other coastal regions in a general sense, but a number of specific situations exist in which, for conq>etitive reasons, a port may be as concerned about another region as about its own. Tariff Review on a Cost Basis Cost oriented port pricing philosophy has been precisely 14. defined In the recent statement of a port administrator as follows:* "We analyze our costs very carefully. We use an industrial engineering approach to this initially, and then battle it out with our Finance Director to deter- mine the appropriate assignment of overhead costs to each specific operation. We depreciate all of our in- vestments according to standard accounting principles, and provide for debt service off the top. No element of cost is left unaccounted for in identifying our cost base... As a fundamental policy, we will not price any service below cost. We have no 'loss leaders*... "With our cost base well in mind, we then look to the right and left to see what our competitive pricing constraints may be. When these are identified, we com- pare with our cost base, and make quick decisions either to go along with the competition, or to price ourselves out of the market. We do not see ourselves as a benevolent organization, and will not artificially subsidize any class of traffic or service. In our view, this is the certain road to ruin for any enterprise, ports included." Competitive Aspects of Port Usage Rates When asked about constraints upon port pricing, all ports list "competition". A minority of other mentions received in- cludes "historic pricing situations"; "old staff attitudes"; and there is mention of "commissioner attitudes". This last relates to consideration of a pricing increase as controversial or at least sensitive. The record, however, does not show this. Among port areas most active in cost related pricing, ex- ploration of the history of the effort reveals very little com- plaint and no loss of trade. In areas where the Section 15 approach is relatively new the same applies, frequently to the surprise of administrators who have been exposed to the pre-1968 period of static rates. The general discovery that has been made, and this has been said in interviews in widely disparate areas of the Nation's Remarks of W. Don Welch, Executive Director, South Carolina State Ports Authority. Panel on Port Pricing, AAPA Convention, Mexico City, October, 1977. 15. coastline, is that the trade is "willing to pay for good service, fairly priced". Accompanying this thinking is a large body of opinion that the competitive effect of usage rate levels is minimal as com- pared to other competitive considerations. Who is the Competition ? An interesting sidelight to the competitive aspect of port ratemaking is that a port's knowledge of its competition may be less than perfect. On several occasions when asked about the competition, it was specified as "those fellows over there". When interviewed, "those fellows" sometimes pointed in an en- tirely different direction to their competition. In a broad sense the answer to this type of misunderstand- ing lies closer to the fact that exporters and importers in the heartland of the United States - Ohio, Indiana, Michigan, Illinois, Wisconsin, Minnesota, etc. - have a choice of ports that range from the Great Lakes to coastal ports from Montreal in the north to the Texas ports in the south. The rail rates are very close and sometimes the difference is no more than a few cents a ton. Any port has a chance to compete for some of this traffic* Remarks of C. -B. O'Hara, Director of Port Commerce, The Port Authority of New York and New Jersey, AAPA Convention of November, 1968, Curacao, N.W.I. 16. CHAPTER III PORT PRICING AND THE MARKET PLACE As stated In Chapter II, persons queried as regards the constraints surroxindlng the pricing of port usage have a single answer: "competition". This Is another way of saying that the fear of loss of business to a competitor port Is the major bar- rier to rational port pricing. The apprehension centers largely on the shipper, whose economic options exist In the form of port location vls-a-vls the Inland and ocean rate; and port costs chargeable to the cargo. Because Inland rates are regulated and steamship conference rates are uniform, the land and water segments of the through rate are not negotiable Items (unless of course there Is suffi- cient movement to support a contract which may be bargained) . This leaves port costs as the Item which may be shopped. Be- cause some port costs are labor-oriented, such as "handling", these are also Inflexible to a degree, and so the supposed pres- sure point becomes the wharfage charge for the usage of the port facility by the cargo. The port has two barriers as regards this kind of market place pressure. One of them Is the published tariff, which must be adhered to as regards these rates although the rate for a spe- cific type of cargo may be changed for a con^>etltlve purpose. The other Is the marine terminal conference or Section 15 Agreement, which stabilizes the rates for a port region by agreement of the participating ports. Here again some commodity rates on wharf- age may be exempted on a "sacred cow" basis. However there can be no doubt that this kind of conference ratemaklng Is Important as the foundation of a positive approach In the pricing of port usage. In the Interview series basic to this study only a few In- stances were found, on a specific basis, where wharfage had a com- petitive effect. These were Instances of volume, as: Full shipload type commodities, such as sacked rice. Regular movements at fixed Intervals over a period of time. 17. There Is a large body of doubt among port executives as to whether the usage charge Is Indeed a factor at all in port com- petition. More critical, they say, is the availability of space for cargoes, and the free time factor in the assembly thereof. With the above as background, it will be useful to examine the market place in a quantitative way, so that a perspective may be gathered as regards the position of the wharfage charge in the through rate from the point of view of the shipper. Port usage by the ship, in terms of the dockage charge, will also be quantitatively examined as a factor in port competition. Shipper Considerations in Port Selection A survey published in January, 1978 by "Distribution World- wide" (a Chilton Publication) covering more than 2,000 traffic and distribution managers, found that the great majority of ship- pers rely primarily on service, convenience, and habit when they choose a port. "Cost is not a major consideration in port selec- tion," this study reports. Relative importance of port facili- ties and services to respondents and weighted value of each ser- vice or facility was given as follows: Wide selection of motor carriers and railroads 19.1% Sophisticated tracing system 14.8% Adequate container cranes and handling facilities 14.6% Sufficient warehousing facilities 9.9% Good consolidation services 9.8% Reliable export packing services 8.5% Availability of heavy lift services 8.1% Enough marshalling area for cargo 8.0% Presence of bulk commodity terminal 5.5% Availability of cold storage services 1.7% Among the relative importance of types of ocean carriers to respondents, "scheduled liner service to major markets" received a weight of 28 percent, by far the largest weight given for this area of port consideration. 18. In a survey of 264 manufacturing firms based In the State of Illinois, (chosen for its heavy export volume from a centrally located area) American Seaport magazine (Amundsen Publications, Inc.) in early 1978 found the following: Predominant Criterion, Routing of Export/Import* Shipments No. of Percent Cr^te^ion Companies of Total Expeditious carrier and port service 79 30% Lowest through cost 74 28% Service & cost 58 22% Varies (diversified shipments) 53 20% That port costs are always a significant factor in selecting a routing involving an overseas point was reported by only 38 per- cent of the companies. The location of these shippers and their greater number of port selection options in terms of through cost of shipments may explain the somewhat heavier emphasis on cost in the Illinois survey. Port Usage Charges as a Segment of Through Cost An example of wharfage as a segment of through cost is graph- ically presented in Figure 5, relating to rates on motor wheel rims from Lansing, Mich, to Paris via the Port of Detroit. It is used in the AAPA Port Management Development Seminar in marketing presentations by Dr. John Hazard, Professor of Marketing and Trans- portation, Graduate School of Business Administration, Michigan State University, and it shows that for this shipment a wharfage expense of $24.00 at Detroit was slightly more than one-half of 1 percent of the freight bill of $4,295.60. Other examples are furnished by the Houston Port Bureau. These are the result of research done on OCP and Mini-Bridge rate cases before the FMC and since updated. They are shown here only for ♦Interestingly, Illinois shippers say they control the routing of 93 percent of import tonnage. Fig. 5 19. '■^ c'" + + iiil o r 4H OcdO en U CM ^ 5 5 ^ ^!^s • mr-r*. 1 1 1 OOO oooo OOVO csg OOO oo«n ^'ooc \C\xf\0\ C7S mmio cNr-cM .-^r^«d■ «g - 0) •»- -o o « " n c « _, CO ca tio 2 C D 2 :, 0) n c T V4 rt CO GU-I (0 ^-4 C ^^ 20. purposes of comparative identification of the wharfage charge in through cost. AUDIO EQUIPMENT I.E. RADIOS, PHONOGRAPHS, AMPLIFIERS, ETC. RATES EFFECTIVE MARCH 1, 1978 FROM JAPANESE PORTS TO KANSAS CITY, MISSOURI RATES IN CENTS PER 2.000 LBS . A 11 -Water to Houston Thence Rail COFC Evergreen Yangming $314.96 $299.94 OCP All-Water to Los Angeles Thence Rail COFC Beyond Ocean Rate Currency Surcharge Wharfage Drayage Rail Rate TOTAL 12.60 .90 (0.25%) 6.00 23t6Q $356.06 3.00 .90 (0.277o) 6.00 23.60 $299.96 36.00 2.60 (0.627.) 81.60 $333.44 $420.16 SYNTHETIC RUBBER, DRY IN BAGS FROM BAYTOWN, TEXAS TO JAPANESE PORTS RATES EFFECTIVE MARCH 1, 1978 RATES IN CENTS PER 2.000 LBS . Via Rail C/L to Los Angeles Thence OCP All-Water Beyond Inland Rate $55.86 Wharfage 2.60 (1.257o) Currency Surcharge 10.67 Terminal Serv. Chg. 5.44 Ocean Rate 133.33 TOTAL $207.90 Via Truck to Houston Thence All-Water (Evergreen) $3.75 .90 (1.187o) 71.43 $76.08 21. AIR CONDITIONERS (HOUSEHOLD TYPE) & PARTS FROM TYLER, TEXAS TO JAPANESE PORTS RATES EFFECTIVE MARCH 1, 1978 RATES IN CENTS PER 2.000 LBS . Via Rail C/L to Los Angeles Via COFC to Houston Thence OCP All-Water Beyond Thence All-Water (Evergreen) Inland Rate $ 55.86 $22.40 '^ Wharfage 2.60 (2.06%) .90 (0.99%) Currency Surcharge 4.57 Terminal Serv. Chg. 5.44 Ocean Rate 57.14 68.71 TOTAL $125.61 $92.01 A number of similar exai^ples could be mustered, but it seems clear from these that the premise of wharfage price in the shipper market is not a meaningful factor in the movement of general cargo. Among port interviews some pressure from commodity organiza- tions was reported on a port-by-port basis. These pressures, in- volving shipload quantities, closely resemble those applied by the Department of Agriculture on behalf of relief shipments immediately after World War II. They can only be dealt with by ports on a Marine Terminal Conference basis. The most cogent shipper argument that can be applied on a wharfage basis is that the charge may price the commodity (usu- ally a dry-bulk commodity) out of specific world markets. Such argtjments should be: Closely scrutinized as to documentation. Examined for more meaningful through cost alternatives, in view of the large volume of movement implied. Vessel Operator Considerations and the Dockage Charge As wharfage is evaluated from the standpoint of through cost for quantitative appreciation, dockage may be best given perspec- tive in terms of vessel voyage cost. 22. Data for a "new-type" C-3 has been obtained from MarAd as a recap of 131 voyages. The voyage cost reports are required of U. S.-flag carriers for deterrolnlng subsidy accruals under the operating-differential subsidy.* The data Is for the year 1975, during which the dockage charge per day for a vessel of this class was $485 as a national average among major ports. The voyage figures are as follows: RECAPITULATION OF LINE/SERVICE AVERAGE DAILY OPERATING COST OF SUBSIDIZED VESSELS VOYAGES TERMINATED DURING THE PERIOD JAN. 1 TO DEC. 31, 1975 ITEMS C-3(NEW) 1. Number of voyages 131 2. Number of voyage days 12,493 3. Number of voyage days at sea 6,311 4. % of sea days to total voyage days 51% 5. Total vessel operating revenue per voyage day $13,603 6. Total vessel operating expense per voyage day $12,943 7. Direct profit (loss) from vessel operations $ 659 8. 7. of direct profit (or loss) 2.82% 9. Vessel operating expenses per voyage day - 10. Wages - straight time $ 1,176 11. overtime $ 837 12. other $ 1,786 13. Total Wages $ 3,799 14. Subsistence $ 225 * Schedule 3002A Vessel Operating Statements submitted to MarAd under General Order No. 22. 23. RECAPITULATION OF LINE/SERVICE AVERAGE DAILY OPERATING COST OF SUBSIDIZED VESSELS - (continued) VOYAGES TERMINATED DURING THE PERIOD JAN. 1 TO DEC. 31, 1975 ITEMS C->3(NEW) 15. Stores, supplies and equipment $ 238 16. Repairs and other maintenance expenses $ 815 17. Fuel $ 2,362 18. Insurance - Hull $ 206 19. P & I $ 686 20. Other $ 21 21. Total Insurance $ 913 22. Charter Hire $ 23. Other vessel expense $ 54 24. Total Vessel Expenses per Voyage Day $ 8,406 25. Port Expenses per Voyage Day (includes Cargo Handling) $ 4,195 26. Brokerage expenses per voyage day (includes agency fees and commissions) info not available 27. Other Voyage Expenses per Voyage Day $ 343 28. Total Vessel Operating Expenses $12,943 Estimated Subsidy Accrual per Voyage Day $ 3,030 It seems clear from this data that a dockage charge of $485 per day if applied for the one-half of the voyage day spent in U. S. ports could not exceed 1.75 percent of the daily operating cost of the vessel. Given lesser dockage for non-working or idle status, time at anchorage awaiting berth, etc., this figure is probably substantially less. By way of contrast, a stevedoring cost of $8.50 to $9.50 a 24. ton, times 1,000 tons per day for 5 hatches, converts to an aver- age of $9,000 a day for a fully working vessel. In sum, that portion of port costs going to the public port agency for providing the berth is a minor percentage of total voy- age cost, and of port cost. It is doubtful, given good cargo offerings, that dockage is a meaningful factor in the attraction of vessels to a port, or in diversion therefrom. Containership Operations and Port Costs Containership operation varies from full leasing of a ter- minal by an operator or consortium of operators, to operation by the port authority on an open berthing basis. Typical types of arrangements are enumerated in a recent AAPA report* as follows: Container Terminal Operating Practices Number of Ports Number of Terminals Berth Use Leased to or Preferential Use by Steamship Line Leased to Terminal Operating Company Port Authority Operation first-come-first-served Cranes Provided by Port Authority-lease or tariff Carrier or Terminal Operator Present Planned 27 33 35 24 12 9 7 3 16 35 12 24 16 16 19 35 4 20 Container Storage and Assembly Areas (planned terminals only) Transit Marshalling Areas Areas Exclusive use (lease) Preferential use (fee) First come-First served Undetermined 8 8 10 1 5 7 13 1 As noted in Chapter IV, there is a wide variety in the assess- ment of container wharfage on a tariff basis under port authority * Committee II: Research, 1977. 25. operation. There Is also a number of methods by which dockage Is assessed against the vessel. These are also discussed in Chapter IV, as are pricing factors. As regards outright lease of the container terminal, the pricing of the lease rental does not appear to be significant to port selection from the standpoint of very large operators in contrast to such overriding considerations as: That percent of the local market (port through-put) that can be captured (as at least 15%, or 10% of the container market) . Vessel deployment into optimum service patterns consider- ing a very high vessel expense. A large operator of this kind will not call on tariff rates, but seeks continuing arrangements imder full amortization type leases. One such operator reports that terminal lease expenses (rentals only) account for only 4 percent of the company's oper- ating expenses on a worldwide basis. In this kind of an operating pattern it may occasionally be to the advantage of the line to close down a terminal and to truck containers to another nearby port in the interests of vessel de- ployment, continuing to absorb the lease payments in the process. Thus the weight of the port pricing factor becomes incidental in the port selection process. Price Adjustments and the Market Place In practice, against the foregoing background, little diffi- culty has been encountered in port price adjustments under pro- grams which are objective, orderly and organized. Principal ele- ments of such a program are: 1. Pricing should be collectively approached by the con- ference method. As practiced in the U. S., this is voluntary and a port may go its own way as it chooses, on given items. The objective should be to elevate the entire structure of coastal rates. 2. Increases should be made at regularly fixed intervals, such as on an annual basis. 3. Increases should be of manageable size. The practice 26. of delaying an Increase until it is necessary to call for a sizable one creates shock situations in the trade and needless difficulty. 4. There should be ample notice of the increase. 5. There should be justification for the increase so that it can be defended on rational grounds as necessary. 6. There should be a mechanism for receiving and handling legitimate grievances. 27. CHAPTER IV DOCKAGE AND WHARFAGE The principal usage type charges applied by United States ports are dockage, generally defined as a charge for the use of a wharf by a vessel; and wharfage, a charge assessed against cargo passing over the wharf. Both charges are solely for use of the wharf and do not include charges for any services. Other usage charges are discussed in Chapter IX. Dockage Pricing Practices With few exceptions (as noted below) the pricing of dockage charges relates to the physical size of the vessel using the wharf. The unit of price is the day (or 24 hour period) , the total charge for dockage being the number of days occupancy of the berth multiplied by an expression of the vessel's size as a monetary unit. Vessels are sized for dockage purposes in a variety of ways in the respective coastal areas, but there is uniformity within each area. As to the sizing basis there are three kinds of ap- proaches used, these being: Gross Registered Tonnage (GRT) of the vessel, a method com- mon to the Gulf, South Atlantic, and Great Lakes port areas. Net Registered Tonnage (NRT) of the vessel, a method common to the North Atlantic area. Length Over All (LOA) of the vessel, a method common to the Pacific Coast port area. There is some variation within each area, and some optional employment of two methods (for example, GRT or LOA, whichever yields the greatest revenue) . This and other variations in appli- cation are evident in the following discussion. 28. Advantages and Disadvantages, GRT. NRT. LOA \ Port Tariffs in general refer to Lloyd's "Register of Ships" as the authority for the sizing of the vessel, but also contain a clause reserving the right to admeasure any vessel as the basis for the dockage charge. Gross Registered Tonnage This measure is the capacity in cubic feet of the spaces within the hull and of the enclosed spaces above the deck avail- able for cargo, stores, passengers, and crew (with certain excep- tions) divided by 100, Thus 100 cubic feet capacity is equiva- lent to 1 gross ton. Gross tonnage is measured according to the law of the national authority with which the ship is registered. In applying GRT as a dockage determinant, typical tariff language may be: "All vessels., .receiving or discharging cargo...: Five cents (5c) per gross registered ton for each twenty four (24) hour period or fraction thereof." A variation of GRT dockage assessment is used by nine ports in the Gulf range. This involves reducing the' rate per GRT on successive days, as: "Five cents (5c) per gross registered ton of vessel.. . .1st day Five cents (5c) per gross registered ton of vessel.. . .2nd day Four cents (4c) per gross registered ton of vessel for the third day and each day thereafter." Other combinations of this kind of reduction by cents/day/ GRT are: 5-4-4-3-1 5-4 5-4-3-2-1 4-3-2-1 8-5 5-5-4-4 4-3 29. In some instances the schedule repeats itself after a given number of days (21, for example). The reducing scale probably derives from the regional char- acteristics of vessel traffic, A Port of Houston study for the years 1963/67 involving more than 8,000 vessels showed an aver- age of 3 days in port per vessel call. As a practical matter re- turns from these rate patterns are concentrated in the first few days of the descending scale. Gross Registered Tonnage is, from the point of view of the port, a reliable index of vessel size in terms of space occupied at berth in all three dimensions: length, beam, and draft. Thus it bears a direct relationship to the investment in the port fa- cility as regards length of berth, width of slip, depth of water, breasting forces, square footage of cargo space used, and the like. With one exception it is an uncomplicated base. The excep- tion is in the form of dual tonnage marks for some vessels. Under amended regulations now in force in some countries there is, in simple terms, a shallow loading of the ship to a "tonnage mark", in which case the upper 'tween-deck spaces are not included in the GRT measurement; or a deeper draft loading to another Load- line Mark, in which case the upper 'tween-deck spaces are in- cluded in the GRT tonnage. For administrative purposes some tariffs overcome this ambiguity with language such as; "Where two gross tonnages are assigned to certain vessels in association with a Tonnage Mark on the vessel's sides, the higher figures shall be applicable in determining gross tonnage for the purpose of assessment of charges under this tariff." Example : At a dockage rate of .05 per GRT day the follow- ing difference applies for the same vessel: Load line GRT 9,397 x $.05 = $469.85/day Tonnage Mark GRT 6,525 x $.05 = $326.25/day Difference in Dockage Rate $143.60/day In the assessment of dockage charges, GRT of the vessel is a good pricing tool. It yields proportionate return as the size range of vessels increases. It breaks down, however, in the lower quadrant of vessel size, permitting small vessels dockage 30. rates disproportionately less than the space occupied. For this reason GRT is used in combination with LOA (South Atlantic) , on the premise of whichever measurement yields the greater revenue. Such tariff language typically reads: "Dockage will be conq>uted on the basis of highest gross ton or overall length as published in the current 'Lloyd's Register of Shipping*,* whichever produces the greatest revenue. In a smaller vessel the LOA will always take over as the applicable measurement, as: Example : At a dockage rate of $.08/GRT/day or $1.26/lin. ft. /day, the following difference applies for the same small vessel: LOA 146*2" X $1.26 = $184.21/day GRT 313 X $ .08 = $ 25.04/day Difference in Dockage Rate $159.17/day It is obvious that GRT does not result in a rational rate in the above instance of the small vessel. Comparisons on ships of larger scale are as follows: Example : At a dockage rate of $.08/GRT/day or $1.26/lin. ft. /day, the following applies for a break-bulk cargo vessel: GRT 9,475 x $ .08 = $758.00/day LOA 494*8" X $1.26 - $623.27/day Difference in Dockage Rate $134.73/day Example : At a dockage rate of $.08/GRT/day or $1.26/lin. ft. /day, the following applies for a container ship: GRT 16,111 X $ .08 - $l,288.38/day LOA 571*8" X $1.26 = $ 720.29/day Difference in Dockage Rate $ 568.09/day * Many tariffs refer to the Register of Ships as the "Register of Shipping". 31. Thus, GRT holds up well in those ranges of ship sizes more typical of oceangoing vessel traffic. Ports enjoying more than occasional traffic in smaller conmercial vessels and using GRT exclusively as a pricing tool may wish to consider a realistic minimum charge for dockage or employ the length alternative. Net Registered Tonnage Net tonnage is derived from gross tonnage by deducting spaces used for the accommodation of the master, officers, crew, naviga- tion, propelling machinery, and fuel. Accordingly, it is a direct expression of the cargo carrying capacity (or earning capacity) of the vessel. Net tonnage is the oldest form of measurement in terms of port charges, having its origin in the days of the trading ves- sel when it was customary for the vessel to sail at that time when a full cargo had been accumulated. In the United States its use is confined to six North Atlantic port centers, where it is preserved by long custom, terminal operating practices, and trade influences. One Great Lakes port center uses NRT as well. An even more direct use of vessel earning capacity is used for dockage pricing at New England ports where dockage is levied in terms of tons of cargo loaded or discharged by the vessel. The aim is to keep vessel traffic to and from nearby New York competitive with truck con^etition. These are the only excep- tions found to the use of vessel dimension as the basis for dockage pricing. While NRT tracks well with GRT (the ratio is quite constant as vessel size increases from medium to large in dry cargo ves- sels) it has several disadvantages as a port pricing tool: Like GRT it breaks down in the smaller vessel range in terms of rational pricing; It is susceptible to manipulation in shelter-deck type vessels wherein certain removable type bulkheads and hatches may be used to temporarily lower the net tonnage of the vessel. That cargo is sometimes visible in the areas thus opened is an abuse that caused substantial shift away from NRT by U. S. ports during the late 1960s; An argument may be made that NRT is a less valid expres- sion, in a functional sense, of any of the dockage bases used, considering the purpose of the charge. It is a less direct expression of the size of the vessel. 32. Tariff language is used to overcome the first two disadvan- tages. One North Atlantic port using NRT as a base moves to a LOA base for smaller vessels (less than 5,000 NRT). Another specifies: "Dockage will be assessed against the vessel... on the basis of the highest net registered tonnage of the vessel..." (enq>hasis supplied) A specific disadvantage if using either gross or net ton- nage as a dockage basis arises in Ore/Bulk/Oil (OBO) carriers. For OBO's the "Register of Ships" will specify two gross and two net tonnages as available, thus complicating the task of appli- cation of charges. Length Over All Advocates of LOA as a base for dockage pricing recognize it as an exact expression of that which they are providing the vessel (a length of docking space) , but their primary advocacy goes to the constancy of LOA as charges are administered. In short, the length of the vessel does not change regardless of loading condi- tions or compartmentation. It is not arguable. LOA has been noted previously as common to the Pacific Coast, where it is universally used. Several Gulf ports use LOA, with another having the measure under active consideration. It is used supplementarily in other areas to overcome the shortcomings of other measurement bases, as previously referred to. The shift to LOA from the mid-1960s to date is indeed a trend that sparked a new departure in tariff application by public ports in terms of responsiveness to trends and developments in marine transportation. A shortcoming of LOA cited by a few practitioners is that variety in vessel conformation may promote inequities. Great Lakes ore carriers (of extreme length in relation to beam and depth) are the most commonly used example. Tanker conformations in the smaller range are also mentioned. Application of LOA as a Dockage Base . When used exclusively as a base for dockage charges. Length Over All offers the advan- tage of proportioning the rate in relation to vessel size. In practice vessels are bracketed in groups by length, and a sliding scale is applied to each bracket bringing to bear an increasing charge per foot for larger vessels, (see Fig. 6) 33. Fig. 6 - Example of sliding scale based on LOA FULL DOCKAGE Dockage charges shall be assessed against all vessels in all trades at the full dockage rates provided in this Item, except as otherwise provided in this Tariff. Full dockage rates shall be as follows: OVERALL LENGTH OF VESSEL ♦Charge Per 24-Hour Day IN FEET tIN METERS or Fraction Over But Not Over Over But Not Over Thereof -Q- loo 0.00 30.4S $ 34.00 100 150 30.48 45.72 48.00 150 200 45.72 60.96 65.00 200 300 60.96 91.44 158.00 300 350 91.44 106.68 222.00 350 375 106.68 114.30 275.00 375 400 114.30 121.92 304.00 400 425 121.92 129.54 337.00 425 450 129.54 137.16 374.00 450 475 137.16 144.78 404.00 475 500 144.78 152.40 443.00 500 525 152.40 160.02 503.00 525 550 160.02 167.64 540.00 550 575 167.64 175.26 587.00 575 600 175.26 182.88 652.00 600 625 182.88 190.50 744.00 625 650 190.50 198.12 865.00 650 675 198.12 205.74 984.00 675 700 205.74 213.36 1.110.00 700 725 213.36 220.98 1.286.00 725 750 220.98 228.60 1,472.00 750 775 228.60 236.22 1,667.00 775 800 236.22 243.84 1,873.00 800 850 243.84 259.08 2,152.00 850 900 259.08 274.32 2,449.00 900 950 274.32 289.56 2.759.00 950 1,000 289.56 304.80 3,085.00 .000 1.050 304.80 320.04 3,433.00 .050 1.100 320.04 335.28 3,798.00 ,100 1,150 335.28 350.52 4.183.00 ,150 1,200 350.52 365.76 4,583.00 ,200 1,250 365.76 381.00 5,006.00 ,250 1,300 381.00 396.24 5.443.00 ,300 396.24 5443 plus 445 cents per lineal foot. t(.3048 meters) or fraction thereof, over 1.300 lineal feet t(396.24 meters). Provided that: (a) In the event the resulting charge for over 1,300 feet or t396.24 meters is not an even' whole dollar, the charge shall be rounded to the next nearest whole dollar. 34. Taking three vessels as per previous examples, the following applications would apply: Small Vessel 146 '2" LOA $48.00/day $0.328/ft. Break Bulk Vessel 494'8" LOA $443.00/day $0.886/ft. Container Ship 571*8" LOA $587.00/day $1.021/ft. A curve illustrative of the cost per foot as a function of vessel length appears in Figure 7. Ports interested in conver- sion to LOA as a dockage base are reminded that ships in the range of 600 to 900 feet spend proportionately little time at berth if they are containerships , although loading and unload- ing major amounts of cargo. The acceleration of the curve through those sizes should reflect a high-gain effect in view of the im- pact on terminal space. Comparative Levels of Dockage Because of the different bases used, as discussed above, it is difficult to compare dockage rate levels on a regional or port-by-port approach. This has been attempted in the pages following by using the device of running the characteristics of a break-bulk vessel through the various dockage formulas. A containership in the lesser size range is also run through the formulas of selected major ports. It is apparent from these runs that dockage levels carry strong regional influences deriving from long custom and the type of trade being served. Competitive factors are noted within regions, principally attempts to use the charge to amel- iorate other factors such as the relative accessibility of the docks because of steaming time, or locks or tortuous channels to be negotiated. Caution should be used in evaluating the runs on any com- parative basis. In several regions the charge is administered in context with other charges or rates, or in context with vessels of higher earning capacity. 35. oo6v 006 CX>9 IT 00^ COir OOL ^ CXS 003 A^a -^-Bci :^SiCfck 5i3c6 s^vnoQ 00 § 8 % 36. Comparative Levels of Dockage (1977) As applied to a C-3 vessel: CRT 9475; NRT 5853; LOA 494'8" (Where charge per day reduces on successive days, an average per day over 4 days is used as the daily rate) Charge Basis No. of Ports per Day $819 Usine North Atlantic NRT $790 NRT $758 GRT/LOA $644 NRT $379 GRT $351 NRT varies NRT South Atlantic $758 GRT/LOA $474 GRT/LOA $379 GRT Gulf $568 GRT $568 GRT/LOA $545 GRT $495 GRT/LOA $474 GRT $447 LOA $426 GRT $403 GRT 37. Comparative Levels of Dockage (1977) (continued) As applied to a C-3 vessel: GRT 9475; NRT 5853; LOA 494 '8" Charge per day $402 Basis LOA No. of Ports Usine Gulf (cont'd) $379 GRT 1 - $332 GRT $308 GRT $237 GRT South Pacific $443 LOA 10 Pacific Northwest $443 LOA 2 $424 LOA 9 Great Lakes $474 GRT 1 $440 GRT 1 $379 GRT 1 $284 GRT 2 $236 GRT 2 $234 NRT 1 $189 GRT 2 $143 LOA 1 $161 NRT 1 Notes: In instances where GRT/LOA appears, the basis yielding the greater revenue is used, as per tariff. In Great Lakes charges there are several instances of different dockage rate within the same port for public or private terminals. Each different rate is reflected above. / 38. Comparative Levels of Dockage (1977) Container Ship As applied to a container ship: CRT 16111; NRT 9852; LOA 571 '8" Charge per Day North Atlantic $1,234 (Avg. of three ports) South Atlantic $1,289 (Avg. of four ports) Gulf $ 752 (Avg. of four ports) South Pacific $ 587 (Avg. of four ports) Pacific Northwest $ 570 (Avg. of three ports) Great Lakes N/A Dockage Minimums The minimum charge for dockage at United States ports varies widely. It is applied per vessel or per day. The minimum seems to bear no particular relationship to the previously discussed weakness of GRT and NRT in the small vessel ranges, but does be- come important in contalnership operations at major ports involv- ing very high usage of the berth over vessel calls measured in hours rather than days. Dockage minimums at various port areas run as follows: Minimum Charges for Dockage North Atlantic Charge No. Usi of Ports ng $450.00 1 $400.00 1 $250.00 2 $100.00 1 not published 5 Mlnlmua Ctutrget for Dockage (cont'd) Charge South Atlantic $ 50.00 $ 35.00 $ 30.00 $ 29.23 $ 22.00 $ 3.00/day or $.20/ft./day not published 39. No. of Ports Using Gulf $300.00 $100.00/day $ 50.00/day $ 30.00/day $ 22.00/day $ 20.00 $ 10.00/day $ 5.00 not published South Pacific 24-hour rate not published 40. Minimum Charges for Dockage (continued) Pacific Northwest Charge No, of Ports Using 24 -hour rate 3 24-hour rate (12-hr. under 300') 1 24-hour rate (Lash only) 1 not published 6 Great Lakes $150.00 $ 50.00 $100.00/day 1 $ 30.00/day 1 not published 9 Demonstrated in the above pattern is that a majority of ports (more than half) do not publish a minimum charge for use of a berth by the vessel, collecting dockage on that fraction of the 24-hour rate period during which the berth is occupied. Local patterns of vessel traffic and the incidence of fractional-day usage should be reviewed as indicated to determine if a rational minimum charge ought to be established. Miscellaneous Dockage Charges Other dockage charges are published by the majority of port entities to include such classifications as: Lay Status Idle Status Inactive Status Non-self propelled vessels Passenger vessels 41. Because the thrust of this report goes to the general cargo ship in working status, these phases or kinds of dockage charges are not explored, with the following exception. Dockage Charges for LASH/Seabee Traffic Barge/ship intermodalism represents a technological impact upon port pricing practices, and charges specifically identified as being for this type of barge or lighter appear in many tariffs. Because the barges are LASH Seabee 61'6" 97'6" long long it is presumed that unless specifically noted as having a charge, they would fall under dockage generally applied to barges and non-self propelled vessels under the appropriate lineal charge if served. Methods of Pricing for LASH/Seabee Dockage The following regional practices apply to LASH/Seabee barges, and ships where specified rates apply: North Atlantic LASH Barge Dockage $39.68/day $20.00/day $20.00/day working $10.00/day idle No. of Ports Using 1 1 2 $11.00/barge LUL cargo $16.50/barge when LUL on/off vessel $10.00/day General barge rates apply (No LASH rate published) South Atlantic $30.00/day $23.00/day 42. Methods of Pricing for LASH/Seabee Dockage (continued) South Atlantic (eonfd) LASH Barge Dockage $10.00/lst day; $8.80/day 2 & 3 day; $6.60/day, 4 thru 8 days. Sched. re- peats Fleeting Area ; $3.68/day if LUL in port; $5.25/day if LUL other port. LASH vessel LUL barges : 4C GRT/day; 64c lineal ft., whichever greater revenue. N/C for barge dockage if LUL on/off LASH vessel in port. $25.00/day if elsewhere. Fleeting Area ; $4.00/day LASH vessel LUL barges ; 4C GRT/day $1.00/day when transporting vessel pays dockage. LASH vessel LUL barges ; 2c GRT/day General Barge rates apply (No LASH rate published) No. of Ports Using Gulf General barge rates apply (No LASH rate published) General barge rates apply 13 1 Fleeting area ; Supplemental harbor fee of 48o ton cargo handled. (Not applicable when vessel docked) General barge rates apply LASH vessel LUL barges ; 50% regu- lar dockage 43. Methods of Pricing for LASH/Seabee Dockage (continued) Gulf (cont'd) LASH Barge Dockage No. of Porta Using General barge rates apply in port. Transit fee for barges LUL cargo elsewhere: $5/barge under 75* (LASH) $7.50/barge 75-100* (Seabee) General barge rates apply Fleeting area : $4.00/day LASH vessel LUL barges : 3c/GRT/each voyage South Pacific $28.66/day LUL $ 6.61/7 days standby General barge rates apply $ 4.20/7 days standby General barge rates apply (No LASH rate published) Pacific Northwest $29.90/day $29.90/day LUL $ 6.90/7 days standby $28.66/day LUL $ 6.61/7 days standby $ 5.29/day LUL $ 5.29/day standby General barge rates apply $ 6.61/7 days standby General barge rates apply (No LASH rates published) Great Lakes No traffic this item 44. There seems to be little uniformity in the treatment of LASH/Seabee dockage. Some advantage is given to barges when loading or discharging if they in turn are loaded or discharged to or from the mother ship in the port. Wharfage Pricing Practices To repeat, wharfage is a charge assessed against cargo moving across a wharf. The charge is solely for the use of the wharf and does not include charges for any services. The com- mon practice is to bill the charge to the vessel, or its owners or agents, who in turn assess the cargo owner or shipper. The wharfage charge is described in tariff language as: "A charge assessed against the merchandise, calculated in accordance with the charges named in this tariff for the passage of that merchandise onto, over, through, or under wharves or wharf premises, or between vessels or overside vessels (to or from barge, lighter, or water) when berthed at wharves or wharf premises, or when moored adjacent to a wharf or wharf premise. Wharfage is solely the charge for use of wharves or wharf premises and does not include charges for any service or facility." The charge is assessed in accordance with a schedule of rates for various commodities. In some coastal areas there is further differentiation as to whether cargo is export or import, or intercoastal or coastwise. For purposes of this report the cargo classification "N. 0. S." is being used, it being for cargo items "not otherwise specified" (in the commodity sched- ule of wharfage rates). The N. 0. S, rate is what is commonly used in the trade in reference to the wharfage rate of a given port. It shows no differences as between export, import, coastwise or intercoastal status of cargo in any of the port tariffs in which such breakdowns appear. The rate for wharfage is given in cents per ton of 2,000 lbs. in some port regions, or in others it may be given in cents per ton of 2,000 lbs. or 40 cubic feet, whichever yields the greatest revenue, "according to the vessel's manifest", or "as freighted". This method adds a space-occupied factor for cargoes of light density plus obvious rebilling advantages. A few ports carry density rates bracketed at 80 or 120 cubic feet. 45. A number of individual ports give the wharfage rate in terms of cents per 100 lbs . (cwt) . This is probably a carry-over from railroad practice and former absorptions of this rate. Several ports once using this method are noted to have converted to the short ton rate in recent years. Comparative Levels of Wharfage The basic wharfage rate applied by ports varies widely by region, showing a definite relationship as between the level of the rate and whether it is a collectively made rate for the re- gion. There are competitive shadings within regions. While no search of specific commodity wharfage rates was made, there are known to be "sacred cows" on a commodity basis as this rate is considered on a marine terminal conference level. Comparative Levels of Wharfage (1977) N. 0. S. Rates North Atlantic Charge per ton Basis No. of Ports Using $1.10 Net Ton 1 $1.00 Net Ton 1 $1.00 $ .70 Net Ton Meas. Ton (Cargo in excess of 80 cu. ft. /ton) 1 $ .95 $ .87 $ .71 Net Ton Meas. Ton (Cargo 40 to 120 cu. ft.) Meas. Ton (Cargo in excess of 120 cu. ft. /ton 1 $ .85 Wt./Meas. Ton Whichever yields greater rev. . 1 $ .80 Net Ton 2 $ .60 Wt./Meas. Ton Whichever yields greater rev. 1 $ .25 (ton) .0125 cwt 1 46. Comparative Levels of Wharfage (1977) N. 0. S. Rates (Cont'd) Charge per ton $1.10 Basis No. of Ports Usine South Atlantic Net Ton 7 $ .70 Net Ton 1 $ .60 Net Ton 1 $ .50 Net Ton 2 Gulf $ .90 Net Ton 1 $ .75 Net Ton 2 $ .70 Net Ton 4 $ .70 (ton) .035 cwt 2 $ .66 Net Ton 1 $ .60 Net Ton 1 $ .60 (ton) .03 cwt 2 $ .55 Net Ton 2 $ .55 (ton) .0275 cwt 1 $ .45 (ton) .0225 cwt 1 South Pacific $2.60 Wt/Meas. Ton Whichever yields greater rev. 8 $2.05 Wt./Meas. Ton Whichever yields greater rev. 1 $1.90 Wt./Meas. Ton Whichever yields greater rev. 1 47. Comparative Levels of Wharfage (1977) N. 0. S. Rates (Cont'd) Charge per ton Pacific Northwest $2.60 Great Lakes $2.60 $1 .10 $ .75 $ .50 $ .40 $ .40 $ .35 $ .30 $ .20 $ .20 $ .15 Basis No. of Usinfi Ports Wt./Meas. Ton Whichever yields greater rev. 8 Net Ton 3 Net Ton 1 Net Ton 1 Gr. Ton (2,240 lbs.) 1 Net Ton 1 Gr. Ton (2,240 lbs.) 1 Net Ton 2 Wt./Meas. Ton "as freighted" 1 Net Ton 2 Wt./Meas. Ton "as freighted" 1 Net Ton 1 Notes: At some Great Lakes ports some portion of wharfage is included in stevedoring rates by private terminal operators. New York was not included in the North Atlantic wharf- age levels. The Port Authority tariff shows a rate of $.35/ton. Many operators include wharfage with steve- doring rates. 48. Container Wharfage - Comparative Levels Wharfage charges on containers show wide variety In rate level and In the basis of application, whether by the box or by the ton; and If the latter, whether the rate Is for contents only or Includes the weight of the box. Wharfage on empties Is also handled In a number of different ways. Some major contalnershlp operators do not get Involved In tariff rates, preferring a flat annual lease type arrangement on an amortization basis.* Therefore the tariff rate applica- tions shown apply only to that portion of the total container tonnage served by porta handling this traffic on open or assign- ment basis, and/or handling combination ships, RO/RO traffic, and the like. The extent of that portion Is not known. Crane rental, storage, and demurrage rates together with receiving and delivery rates and other operational charges are balanced with wharfage rates for containers, a factor which should also be considered In reviewing container wharfage dif- ferences. Crane rental rates are considered to be an Important competitive factor. There Is a definite Interest In charging "by the box" among port executives Interviewed In connection with this study. It Is predictable that container wharfage Is moving In that direction In areas where this does not already apply. Container Wharfage - Comparative Levels (1977) Loaded 20' 40 • Basis Box Empty 20' 40' $7.00 No. of Ports Using North Atlantic $11.00 $14.00 $7.00 1 $ 6.00 $12.00 Box $6.00 $12.00 1 $ 5.00 $10.00 Box $5.00 $10.00 1 $ 1.10 $ 1.10 Ton (Con- tents only) Not published 1 * Wharfage and dockage tariff rates are applied In long term annual rental type leases of the Pacific Coast ports, subject to mlnlmums and maximums agreed to In the lease. 49. Container Wharfage - Comparative Levels (1977) Loaded Basis Empty No. of 20* 40' 20* 40' Ports Using North Atlantic $ 1.05 $ 1.05 Ton (Box $1.05 $1.05 (cont'd) & contents) ton ton $ 1.00 $ 1.00 Ton (Box $1.00 $1.00 & contents) ton ton $ 1.00 $ 1.00 Ton (Con- $1.00 $1.00 tents only) ton ton Not published Not published South Atlantic $ .85 $ .85 Ton (Con- n/c n/c 7 tents only) $ .70 $ .70 Ton (Box $ .70 $ .70 1 & contents) $ .60 $ .60 Ton (Box $ .60 $ .60 1 6e contents) $ .50 $ .50 Ton (Box $ .75 $1.25 1 & contents) Gulf $ .90 $ .90 Ton (Con- $ .90 $ .90 1 tents only ton ton Commod- Ton (Con- $ .75 $ .75 1 ity rates tents only) ton ton $ .75 $ .75 Ton (Con- n/c n/c 1 tents only) $ .70 $ .70 Ton (Con- $1.00 $1.00 1 tents only) box box $ .60 $ .60 Ton (Con- $1.10 $2.20 1 tents only) ton ton 50. Container Wharfage » Comparative Levels (1977) Loaded Basis Empty No. of 20' 40' 20' 40' Ports Using Gulf $ .60 $ .60 Ton (Con- $ .60 $ .60 1 (cont'd) tents only) ton ton $ .55 $ .55 Ton (Con- $ .55 $ .55 1 tents only) ton ton $ .55 $ .55 Ton (Con- n/c n/c 1 tents only) $ .55 $ .55 Ton (Con- n/c n/c 1 tents only) When handled with ship's gear. Otherwise wharf- age included with LUL rate. Commod- Ton (Box Not published 1 ity rates & contents) Container wharfage not published 5 South $ 2.60 $ 2.60 Ton (Wt. or $4.14* $8.28* Pacific Meas.) Box Box $ 2.60 $ 2.60 Ton Wt. or $1.04 $1.04 Meas.) Ton (Wt. or Meas.) $ 2.60 $ 2.60 Ton Wt. or $4.00* $8.00* Meas . ) Box Box $ 2.60 $ 2.60 Ton (Wt. or $4.14 $8.38 Meas . ) Box Box $41.40 $82.80 Box** $4.14 $8.28 Box Box $17.25 $28.75 Box n/c n/c *At some ports does not apply on SS /owned empties shipped free of freight charges. **Applies only when containers are loaded through- out movement across terminal. 51. Container Wharfage - Comparative Levels (1977) Loaded 20' 40' Pacific NOS or Commodity Northwest rates apply Commod- ity rates NOS rates NOS rates Basis Empty 20' 40' $10.35 No. of Ports . Using Ton $5.15 1 Ton $3.39 box $6.75 box 1 Ton (Con- tents only) $3.22 ton $3.22 ton 1 Ton (Con- tents only) $2.60 ton $2.60 ton 2 Great Lakes Container wharfage not published Container wharfage not published 6 14 Notes: That no specific container wharfage rates are published may be taken to mean that the traffic is moving under application of NOS or commodity rates. Major Pacific Coast ports apply a box rate by length when weight and measure of cargo is not available. As with LASH/Seabee dockage, there is little uniformity in the application of container wharfage charges even in some of those coastal areas in which there is well organized Section 15 rate consideration accompanied by container traffic in good volume . Rate Levels for Dockage and Wharfage The central finding of the Freas Study of 1948 was that wharfinger operation by California ports was a losing proposi- tion. A number of other types of activity, principally back- land leasing, were producing sufficient revenue to offset wharf- inger losses to one degree or another. Although the California situation was the only one costed out, the condition was known 52. to apply nationally under the severely depressed rate structure applying to usage of marine terminal facilities by the trade. After a 30-year interval that situation remains substantially unchanged. While the development of capital intensive marine ter- minal operations has developed a newer market for long term leas- ing of port facilities, these and other lease revenues have con- tinued to cross-subsidize depressed tariff rates which have not kept pace with costs. That the primary segment of cost involved relates to the older break-bulk terminals, which are increasingly expensive to maintain, adds a dimension to the problem. Prior to 1968 the level of dockage and wharfage rates at United States ports remained relatively static. During the two decades between 1948 and 1968 occasional attempts to change a long dormant rate on a unilateral or regional basis are remembered as highly traumatic events. Impacts discussed in Chapter I have resulted in a rapidly changing picture during the period 1968/77, as evidenced by Figures 8 and 9. These exhibits are the result of a review of major port tariffs for the period, and they show an increasing rate of upward adjustment.* However, coII^>arison with recognized price indices reveals that on balance the tariff rates have simply kept pace with the inflation rate, meaning that there has been no net gain to speak of in the historically negative revenue/cost relationship applying to marine terminal usage by ships and by cargoes. Recent applications of the CAPA cost formula and the NWbfTA cost formula continue to show substantial shortfalls. On a national basis, most port managers questioned as to appropriate rate levels on a remunerative basis say a doubling of current rates would achieve this objective. A lesser group cites a 50 percent figure. At the fringes, needs of tripling or of 25 percent are mentioned. The age and condition of the facili- ties and the amount of traffic they carry are the determinants. * The lesser ports of the various coastal ranges show fewer and smaller increases in rates according to tests made on historic performance. Exceptions are in those areas in which all participate on a conference basis. 53. Fig. 8 - DOCKAGE CHARGES (Vessel of 9,475 GRT; 494'8" length; 5,853 NRT) No. of Coastal Area 2 Avg. Chg. per day 7oIncrease Rate Increases ^ 1968 1977 (1968=100) 1968/72 1973/77 NORTH ATLANT. (Bost, Phila, Bait, Norf) $374 $648 173% 8 11 SOUTH ATLANT. (Wilm, Char, Savan, Jax) $386 $758 1967o 7 24 GULF (Tampa, Mob, N. Orl, Houst, Galv) $230 $426 185% 7 7 PACIFIC (Los Ang, Long Bea, San Fran, Oak, Portl, Sea) $136 $440 324% 22 24 AVERAGES (National) $282 $568 201% 44 66 (40%) (60%) INDUSTRIAL GOODS PRICE INDEX 196% (July, 1977) CONSTRUCTION COST INDEX (1977) 224% ("Engineering News Record" 20 cities) Notes ; 1. Total of individual increases among the ports mentioned. 2. Great Lakes not included. See Chapter VII. 54. Fig. 9 - WHARFAGE CHARGES (NOS) (Per ton of 2,000 lbs.) Coaaf 1 Are*^ Ayg. Chg. per ton 7» Increase 1968 1977 (1968-100) $.50 $ .99 HORTH ATLANT. (lost, Phlla, l«lt, Norf) SOUTH ATLANT. (Wilm, Char, Savan, Jax.) GULF (Tampa, Mob, N. Orl, Houst, Galv) PACIFIC (Los Ang, Long Bea, San Fran, Oak, Portl, Sea) $.45 $1.10 $.36 $ .70 $.97 $2.60 1987. 2447. 1947. 2687, No. of Rate Increases ^ 1968/72 1973/77 7 12 10 18 13 8 23 AVERAGES (National $.57 $1.35 2367. 30 66 (317.) (697,) INDUSTRIAL GOODS PRICE INDEX (July, 1977) 1967o CONSTRUCTION COST INDEX (1977) 2247. ("Engineering News Record" 20 Cities) Notes : 1. Total of individual increases among the ports mentioned. 2. Great Lakes not included. See Chapter VII. 55. CHAPTER V COLLECTIVE APPROACHES TO PORT PRICING The ability of groups of ports collectively to discuss their rates and charges with immunity from violation of anti- trust statutes stems from Section 15 of the Shipping Act of 1916 which provides, in part: (emphasis supplied) "That every common carrier by water, or other person sub - ject to this Act , shall file inmediately with the Commis- sion a true copy... of every agreement with another such carrier or other person subject to this Act... fixing or regulating transportation rates or fares; giving or re- ceiving special rates...; controlling, regulating, pre- venting, or destroying competition; .. .or in any manner providing for an exclusive. . .cooperative working arrange- ment. . ." Section 1 of the same Act provides, in part, that: "The term 'other person subject to this act* means any person not included in the term 'common carrier by water*, carrying on the business of .. .furnishing wharfage, dock, warehouse, or other terminal activities in connection with a common carrier by water." Thus the Marine Terminal Conference, commonly referred to as a "Section 15 Agreement", is a close relative of the Steam- ship Conference. Eugene P. Stakem, Chief, Office of Domestic Commerce, Federal Maritime Commission, has provided the follow- ing definition: " Marine Terminal Conference - a group of two or more ports and/or terminal operators who have associated themselves under a section 15 agreement approved by the Federal Mari- time Commission (FMC) which authorizes the parties to dis- cuss and agree upon marine terminal rates, rules, regula- tions and practices. The agreement generally provides for formation of committees, scheduling of meetings, voting re- quirements and other procedures for the conduct of business 56. within the association. The association or its individual members must file tariffs with the FMC setting forth marine terminal rates, rules and regulations applicable at their facilities. Such associations are also required to file minutes of meetings and establish procedures for hearing shippers' requests and con^laints . " The Federal Maritime Commission cannot prescribe rate levels. Marine terminal conference members may properly be said to be engaged in a form of self-regulation in their collective ap- proach to rate making. The Commission's regulatory role is that of requiring corrective action in instances found to constitute violations of the Shipping Act; that is, found to be unlawful, unfair, discriminatory, or prejudicial. The large benefit of this form of self-regulation is of course the stability of rates over a port region, protecting individual members of the conference from user pressures and the playing of one port against another. Other advantages apply such as: Uniform definitions for terminal services. Establishment of long-term objectives of benefit to ports and users of ports. Exchange of views on practices and problems. Discussion of liability and legal matters. Discussion of labor matters. There are some 22 active marine terminal conferences in the coastal areas of the United States. The specialized ones, such as lumber or grain terminal conferences, are included in that number. Of interest to this report are the intra-port conferen- ces, identified as follows: California Association of Port Authorities Northwest Marine Terminal Conference Pacific Coast Terminal Conference Mid-Gulf Seaport Marine Terminal Conference * The FMC requires the filing of terminal tariffs, under General Order No. 15. This is not necessarily a requirement peculiar to a conference. 57. South Atlantic Port Association South Atlantic and Norfolk Marine Terminal Association South Florida Conference These Intra-port marine terminal conferences differ some- what In the Incluslveness of their menibershlps ; In the range of rates and charges discussed; and In the deviations from uniform- ity occasioned by the special circumstances of Individual mem- bers. Several of them use a uniform cost formula as a part^of their ratemaklng process, which Is of foremost Interest to port pricing concepts. Others proceed on the basis of the cost data known to the participating members on a subjective basis. Uniform Cost Formulas and Marine Terminal Rates The concept of the marine terminal conference had Its be- ginnings In what amounted to a series of price wars on the Pa- cific Coast occasioned by the prolonged waterfront strikes of the 1930s and the resultant loss of the Intercoastal trades which had been the major source of port tonnage since the open- ing of the Panama Canal. Much of the cargo went to con^etlng transcontinental railroads and In the depression years just prior to World War II West Coast ports vied with one another by using give-away rates to attract small lots of cargo. The situ- ation continued In the early post-war era, the Intercoastal fleet having been decimated and the trade being no longer attractive to capital. The Pacific Basin trading area had yet to develop into its present prominence. Against this background the Cali- fornia Association of Port Authorities was formed on April 12, 1940 ''to promote fair and honorable business practices among those engaged in the marine terminal industry. . .and to estab- lish and maintain just and reasonable, and, as far as practical, uniform terminal rates...". Early in its history the Association began to function under a Section 15 Agreement approved by the then United States Maritime Commlss^ion. The Commission engaged an independent con- sultant, Howard G. Freas, to make a study of the CAPA member ports as regards a proper basis for segregating and allocating terminal costs assignable to the vessel and to the cargo, in- cluding carrying charges, for ratemaklng purposes. The study resulted in the "Freas Formula" and on August 24, 1948, the Commission approved the formula as a proper base for segregat- ing terminal costs in California and also the concept that public ports are entitled to a fair return on Investment. 58. The ports of the Pacific Northwest came under the formula on June 8, 1956 when in Docket No. 744 it was applied to members of the Northwest Marine Terminal Association with some modifica- tion. It is of interest to note that the Examiner in Docket 744 recommended to the Commission that it institute a nationwide rulemaking proceeding to make as unifotm as possible the allo- cation of terminal charges between ship and cargo. This recom- mendation was not accepted by the Coaanission. As to rate of return the Commission did not adopt the Freas recommendation of 7 percent, stating only that public ports were entitled to a fair rate of return. Since that statement, however, the Commission has approved rate levels in a number of terminal lease or preferential assignment cases involving returns of 7 and 8 percent based on current values of land and undepreciated origi- nal cost of improvements,* California Association of Port Authorities Approach The 11 member ports of the California Association of Port Authorities, functioning as a Marine Terminal Conference, use a cost segregation system stemming from the Freas Formula as re- viewed and modernized in the late 1960s, the revised approach being known as the CAPA Cost Formula. Only a few of the 11 mem- bers are described as "operating" ports, performing such services as rail car loading and unloading, motor truck loading and un- loading, and other labor oriented charges. While a traffic com- mittee among the operating ports considers tariff rates and charges for these accessorial services, the CAPA Fonmila itself centers upon those rates and charges common to all 11 members, these being: Dockage Wharfage Wharf Storage Wharf Demurrage The "non-operating" CAPA ports do not handle cargo but pro- vide facilities, on an assignment basis, for private entities that do so. Hence the above charges of common interest are noted * Several port administrators say rates of 13 to 14 percent are now realistic. 59. to be charges for usage only, not involving services. Typically the CAPA ports also lease facilities for the exclusive use of the lessee on a long-term basis. These leased facilities are aside from, and are not a part of, the CAPA ratemaking procedures. Ter- minal leasing practices are discussed in Chapter VIII of this report. The manner in which costs are allocated as an aid to Section 15 ratemaking considerations in California is as follows : Tariff Charge Dockage Assessed What Tariff Charge is Expected to Against Recover Vessel Waterway cost (considered to be a water area 100' wide extending the length of the berthing area) . 50 percent of apron wharf cost 40 percent of aisle space cost, (aisle space is considered to rep- resent 30 percent of total cargo space) Wharfage Cargo 50 percent of apron wharf cost. Costs allocable to terminal transit shed and open areas for the accommo- dation of cargo, less space rentals. 60 percent of aisle space cost. Wharf Storage* Cargo Wharf Demurrage* Cargo Note: Deductions for Wharf Storage and Wharf Demurrage apply No provision for cost allocation. Storage revenues are deducted from total cargo area costs, after which the remainder of cargo area cost is recoverable from wharfage. No provision for cost allocation. Demurrage revenues are deducted from total cargo area costs, after which the remainder of cargo area cost is recoverable from wharfage. * CAPA considers that such charges are in the nature of a penalty designed mainly to free cargo areas for intransit cargo. It has been agreed that it is impractical to develop cost for space used, and that cost is not of primary significance in establishing these rates . 60. The costs named above are determined from a highly structured procedure in which the following steps apply: 1. Desired return on land areas is arrived at by developing a multiplier which is a value per square foot based on a weighted average of land values among the various member ports. This value per square foot is applied to total port land, to obtain a total land value. Then a desired rate of return on land is established (the same rate of return as for structures. See below) and applied to the total value. The resulting dollar figure is divided by the square footage of total land, resulting in a rate of return per square foot. The square footage of land areas underlying apron, transit shed, open transit, tracks, roadway, and other areas (and waterway areas) is then multiplied by the rate of return per square foot. These totals are distributed between vessel and cargo (depend- ing on the nature of the facility and the cost recovery allocations previously described) as the land return portion of plant cost. 2. Desired return on structures is based on the municipal bond index (first publication after January 1st, Bond Buyer's Index of 20 Municipal Bonds), plus 2k percent. Thus if the index is 5.50, plus 2.5 would equal an 8 percent rate of return. The rate of return is applied against structures valued at reproduction cost (less accumulated depreciation) and together with depreciation, insurance, maintenance, and other structural costs, is distributed between vessel and cargo, depending on the function of the structure, as a second segment of plant cost. 3. Miscellaneous equipment and services (for construction, fire protection, etc.) are similarly capitalized and dis- ^tributed as between vessel and cargo, as a third segment of plant cost. 4. In the above manner, total plant cost is apportioned to vessel or cargo for various types of port facilities in- cluding general cargo facilities (break-bulk, container, or combination) ; dry bulk; liquid bulk; and together with space rentals, crane rentals and special facilities, these total plant costs are distributed as to dockage or wharf- age. 61. 5. Administrative and Supervisory Expenses are also distrib- uted to dockage and wharfage at this step. 6. A Statement of Revenue/Expense and Revenue Deficiency for dockage and wharfage Is reported to CAPA, where, combined with the reports of other members, it will serve as a basis for annual rate review discussion. (Fig. 10) Annual Review Procedures . In ratemaklng procedure the CAPA formula results are described as only one of the factors con- sidered. (Several member ports do not or cannot supply formula data in the prescribed manner but participate in the decision- making) . The deficiency reports, therefore, guide but do not dictate rates. Other pricing factors are taken into account in- cluding volume of cargo, value of cargo, nature of cargo, mar- ket-place sensitivities, and competitive factors. CAPA Experience in Rate Making . As the result of a decision adopted in 1970, CAPA members began to have tariff charges consid- ered on a yearly basis, based on an annual review of costs. Thus almost 12 years elapsed during which the formula was applied at Irregular intervals. For example, despite higher costs there were no wharfage rate increases between April 1959 and April 1967. The purpose of the annual review is to permit grad»ial Increases rather than sudden large increases which typically carry a shock Impact. Although a number of the increases have resulted in com- plaints from either steamship or shipper groups, the Associa- tion has remained in a position of well -documented justifica- tion for its notification of increase, and has in general declined to suspend or reduce rates on complaints to date. A notable conference action took place in 1969 when the California ports adopted a scale of rates based on the length of the vessel for purposes of assessing the dockage charge. The ability to change tonnage measurement in shelter deck type vessels by opening certain cargo spaces was causing a loss of revenue, and it was determined that vessel length was the most stable basis for the rate. The Association has recorded Important gains in dockage and wharfage rate levels over the past 10 years but substantial defi- cits continue in formula applications, particularly in break- bulk terminal cost applications, as revenues are compared with allocated cost plus rate of return. (Fig. 10) 62. Fig. 10 - Sample Application of CAPA Formula (by a Member Port)* STMEME-TT OF REVENUE AND EXPENSE AND REVENUE DEFICIENCY 9.8% Return on Investment Revenue Expense Gain or Deficiency Percent of Re\-2nue Dockage $ 233,659 $2,536,170 $(2,302,511) (985.42) General Cargo Operations T\harfage Rentals - Office $1,843,926 26,756 $4,176,748 29,647 $(2,332,822) ( 2,891) (126.51) ( 10.81) Itotals $1,870,682 $4,206,395 $(2,335,713) (124.86) Grand Totals $2,104,341 $6,742,565 $(4,638,224) (220.41) * For methodology only. Levels are those of an unspecified bygone year, and are not currently indicative. 63. Northwest Marine Terminal Association Approach The 9 member ports of Pacific Northwest Section 13 Agreement, ftmctioning as the Northwest Marine Terminal Association, Inc., use a cost segregation system stemming from the Freas Formula, However, it differs from the CAPA system partly because of the large range of tariff charges offered by the operating ports of the Northwest. All of the 9 members hold themselves out to perform service, includ- ing the staffing and operation of the marine terminals, and the giving and taking of receipts for cargo at the end of ships' tackle and at the landward side of the terminal. While the CAPA ports limit their collective approach to 4 items, the NWMTA approach encompasses 7: CAPA Dockage Wharfage Wharf Storage Demurrage NWMTA Dockage Wharfage Service & Facilities Charge* Storage Load and Unload Handling** Other Marine Service The manner in which costs are allocated as an aid to Section 15 ratemaking considerations in the Northwest is as follows: Tariff Charge Dockage Assessed Against Vessel What Tariff Charge is Expected to Recover 10 percent of terminal cost (consid- ered to be the "waterside" 10 percent) . 45 percent of terminal cost. 45 percent of terminal cost. Costs allocable to specific storage areas. Direct costs (labor and equipment) . Direct costs (labor and equipment) . Direct costs (labor and equipment) . Service and Facilities Charge is assessed against the vessel for use of working areas and for services in connection with receipt, delivery, checking, care, custody, and control of cargo. It does not include any cargo handling, loading, or unloading operations. ** In the Pacific Northwest the term "handling" means the movement of cargo between the end of ships* tackle and the point of rest in the shed. Wharfage Cargo Serv. & Facili. Vessel Storage Cargo Load and Unload Cargo Handling Vessel Other Marine Service Person Ordering 64. "Terminal Cost" is derived from land values (at current ap- praised worth, with a "cost" of 8^ percent assessed to cover re- turn of that investment); improvement values (at 8% percent return on original cost, depreciated, plus major maintenance add-ons (3 8% percent return); depreciation; light equipment costs; main- tenance; and terminal and administrative overheads. Appropriate allocations of operational and administrative overheads are also made for the other charges named above (Load and Unload; Handling; Other Marine Service) . One of the 9 members of NWMTA uses a somewhat different formula. It identifies those facility costs ascribed to dockage rates at all facilities to determine a cost base for dockage rates; then identifies facility costs ascribed to storage rates at all facilities. Then the total facili- ties costs are reduced by the amount of the facility costs for dockage and storage. The resulting balance of costs is distributed 50 percent to wharfage and 50 percent to service/ facility rates on an equal share basis. These rates: wharf- age, storage, service and facilities, and dockage, are con- sidered to be "facility type rates". In this individual approach there are also 4 "labor type rates" computed, these being N.O.S. service rates; service rates on specific commodities; rates for perform- ing individtial or specific service; and miscellaneous or "man-hour" rates. The usual direct and indirect costs and overheads are applied. Annual Review Procedures . Each of the 9 member ports reports annually to the Northwest Marine Terminal Association its net (or deficit) under each of the above tariff charges, applying the for- mula and displaying revenues and costs. (See Fig. 11), Some mem- bers do not report on some charge items but a majority do. All members report on Dockage, Wharfage, and Service and Facility per- formance. The number of ports having deficits under each item is noted, along with the amount of the deficit, as is the combined total of deficits under each charge for the entire region. This data serves as the basis for rate adjustment discussions, along with other factors including volume and value of cargo, marketplace sensitivi- ties, etc. There is some grouping of ports by type in these con- siderations. In addition to direct operations, ports of the Pacific North- west have complements of leased facilities. These are not in- volved in Section 15 type ratemaking. 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