FreightWaves Classics is sponsored by Old Dominion Freight Line — Helping the World Keep Promises. Learn more here.
FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.
In this edition, from the May 1974 issue of American Shipper, FreightWaves revisits an article detailing the history of port terminal charges.
Marine Terminal Operations were for centuries the most obscure and unimportant link in the chain of world trade.
The merchant vessels carrying the exotic cargo, together with their crews bearing tales of strange foreign lands and of terrific storms at sea, encounters with sea serpents, mermaids and assorted buccaneers and other freebooters, were the glamour boys of that day. The shore-based merchants, amassing vast amounts of wealth, became the foundation for our great middle class. Cargo handling required only a strong back and weak mind.
While there is some reference to port charges in the past, these involved only light monies, pilotage fees and other taxes assessed by governments for the use of a harbor by a vessel. Charges for the actual handling of freight have been largely unrecorded if they existed at all.
Prior to the American Civil War, the fledgling rail carriers commenced the construction of port facilities so that the rail carriers, generally serving the interior from port cities, could conveniently load and unload rail equipment at shipside. Most major American Ports were railroad operated.
The first tariffs
In 1887, Congress passed the Interstate Commerce Act, which provided for the regulation of rail carriers. While this legislation did not become fully effective until 1906, it provided essentially that before a rail carrier could provide a service, it had to publish, post and file a system of rates and charges in the form of a tariff and that until such a tariff was filed, it could not provide a specific service. Naturally, loading and unloading rail equipment at shipside was a service requiring tariff publication before the service could be performed and the first system of rates and charges for the performance of marine terminal services by railroads came into being.
A loss leader was born
It appears that the railroads were more interested in revenues derived from the transportation of freight than in obtaining compensatory revenues from port terminal operations, terminal charges for dockage, wharfage and handling were established merely to satisfy the requirements of the Interstate Commerce Act without much regard for the compensativeness of the charges and any losses involved would be more than made up by charges for rail transportation to and from the interior.
About the time of World War I, certain government authorities, noticing the virtual monopoly of the rail carriers on world trade, began insisting on publicly or privately operated port facilities which would afford equal access to all.
Public authorities created
One such measure employed was the refusal to maintain or improve harbor channels unless a public port facility existed in a harbor. It was then that port cities commenced the construction and operation of port terminal facilities. The rail carriers agreed to absorb terminal charges of
the public terminals out of their linehaul revenues but only to the extent of similar port charges published in their tariffs. This proved to be most lucrative to the railroads since the losses occasioned by railroad-operated port terminals would be borne by the new port terminal public operator.
Most port communities had some realization of the economic impact on their cities caused by world trade, thus the apparent port subsidy was justified. Since the rail carriers consistently refused to increase their absorptions of port terminal charges, rates for port terminal services remained consistently non-compensatory.
Truck competition
Until the mid-1920s, the railroads retained a virtual monopoly on traffic between port cities and the interior. However, the requirements of the military during World War I caused the development of a comparatively efficient motor vehicle to carry freight which was not restricted to the existing rail system. The flexibility of this motor carrier together with technical improvements in the vehicles provided an actively growing competitor for the rail carriers in both domestic and foreign freight. The motor carrier system developed to such an extent that Congress was forced to pass legislation to regulate motor carriers in a manner similar to that regulating rail carriers in 1935. This development caused the rail carriers to gradually lose interest in the operation of port facilities and, by and large, most railroad-operated general cargo terminals have been phased out.
‘Seat of the pants’ rates
Pricing of port charges was largely a matter of “seat of the pants judgment,” prices at competitive ports, “sacred cows” involving commodities moving which were politically sensitive and a host of other considerations which were not the least bit related to economic facts. Not the least element was the amount of what the rail carriers would absorb. Since most of the facilities were operated by a governmental agency, either State, County or City, the public still could be tapped to make up operational losses. Port performance was judged largely on the number of tons moving through it during a specific period without regard to profit or loss. The theory of economic benefits flowing to a community because it was a port was used as full justification for any deficits incurred.
During its session in 1963, the Florida Legislature created the Jacksonville Port Authority, a body politic and corporate, charged with the responsibility of promoting and developing the Port of Jacksonville, Florida. Among the powers and responsibilities conferred was the requirement that the Port Authority conduct its operations in the manner of a prudent businessman. This directive made the practice of port pricing most suspect, however, the fledgling staff was not cognizant of how to approach the problem of analysis. The writer came aboard in 1965 as Director of Traffic, and among a multiplicity of other duties prepared a first analysis which showed that Administrative and Overhead costs were 92% of direct labor costs. This figure, while opening some eyes, was so astonishingly high, that the report was disregarded.
Click here to read the rest of the May 1974 issue.
FreightWaves Classics articles look at various aspects of the transportation industry’s history. Click here to subscribe to our newsletter!
Have a topic you want me to cover? Email me at bjaekel@freightwaves.com or follow me on Twitter.