• TABLE OF CONTENTS
HIDE
 Title Page
 Foreword
 Acknowledgement
 Table of Contents
 Introduction
 The present picture
 Changes in progress
 Recommendations for improvemen...
 Appendix A. Statistical tables
 Appendix B. Distributor profil...
 Appendix C. Condensation of a report...






Group Title: Small business management research reports
Title: Industrial supply and distribution in Puerto Rico
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00001338/00001
 Material Information
Title: Industrial supply and distribution in Puerto Rico
Series Title: Small business management research reports
Physical Description: vii, 159 p. : tables. ; 28 cm.
Language: English
Creator: Economic Associates
Puerto Rico -- Economic Development Administration
United States -- Small Business Administration
Publisher: s.n.
Place of Publication: Washington?
Publication Date: 1963
 Subjects
Subject: Industries -- Puerto Rico   ( lcsh )
Industrial procurement -- Puerto Rico   ( lcsh )
Industrial supply houses   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Bibliographical references included in footnotes.
Statement of Responsibility: Prepared for the Economic Development Administration of the Commonwealth of Puerto Rico under the Small Business Administration management research grant program. Project director: Amadeo I. D. Francis.
General Note: On cover: Prepared by the Economic Development Administration of the Commonwealth of Puerto Rico for the Small Business Administration, Washington.
 Record Information
Bibliographic ID: UF00001338
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 000136536
oclc - 27403622
notis - AAQ2601

Table of Contents
    Title Page
        Page i
        Page ii
    Foreword
        Page iii
    Acknowledgement
        Page v
    Table of Contents
        Page vii
    Introduction
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
    The present picture
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
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        Page 50
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        Page 53
        Page 54
        Page 55
    Changes in progress
        Page 56
        Page 57
        Page 58
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
    Recommendations for improvement
        Page 66
        Page 67
        Page 68
        Page 69
        Page 70
        Page 71
        Page 72
        Page 73
        Page 74
        Page 75
        Page 76
        Page 77
    Appendix A. Statistical tables
        8Page 78
        Page 80
        Page 81
        Page 82
        Page 83
        Page 84
        Page 85
        Page 86
    Appendix B. Distributor profiles
        Page 87
        Page 88
        Page 89
        Page 90
        Page 91
        Page 92
        Page 93
        Page 94
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    Appendix C. Condensation of a report on "Industrial distribution in Puerto Rico"
        Page 125
        Page 126
        Page 127
        Page 128
        Page 129
        Page 130
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Full Text


Industrial Supply and Distribution
in Puerto Rico













Prepared for the Economic Development Administration
of the Commonwealth of Puerto Rico
Under the Small Business Administration
Management Research Grant Program


by


Economic Associates
Washington, D. C.


Project Director
Amadeo I. D. Francis
Director of Economic Research
Economic Development Administration


August 1963











FOREWORD


This Small Business study, Industrial Supply and
Distribution in Puerto Rico, has been condut.i ed. ad prepared
under the direction of Mr. Amadeo I. D. Fr-.acis, Project
Director for the Economic Development Administration, Com-
monwealth of Puerto Rico.

The research was financed by a grant made by the
Small Business Administration, Unit.:Lt Stdt.es Government,
under the authority of Public Law 699 '6-5n Congress).

Only a limited number of copies of this report
have been printed. It is available fc-r reference in any of
the Small Business Administra-ion of."-ice:s throughoutt the
United States or at many refer.:nce I.Cbrries. Copies of the
report may be obtained free di ectly from the Office of Eco-
nomic Research, Economic Development Administration, San Juan,
Puerto Rico.

Summaries of this study have been printed and are
available in r-ea.'-nrble qoanti.zies. These summaries may be
secured from SiA fe.l3.d offices or from the Small Business
Administration, Washington 25, D. C.

The SDin]]. Business Administration assumes no re-
sponsibility foi 'he accuracy of the data contained herein,
nor does it necessarily endorse any opinions, conclusions or
recommendations which may be a part of this report.



John E. Home
Administrator
Small Business Administration












Acknowledgments



The accomplishment of this study would not
have been possible without the cooperation of
those in the distributing firms and elsewhere
who gave liberally of their time for interviews,
and in many cases reviewed the draft summaries
of their operations. Special thanks are due
also to the Alcoa Steamship Company and to
Sea-Land Service for making it possible to obtain
the sample tabulations linking consignor-consignee
pairs.

We wish to thank also the various Fomento
people who helped us, particularly those in the
Department of Industrial Services, who gave us
the benefit of their fiuld experience with
industrial firms and who conducted a special
supplemental survey for us; and those in the
Office of Economic Research, who rendered valuable
statistical, secretarial, and other assistance.

We wish, finally, to acknowledge the impor-
tant assistance which was given by Mr. Julio
Pietrantoni, of the Office of Economic Counsel
of the House of Representatives, which very
kindly lent his services.

This study was executed by Mr. Leonard L.
Fischman, Director of Economic Associates, with
the assistance of Mr. Harold deVeau, Consultant;
Miss Betti Goldwasser, Associate; and various
members of the staff.








TABLE OF CONTENTS



Page

FOREWORD ............................................... iii

ACKNOWLEDGEMENTS .............................. ..

TABLE OF CONTENTS ........ s,...o ........................ vii

CHAPTER I INRODUCTION ............................. 1

Objectives, scope, and definitions ..................... 1
Summary of findings ................................... 2
Sources of information ................................. 14

CHAPTER II TE PRESENT PICTURE ................... 15

Principal kinds of supply and their sources ............ 15
Requirements of the principal manufacturing
sectors ........................... ...* ......... *** 18
Channels of distribution and frequency of
shipments ........................................... 26
Characteristics and operations of the industrial
distributing firms ...........................*.... 28
Comparative prices ............................ 48
Users' problems ...................................* .... 51

CHAPTER III CHANGES IN PROGRESS ...................... 56

CHAPTER IV RECOMENDATIONS FOR IMIOVEMET ........... 66



APPENDIX A STATISTICAL TABLES ...................... 78

APPENDIX B DISTRIBUTOR PROFILES ..................... 87

APPENDIX C "INDUSTRIAL DISTRIBUTION IN PUERTI RICO"
BY HARBRIDGE HOUSE, INC ................. 125







CHAPTER I. INTRODUCTION


Objectives, Scope, and Definitions


The general objective of this study was to examine into the adequacy of

distribution facilities in Puerto Rico for the supplying of industry, agri-

culture, and government. Attention was to be given both to the institutional

and the physical aspects of the distribution system, the nature of the sup-

plies required by other than consumers in Puerto Rico, and identifiable

problems and opportunities for improvement. Data were to be drawn from

fresh investigations, from previous work of the Economic Development

Administration of Puerto Rico, and from an initial report on this general

subject prepared by Harbridge House in 1961.-

The investigation was broadly conceived with the idea of entering into

virtually every phase of industrial supply and distribution in Puerto Rico

(and to some extent even of distribution in general). In order to maintain

the effort within available financial resources, however, some delimitation

of the scope was effected as the study progressed. For example, supplies for

government were not given special attention. Subjects peripheral to the

distribution system as such were examined only incidentally or passed over

entirely; examples are the details of port operations and of inland trucking.

By and large these omissions were in areas which either affected a lot more

than industrial distribution and thus deserved (and to some extent have been

elsewhere given) major independent study, or in areas where the supplies


I/ See Appendix C, pp, 125 ff,





-2-


involved were a relatively insignificant part of the total movement. Also

omitted from study or only tangentially considered were certain special

categories of supply fuels, food products, office supplies, and capital

equipment -- whose distribution characteristics are relatively different

from those constituting the major interest of this report.

Generally, all the kinds of supply treated herein, whether for manu-

facturing industry, construction, agriculture, transportation, or government,

are referred to herein as "industrial supplies". In context, however,

this term is sometimes used (as it is used in Appendix C)I to denote "in-

industrial operating supplies", one of the three principal categories which

the report considers. The other two categories are "raw materials", which

is broadly used to include not only crude products for manufacture, but semi-

finished items for further processing as vell as agricultural chemicals, and

"containers", which is used to include al. packaging materials other than

those kinds primarily utilized directly by consumers or by retail stores.

The word, "d-stributor", is discussed in Part D of Chapter II. It has

been used broadly herein, to denote any individual or firm performing a

distribution function, whether as an agent or on his own account.


Summary of Findings


Puerto Rico is at a stage of relative industrialization which makes it

difficult to arrive at statistical conclusions regarding the actual con-

sumption of industrial supplies. Particularly is this so since a number of

important manufacturing operations in Puerto Rico do not turn out end-

products, but serve to convert one form oP industrial supply into another,


1_ See pp. 125-159.




-3-


Of the three broad categories of supply defined above, raw materials

are by far the most important. Of these, construction materials are the

single largest group, amounting to about $80 million annually in the form

in which used. About half of this is imported, the balance arising pre-

dominntly out of truly local resources, like limestone, clay, and ferrous

scrap. Next largest raw materials category is that of supplies for the

textile and apparel industry, which amounts to around $65 million annually;

third is agricultural chemicals, mostly fertilizer, at about $20 million.

In total, raw materials come to about $180 million annually, operating sup-

plies to about $10 million, and containers and packaging to about $25 million.

Requirements and sources for the principal manufacturing sectors In addi-

tion to the textile and apparel materials just mentioned, principal industrial

consumers of raw materials are furniture and fixtures (about $10 million),

chemicals ($10 million), metal products ($15 million), electrical equipment

and appliances ($20 million), and manufactured non-metallic building materials

(probably about $20 million).

The textiles and apparel industry breaks down principally into needle-

work, consuming about $30 million a year in raw materials; knit goods, con-

suming about $15 million; footwear and leather goods, consuming about

$10 million; and a miscellany of such items as cotton weaving, rug and

carpet manufacture, and yarn spinning, which consumes the rest. The needle-

work segment depends overwhelmingly on United States sources for its

supplies; important exceptions are thread, which a large proportion of plants

buy locally; zippers, which about half buy locally; and shipping containers,

which some buy locally. There is also developing a significant amount of

interplant supplying by firms in affiliated groups. The knit goods segment


1/ United States, U.S. Mainland, U.S. and Mainland are used synonymously
throughout the report.








does somewhat more local purchasing, especially of spun synthetic and processed

synthetic yarns. Because it includes rug manufacture and carpet yarn spinning,

the miscellaneous segment depends significantly on supplies from foreign

countries (Jute, burlap, and carpet wool).

The dependence of the shoe industry upon U.S. Mainland sources is almost

complete. Other leather goods manufacturers use somewhat more of local items.

The tanning part of the industry gets its hides more from Puerto Rican and

foreign sources than from the U.S.; skins come from U.S. and foreign sources,

tanning chemicals exclusively from the U.S.

The furniture industry does most of its buying from local wholesalers

or agents, but most of the materials (lumber, plywood, paint, hardware, and

so on) come originally from both U.S. and foreign sources.

Both the raw materials and the sources of procurement used by the

chemical industry are almost as varied as the products. The pharmaceutical

and toilet preparation sector, in particular, uses a wide variety of materials,

procured both locally and in the States and to a small extent from foreign

sources; much is shipped in by affiliated firms. The fertilizer-industrial

chemicals complex is based largely on gases from the Commonwealth Refinery,

crude oil from Venezuela, and sulphur and other basic inorganics from the

U.S. (although a planned chlorine-caustic plant should shift some of the

emphasis). Cleaning compounds, adhesives, gases, and other production make

use mostly of U.S. supplies.

Puerto Rican distributors handle iron and steel more for the construction

industry than as supplies for manufacturers. Thus, most of the latter is

purchased directly from the source, or shipped by parent companies. The






-5-


largest quantities arrive in the form of sheet, predominantly from the States,

and go into such products as ball bearings, metal boxes, food service equip-

ment, and various kinds of electrical machinery. Also important is the import

of tinplate for local can manufacture and rods for screw-machine and other

products.

Next to steel, aluminum is the most important metallic input into manu-

facturing. Copper and brass imports are larger in total but much goes into

construction. The electrical equipment industry in Puerto Rico is still

predominantly an assembly industry, importing its component parts from

affiliated firms.

About half of the raw material supply for plastic products arrives in

semifinished forms, rather than resins. The supply originates almost wholly

in the U.S., although part is sold through local wholesalers, agents, or

U.S. firms' sales branches.

The printing industry draws on Canada, overwhelmingly, for its news-

print, largely on the U.S. for other paper. More important than printing

needs is paper for converting, which comes largely from the U.S. Except

for the printing paper, most procurement is direct.

Channels of distribution About two-thirds of U.S. supplies of industrial

raw materials for Puerto Rico are shipped directly to manufacturers there,

rather than going (at least physically) through Puerto Rican middlemen.

The great bulk of these supplies also originates with a U.S. manufacturer,

and for something over a third of the volume, the originator is a parent or

affiliate. For the goods shipped to various knds of distributors in Puerto

Rico, an even larger proportion originates with manufacturers.






-6-


In terms of number of separate consignments, roughly four-fifths are

from manufacturer to manufacturer; the average size of shipment is somewhat

smaller than those going to distributors. The largest number of individual

consignments is of cotton fabric, most of which also go from manufacturer to

manufacturer. Shipments of iron and steel are next most frequent; this is

because of rltively frequent supplying of manufacturers, in contrast with

distributors, who receive far fewer consignments though they account for half

the volume.

Characteristics of the industrial distributing firms Industrial distribu-

ting firms in Puerto Rico take on almost the same wide variety of forms as

those in the States. General speaking, the differences are ones of size,

emphasis, and degree, although the scale of operations also frequently tends

to concentrate in one firm the functions that in the States would more normal-

ly be found in two or three.

The kinds of industrial supplies for which Puerto Rican distributing

firms play an important role include lumber and millwork,.iron and steel,

nonferrous metals, industrial chemicals, fertilizer, lime, tires and tubes,

and various other kinds of operating equipment and supplies. This is for

U.S. goods. For foreign supplies -- notably lumber, newsprint, iron and

steel, fertilizers, copper, brass, and bronze --Puerto Rican distributors

play an important role in nearly every instance. By contrast, for very few

of the materials manufactured within Puerto Rico (a notable exception is

ammonia fertilizer) are industrial distributors of any importance.

The industry is characterized generally by the existence of a few domi-

nant firms in each field, with substantial physical plant and equipment, and

a large number of small ones. However, the degree of concentration varies






-7-


considerably from line to line; in the lumber and building supplies field,

for example, there are a large number of medium-sized firms, even though the

top seven do nearly one-third of the total volume. Only a small handful of

firms in industrial distribution have as many as 50 employees.

Physical facilities With a few notable exceptions, distributors' warehouse

facilities tend to be both small and inefficient. Their size precludes much

mechanization. This lack of adequate warehouse space has been one of the

most serious deterrents to improvement and expansion of the Puerto Rican

distribution system; because of it, supplies must move into the system more

frequently and in smaller quantities than economy would dictate. The few

public warehouses are not equipped for mechanical handling and are largely

used for other than industrial supplies.

Distribution on the island depends heavily on hired trucking to move

merchandise and equipment, particularly from dockside; distributor-owned

trucks, if any, are most apt to be used for deliveries from warehouse to

customer. The truckers are mostly small operators, and distributors fre-

quently help them with their financing.

Physical facilities at the docks are also a drag on the efficiency of

the distribution system. The limit for withdrawal of goods is frequently

exceeded without payment of demurrage even to the extent of delaying

the unloading of ships. Goods are difficult to get at physically, and traf-

fic in many of the port areas is at times hopelessly congested. However,

many of these conditions have long been under study and are in the process of

improvement.






-8-


In addition to dock storage, the advent of container transportation has

provided distributors (and other importers) with still another extension of

their own facilities. Containers and trailers may be retained by the con-

signee for long periods, and demurrage does not always get collected.

Methods of operation The methods of operation of Puerto Rican distributors

encompass almost every known variation, and many combine several of them.

Commission selling is perhaps the most common, accompanied usually by direct

shipment from the supplying manufacturer to the customer. Some of the com-

mission merchants have a number of exclusive (or de facto exclusive) agencies,

but few confine themselves to a stable set of lines or brand names. Physical-

ly direct shipment also is characteristic of some merchant operations, where

selling takes place before the distributor places his own order, orwhile the

goods are enroute, or even when they are on the docks; for this purpose, lots

consigned to the distributor are frequently broken up and reconsigned. Only

in a few limited fields is there much handling of goods on consignment.

Distributor warehousing is principally of items for the construction

industry, for agriculture, or used as operating supplies. However, some

manufacturing raw materials are also warehoused in substantial quantities,

notably chemicals, lumber and plywood, iron and steel, copper, aluminum,

latex, thread, and paper for printing. Most of these stocks are either

intended for small users or as standby or incidental stocks for larger in-

dustrial consumers; few larger consumers use them as a regular source of

supply.

Most of the commission or brokerage businesses are either independent

or independently incorporated; the latter may even sell in competition with

their affiliated wholesaling companies. The larger ones usually try to sell






-9-


at a 5-percent commission, whereas the smaller operators with little or no

overhead tend to be satisfied with 3 percent or less, even going as low as

1 percent. The latter usually have the supplying or shipping companies do

their accounting for them, have the customer accept delivery at the dock,

and offer no financial, technical, maintenance, or repair services. The

larger companies, on the other hand, usually supply some technical literature,

maintain ancillary and repair stocks and services, and handle more of the

financial details of the transactions.

Many distributors stress the amount of service they render to customers,

including even keeping track of inventory and keeping supplies flowing

smoothly. By U.S. Mainland standards, however, the level of service -- par-

ticularly in terms of in-stock ratios for operating supplies, provision of

catalogs, and other areas where such service is- important -- is generally low.

One wholesaler service is virtually universal -- the provision of credit;

accounts receivable are carried for periods well beyond Mainland standards,

without interest, and ordinarily without any discount incentive to prompt

payment.

Characteristically, both small and large firms are kept under close

personal or family control. Desire to maintain such control extends to a

reluctance to accept outside financing.

Financing There appears to be a rough correlation between age of firm and

strength of financial resources. The older, larger firms have no real dif-

ficulties, while the newer firms are continually operating at the fringes

of their resources. In general, however, the slow payment pattern tends to







- 10 -


tie up working capital and deter growth. The distributors usually extend

more liberal terms to their customers than they are held to by their own sup-

pliers. The problem of meeting this and other working capital needs is aug-

mented by the greater tightness of credit in Puerto Rico compared with the

States, the somewhat higher interest rates, and the limited access in Puerto

Rico to accounts-receivable and inventory financing.

Comparative prices In general, raw material prices in Puerto Rico are

slightly higher than those in the States, the difference as a rule being

roughly equivalent to the cost of U.S. to Puerto Rico transportation. For

operating supplies, much larger cost differences are found, due, presumably,

to distributor mark-ups; these, however, are important only for relatively

limited fields of manufacturing and for most of these are only a small part

of total cost.

There is considerable variation among manufacturers' opinions as to the

cost of supplies in Puerto Rico. Generally speaking, they find them somewhat

higher, quality for quality, although in some instances (e.g., plastic resins)

the same or lower. Usually the differences are considered to be the cost of

freight, and in many instances this is literally the case, since the raw

materials are procured by (and often shipped by) a parent firm in the

States. It is apparent that some of the differences in manufacturers'

appreciation of relative Puerto Rican material costs are attributable to

differences which their parent firms experience in the States.

Users' problems The manufacturing firms of Puerto Rico appear to be only

marginally concerned with inadequacies of distributors in Puerto Rico.

Their principal and widely repeated complaint is about transportation -

shipping, pprt 9ppqer~op, 94 p d 'yery -r all summing up essentially to




-11-


transportation delays. The relatively few complaints about distributors

relate mostly to quality of service or to quality, quantity, or variety of

supplies available rather than to price. Complaints are most frequent among

metalworking firms, since here the high cost and insufficiency of warehouse

stocks of operating supplies is a particular problem.

Manufacturers have listed a number of items which they would be inter-

ested in having available from local supply sources. They have also listed

a number of scrap items which they generate and would be interested in selling

locally. Both of these lists may suggest some new distribution opportunities

Changes in progress Puerto Rico's industrial distribution system is having

to adapt itself to very rapid changes in the industrial base. Manufacturing

activity has more than tripled over the past decade. Requirements for

various supply items have increased by 10, 20, 50, or even 100 percent in

the course of -just a few years. This kind of growth both makes opportunities

for distributing firms, and eliminates them. Items progress from being

too small in quantity to be worth handling, to large enough for a distributor

to take on, to large enough for a distributor to be displaced, in many

instances, by a local manufacturer.

There is a long list of industrial raw materials and semifinished items

the manufacture of which has been undertaken in Puerto Rico in Just the last

ten years. Many of these are committed in whole or in part to related

firms both in Puerto Rico and elsewhere; much of the output, however, is

actually or potentially available to local supply-seekers. Another change

in progress is the increasing importance of non-U.S. supplies.

For the distributor, these changes in sources of supply, like the changes

in total volume .of demand, have a dtia significance: they increase his


1/ See Infra, pp. 53-54 for these lists.





- 12 -


potential role as a specialized procurement agent and at the same time

they wear away the institutional patterns which are the bulwark of established

businesses. On balance, the role of the distributor would seem to be a

potentially expanding one, but it will take alertness and flexibility on

the part of the individual firm to maintain its relative role.

Among the p.eeible new or expanded distributing opportunities which

appear to exist in Puerto Rico are: a steel "service center," a similar

nonferrous metals warehouse, a piece goods distributor, a piece goods jobber

and converter, a dyeing and finishing mill which doubles as distributor,

a substantial paper and graphic supplies warehouse, a substantial chemical

supplies warehouse, a general waste material dealer, purchasing consultants,

purchasing brokers, import merchants and brokers, merchant shipowners,

industrial crop contractors, and publication of a good local purchasing

directory.

Opportunities for distributor self-improvement Although some firms are

already efficiently operating in most ways, there seem to be three ways

in which distributors generally can effect improvements: (1) better

ordering procedures, including the anticipation of needs so as to consoli-

date orders and thereby take advantage of quantity discounts and lower

shipping costs; (2) better inventory procedures, in-terms both'of recdrd-

keeping and of physical handling; (3) increasing volume by cutting prices

or commissions where possible and/or increasing such services as

coverage by salesmen, issuance of catalogs, advertising, technical assis-

tance, repair and maintenance, stocking of spare parts, maintaining adequate

inventories for emergencies, consolidating orders and shipments, and adding

new lines.




13 -


Transportation and warehousing Whether, in general, the steps being taken

to improve Puerto Rico's transportation and warehousing situation are

adequate to the task are beyond the scope of this report. Further atten-

tion does need to be given, however, to the question of the real need for,

and desirable characteristics of, additional public warehousing. A public

warehouse which performs important functions other than mere storage may

be what is most called for.

Financial improvements Other than for possible special assistance for the

expansion of physical facilities, it is unlikely that distributing firms

require government financial assistance beyond what is generally available

to small business. On their own, however, distributors operating on their

own account can make a substantial improvement in their finances by reducing

their outstanding receivables. A discount for cash is suggested, plus an

interest charge of, say, 7 percent for carrying accounts more than 30 days.

Commonwealth Government actions possible The following Commonwealth

Government actions are recommended:

1. Set up an "Office of Industrial Distribution" which will concern

itself with industrial distribution problems and give technical

advice both on running distribution businesses and on sources of

industrial procurement.

2. Until such time as an adequate private service may be available,

maintain an industrial supply directory service,listing Puerto

Rican sources of supplies, including both manufacturers and dis-

tributors.

3. Conduct periodic surveys of manufacturers' unmet local supply

needs, and publicize the results of such surveys.

4. Institute a trade practices division in the Department of Justice,

the Department of Commerce, or both.





- 14 -


5. Set up effective procedures for considering Commonwealth Government

policy on imports, in order to decide in each instance whether

cheaper supply sources or protection for local production provides

the greater long-run benefit.

6. Consider the advisability of financially aiding the maintenance

of buffer stocks as insurance against transportation interruptions.

7. Take the lead, through the formation of businessmen's committees,

in promoting standardization of industrial supply items.

8. Consider the elimination of excise taxes on all items with pre-

dominantly industrial applications and the complete elimination

of personal property tax.

Sources of Information

In addition to the Harbridge House study included herewith as

Appendix C, the following principal sources of information contributed to

the findings of the present report:

Puerto Rico Planning Board, External Trade Statistics, 1958, 1959,
and 1960, supplemented byunpublished data obtained from the Office
of Economic Research, Economic Development Administration.

U. S. Department of Labor, Wage and Hour and Public Contracts Divisions,
various "blue books" on industries in Puerto Rico prepared for
Industry.Committee Deliberations.

Unpublished surveys of manufacturing firms conducted by the Economic
Development Administration, plus a special industrial-supply survey
conducted for this study among a limited number of industrial firms
by the Industrial Services Department of the Administration.

Original interviews with the distributing firms whose profiles are
included in Appendix B, as well as with transportation-firm officials
and other persons with knowledge of Puerto Rican supply movements
and distribution problems.

Detailed listings and tabulations of bills-of-lading for the shipments
specified in the Source to Table II of Appendix A, for access to
which we are deeply grateful to the cooperating shipping companies.




- 15 -


CHAPTER II. THE PRESENT PICTURE


A. Principal Kinds of Supply and their Sources


Puerto Rico is at a stage of relative industrialization which makes it

extremely difficult to arrive.at.statistical conclusions regarding the actu-

al consumption of industrial raw materials and supplies. Were there no

local production of the principal items, the import statistics would tell

the story on what is being consumed. Were there enough local production.

that three or more plants were operating in each of the important supply

lines, confidentiality considerations would not suppress the publication of

relevant statistics. As matters stand, it is necessary to rely to a large

extent on general knowledge, subjective impressions, and surmise to fill in

the statistical blanks. Particularly is this so since a number of important

industrial operations in Puerto Rico spinning, knitting, paper-carton

making, tanning, and fertilizer mixing, for example do not turn out end-

products, but serve to convert one form of industrial supply into another.

Despite the foregoing difficulties, a few broad conclusions may-be'

drawn. Of the three broad categories of industrial supply which we have

defined in the introduction raw materials, operating supplies, and con-

tainers raw materials, for industry, agriculture, and construction, are

by far the most important. Construction raw materials are the single

largest group, amounting to about $80 million annually in the form in which

used (e.g., concrete products rather than cement, millwork rather than

lumber). In their original form of extraction or purchase from outside

Puerto Rico, about half is imported (mostly lumber and iron and steel) and

about half arises out of local resources (cement from local limestone,

reinforcing bars from local scrap, clay products from local clay, and a

small amount of wood). Construction materials, moreover, account for the






- 16 -


overwhelming contribution of truly local resources to Puerto Rico's industrial

supplies.

Next to construction, the requirements of the textile and apparel in-

dustries make up the next largest segment of the industrial raw materials

picture -- around $65 million annually. The most important items are cloth

(around $35 million annually) and yarn and thread (around $20 million).

Some of the cloth is knit or woven in Puerto Rico, some of the yarn and

thread are locally spun, and there are some locally produced hides and

fibers, but the overwhelming bulk of these materials stems from imports.

Although nearly all of the jute comes from foreign countries, as well as a

small portion of the cloth, the almost exclusive import source of supply,

for all practical purposes, is the U.S. About two-thirds of the cloth

consumed is cotton, nearly all the rest manmade-fiber. In the case of yarn

and thread, synthetics account for the major share, wool for a good deal

of the rest. A little over $1 million of annual fiber consumption takes

the form of raw cotton from the U.S.

The third major consumption category is agricultural chemicals, amount-

ing to something like $20 million annually. The initial source of virtual-

ly all of these materials -- predominantly fertilizers -- is imports. How-

ever, about $13 million worth reaches the farm via local mixing plants and

several million dollars' worth (more or less depending upon competitive

conditions) is transformed into fertilizer locally from imported petroleum.

Even excluding the petroleum, a third or more of the supply has been coming

from foreign countries; the petroleum would raise the foreign-source

proportion to at least half.






- 17 -


All-told, Puerto Rico's non-food, non-fuel materials consumption runs to

about $180 million annually. In comparison, industrial operating supplies at

perhaps $10 million and containers at some $25 million are relatively insig-

nificant. Most readily identifiable among the tremendous miscellany that

constitutes the former are about $2* million a year of truck, bus, and

machinery tires, and about $1j million of bolts, nuts, bearings, and similar

components. Refractories and abrasives are also of some importance, as no

doubt are paint and other surface coatings, but available statistics do not

in the latter case permit the segregation of industrial requirements from

end-use consumption. Numerous other items are collectively important not so

much in terms of dollar value but in terms of their role in keeping a lot of

industrial capacity clicking.

Probably the single largest container item is tin cans, rapidly increasing

both in importance and in local production with a burgeoning canning --

especially tuna canning -- industry. One may guess at a total use of about

$10 million a year, about half of which is locally produced from imported

plate. Of roughly equal importance is the conglomerate of paper and paper-

board, shipping containers and other boxes, close to half of which is

domestically produced, mostly from imported paper, but to an increasing

extent from a truly local material, bagasse. Of the imports, just about

all of the finished containers and boxes and almost as much of the paper for

converting into containers and boxes come from the United States. Glass

containers used in Puerto Rico come to some $5 million a year, mostly

locally produced and truly domestic in that they stem primarily from local

sands. Wooden containers, mostly imported, amount to some $1 million.




- 18 -


The imports into Puerto Rico, fiscal years 1958 through 1961, of the

various raw materials, containers, and supplies of any significance are

shown in Appendix Table I. As noted above, available statistical data on

local production, sources of inputs, and destination of outputs are not

sufficiently precise or complete to develop a systematic apparent consump-

tion table either for initially imported or extracted raw materials or for

raw materials as they enter final Puerto Rican processing; for this purpose

scattered indications must suffice.


B. Requirements of the Principal Manufacturing Sectors


It has already been noted that the textile, apparel, and related (e.g.,

leatherworking) industries account for a principal portion of Puerto Rico's

industrial raw material requirements -- some $60 million annually. Other

important manufacturing consumers are furniture and fixtures (about $10 mil-

lion), chemicals ($10 million), metal products ($15 million), electrical

equipment and appliances ($20 million), and manufactured non-metallic build-

ing materials. In the last case, owing to the statistical difficulties just

discussed, only a crude estimate of the initial raw material requirements is

possible; about $20 million would probably represent the order of magnitude,

including the raw materials for structural clay products and cement.

Textiles and apparel The textile and apparel complex may best be considered

in several major segments. Chief among these are the sewn apparel (needle-

work) segment, consuming about $30 million a year in raw materials; knit

goods, consuming about $15 million; footwear and leather goods, consuming

about $10 million; and a miscellany which includes such items as cotton

weaving, rug and carpet manufacture, yarn spinning, and burlap bag recon-

ditioning.

./ See pp. 78-83.






- 19 -


The needlework trades depend overwhelmingly upon U.S. Mainland sources

for their supplies. Many of the firms, as contractors, receive their cloth,

thread, buttons, trimmings, etc. directly from their Mainland principals;

many others, who are not literally contractors, still depend upon their

Mainland affiliate either as the direct source of supply or as the source of

procurement. Not a small part of the cloth comes to the Puerto Rican plants

in the form of precut pieces or semifinished parts or even otherwise completed

garments for embroidery.

There are at least three significant exceptions to the foregoing general

rules. About 4/5 of the plants buy their thread in Puerto Rico, or at least

partly in Puerto Rico; about half buy their zippers locally; and a number buy

at least their shipping containers in Puerto Rico (but not other boxes). In

addition, local sources (distributors and/or manufacturers) have made some

beginnings in the supply of needles, elastic, braid, fabrics, and binding,

and there is some measure of inter-plant supplying by firms in affiliated

groups.

In the knitting and knit apparel segment, there is much more local pur-

chasing. Not only thread is frequently bought in Puerto Rico, but also

processed yarns (e.g., Banlon), spun synthetic yarn (Orlon), and knit fabric.

Procured predominantly from the United States gre most yarns (wool, nylon,

fur-blend, and others), buttons, ribbon, and dyes and chemicals; in some

cases, however, the procurement is through a Puerto Rican agent.

In the miscellaneous segment which includes rug and carpet manufacture

and yarn-making, foreign sources play a role. Jute comes almost wholly from

abroad (India, Belgium, Pakistan, Scotland), as does raw carpet wool





- 20 -


(Argentina, India) and most burlap. The supplying of wool yarns is divided

between the U.S. and Puerto Rico,- but other yarns (rayon, acetate, nylon,

cotton, metallic) come from the U.S. Thread comes partly from Puerto Rico,

but mostly from the U.S., as does raw cotton and unspun synthetic fiber and

filament. Chemicals and dyes are supplied partly from Puerto Rican sources,

mostly from the U.S.; ink and oil come entirely from the Mainland. Card-

board cones and tubes all come from the U.S.; shipping containers and other

packaging materials come fairly exclusively from local sources. Puerto Rico

is the principal source of used burlap bags.

The dependence of the shoe industry upon U.S. Mainland sources is almost

complete. It includes not only leather as such, but cut stock, rubber, and

composition soles and heels, linings, innersoles, cement, elastic, buckles

and other trimings and findings. Most of the supplies are either shipped

by or procured by the Mainland parent or affiliate. The only identifiable

Puerto Rican contribution is some of the thread.

Other leather goods makers depend somewhat more upon Puerto Rican

sources -- particularly for an important part of the leather, zippers, but-

tons, plastic components (e.g., card case material), thread, and cartons and

packaging. A peculiarly local material is the bagasse used for some of the

stuffing in baseballs and softballs. The baseball cores (cork and rubber),

on the other hand, come from the States, as do precut leather covers, jute

(for sports glove padding), cloth, artificial leathers, cements, metal

findings, ink, wax, and other items.


IJ Yarn spun in Puerto Rico apparently all goes to the U.S., but some U.S.
yarn is dyed in Puerto Rico for subsequent local use.





- 21 -


The tanning part of the industry gets its hides mostly from Puerto Rican

and foreign sources (South America and Europe), but also from the U.S.

Skins come from the U.S. and from South America and India. Chemicals come

exclusively from the United States.

Furniture Only scattered data are available on this industry, which in-

cludes not only wood furniture and kitchen cabinets, but metal furniture

and mattresses and bedsprings. Lumber and plywood are the key raw materials,

in addition to paints and varnishes, hardware, and so on. Many of the manu-

facturers are small and do all of their purchasing from local sources. Even

the larger firms do much of their purchasing from local agents of foreign

and mainland manufacturers, in addition to buying directly in the United

States. One manufacturer, specializing in metal furniture, obtains the

great bulk of his material (rods, and so on) from U.S. and European sources,

but again, part of his procurement is done through local agents, and his screws,

paints, and some vinyl extrusions come from local manufacturers.

The original source of all the plywood and virtually all the lumber is

imports, both from the U.S. and from foreign countries. -Paint comes from

both U.S. and local manufacturers; hardware from the U.S., Mexico, and

Europe; chemicals (for wood treating) from the U.S. Among other raw materials

are foam rubber, fabrics, spring coils, mirrors, and cotton linters.

Chemicals Excluding petroleum refining, the principal products of the

chemical industry in Puerto Rico are fertilizer, a few industrial chemicals,

paints, and drugs and medicines. .There is also a large miscellany which

includes such items as salt, cleaning compounds, toilet preparations, gases,

and pesticides.


I1 At the same time some Puerto Rican hides are shipped to the U.S. Mainland.





- 22 -


The raw materials used by this industry are as varied as the products.

This is particularly true for the drug, medicine, and toilet preparation

complex, which uses such items as ethyl alcohol, sugar, vegetable oils and

fats, lanolin, glycerine, sodium benzoate and other preservatives, perfurmes

and coloring matters, bay leaves, cod liver oil, talc, solvents, and of

course, bottles, caps, capsules, and various kinds of packing materials.

Procurement is almost as varied as the materials, including shipments by

U.S. and foreign affiliates, direct purchasing in the U.S., purchasing from

distributors in Puerto Rico, and from producers in Puerto Rico. Even sugar

and alcohol -- two Puerto Rican products -- are as often obtained in the

Mainland as in Puerto Rico. One firm produces bay oil from locally grown

bay leaves; other firms (not all) buy bay oil in the States. Bottles and

boxes are purchased both in Puerto Rico and the U.S., although Puerto Rico

is the usual source of shipping containers. A limited amount of purchasing

is done abroad.

The fertilizer-industrial chemical complex is based largely on gases

from Commonwealth Refinery; crude oil from Venezuela; sulphur from the U.S.

and from local byproduct recovery; caustic soda, soda ash, and chlorine

from the U.S.; and unmixed fertilizers from the U.S. and abroad. Paints

are based almost wholly on directly-imported materials, although there is

some interplant shipment within Puerto Rico of further-processed resins and

plasticizers. Salt is obtained partly from local works but mostly from the

Babcmas. Pesticide manufacture involves mostly a mixing and diluting of

imported materials. So does some of the manufacture of cleaning compounds,


I/ A local chlorine-caustic plant is planned and will presumably meet part
of the requirement, although the output is largely intended for papermaking.





- 23 -


but detergents and bleaches are also made from imported chlorine and caustic

soda and other basic materials. There is some use of local fats and oils in

soap-making. Adhesives are made of U.S.-supplied resins, toluol, acetone,

lead, and so on. In the making of oxygen, acetylene, and other gases, calcium

carbide is usually obtained directly from the U.S., while caustic soda and

acetone are procured from local suppliers.

Metalworking and electrical products There is considerable overlap between

these two sectors and they are therefore best treated jointly. Operations

range all the way from heavy foundry, machine shop, stamping, and so on

operations to intricate assembly operations, and the kinds of raw materials

required tend to range correspondingly. The one steel mill in Puerto Rico

operates its furnaces solely on locally-collected (including nearby Caribbean)

scrap and devotes its rolling mill to reinforcing bars; its own output of

billets is supplemented by imports, mostly from foreign countries. Foundries

presumably operate on imported pig iron and ingots and their own and other

local scrap; the amounts involved are only moderately significant. More

important are the machine shop and steel fabricating operations, which

convert basic forms and shapes, imported from both the U.S. and Europe (or

locally cast), into products ready for use in construction or as repair and

replacement parts for machinery, ships, and so on. There is no steel ware-

house in the U.S. Mainland sense of a large local supply source of a variety

of shapes for manufacturing use and having, in particular, slitting and

cutting facilities to reduce wide strip on a custom basis to small users'

required sizes and quantities.

Given the orientation of local steel wholesalers toward the construction

industry and toward operating supplies, most of the iron and steel required









by manufacturers is purchased directly from the source, or shipped by parent

companies. In the case of purchases from the U.S., a larger proportion ap-

pears to come directly from producers than from independent wholesalers

or exporters.


Most of the steel intended for manufacturing arrives in the form of sheet,

predominantly from the States. It goes into such products as ball bearings,

metal boxes, food service equipment, and various kinds of electrical mach-

inery. Runner-up in importance is tinplate, used in canmaking and for crown

caps. Also important are steel rods for use in screw machine products, twist

drills, furniture, and wire-making.

Next to steel, aluminum is the most important metallic input into Puerto

Rican manufacturing. It arrives in crude forms, for extrusion and die cast-

ing, as well as in more finished forms, for making into such items as bowls,

pots and pans, and screw machine products. Aluminum for jalousies ip bought

from the local extruders.

Total imports of copper and brass exceed those for aluminum, but much of

this is in the form of wire and pipe for the construction industry. Manu-

facturing uses, in addition to that part of the wire going into electrical

equipment, include screw machine products, boilers, housewares, and custom

castings.

Quantitatively of limited importance are lead, used to a large extent as

solder, and zinc, used in die castings and for galvanizing.

The electrical equipment industry in Puerto Rico is still predominantly

an assembly industry, importing its component parts from affiliated firms.


- 24 -






- 25 -


There is, however, some use of sheet metal, for processing by stamping,

forming, and.punching; of copper, tin, and silver wire, for winding; of

plastic resins, for molding; and other basic materials. Also, some of the

stampings and other parts and components, as well as.shipping containers,

are obtained from other Puerto Rican plants.

Plastics Although the plastics industry as such is somewhat elusive in that

it overlaps other industries, like electronics, toys, and so on, and available

data on raw material applications is somewhat fragmentary, the quantities

are important enough to warrant attention. Supplies originate almost wholly

in the U.S., although some are sold through local wholesalers and agents and

through branches of U.S. firms which maintain stocks on the island. Close to

half of the total supply arrives in semifinished forms, such as rods, sheets,

and bars, and film for converting. Among the principal quantities arriving

as resins and some of their uses are polystyrene, for adhesives and "expanded

polystyrene"; vinyl, for tiles, tubing, and paints; melamine for dinnerware;

and phenolic resins, for electrical insulation.

Printing, paper converting The raw materials for these two sectors are

also of some significance. Newsprint is overwhelmingly a Canadian contribu-

tion, although some also comes from the U.S. Other printing papers, of which

book papers are most important, come largely from the United States. Some-

what more important than both of these combined are papers for converting --

into paper bags, shipping containers, boxes, and household paper goods; the

great bulk comes from the United States. Except for the printing paper, much

of which go.s through brokers and jobbers, most procure-ent is direct or

through affiliated companies. There is some local prodbution of paper pulp,

paperboard, and waste paper stock -- also, at least in part, transferred

among affiliated companies.




- 26 -


C. Channels of Distribution and Frequency of Shipments

In an effort to ascertain the prevailing channels of distribution for

various raw materials and containers, a detailed tabulation was made of

consignor-consignee relationships as they could be elicited from the bills

of lading of some of the principal carriers by water from the U.S. during

sample months of 1962 and 1961. This meant identifying the nature of the

consignor and consignee as stated by name on the bill of lading, and although

in the main the identifications are considered accurate, it is inevitable

that some errors in classification should have crept in. The difficulty of

distinguishing between commission distributors in Puerto Rico and those

ordering goods on their own account was particularly great -- in no small

measure because many distributors combine both methods of doing business --

and this distinction was abandoned. The final tabulations, shown in Appendix

Table II (Appendix A),- were reduced to a monthly average basis and are shown

both in shipping weight for each commodity category and in terms of number

of separate consignments. Covered in the sampling were Alcoa shipments from

New York in the first three months of 1962, all Sea-Land shipments for the

first two months of 1962, and Alcoa shipments from New Orleans and Mobile

during October 1961 and March 1962. This sampling represents the great bulk

of shipments from the U.S. for most commodities and, by the same token, the

preponderance of total supply for almost as many.

The evidence of the tabulation is that for raw materials in general,

about two-thirds of U.S. supplies are shipped directly to manufacturers in

Puerto Rico rather than going through Puerto Rican middlemen. (Some of

these, of course, may have been ordered through an agent or distributor but

consigned directly.) The great bulk of these shipments also originated with

I/ See page 84.







-27 -


a U.S. manufacturer, and for something over a third of the volume, the

originator was a parent or affiliate. For the goods shipped to various kinds

of distributors in Puerto Rico (mostly wholesalers), an even larger

proportion originated with manufacturers in the U.S. rather than with other

agents or distributors.

The situation varies widely, of course, from commodity to commodity.

Very little in the way of yarns and fabric is channeled through distributors;

fabric shipments are mostly from parent to subsidiary, while yarn and

synthetic fiber shipments originate mostly with unrelated mainland manu-

facturers. Almost all the lumber, by contrast, channels through distributors;

most of whom buy directly from the producing company.

Iron and steel divides about half and half between shipments to Puerto

Rican distributors and shipments to manufacturers; only a small part of the

total in either case passes through an independent Mainland wholesaler or

exporter. (Affiliated Mainland sales corporations of U.S. manufacturers

were classified as manufacturers.)

The data by numbers of shipments give a notion of the relative size and

frequency of individual consignments. Out of about 1,700 raw materials

shipments a month for which consignor-consignee pairs could be identified,

roughly three-fifths were from manufacturer to manufacturer, indicating, by

comparison with the volume data, that consignments are either more widely

spread or more frequent than those going to distributors; one must suspect

that both elements play a part.

The largest number of individual consignments was of cotton fabric; the

figures suggest that nonaffiliated manufacturers are served with smaller






- 28 -


shipments, more frequently, than the subsidiaries of Mainland firms. (It

may be that this difference would disappear if air shipments were taken into

account.) Shipments of iron and steel are also very frequent, but the

evidence is clear that this is because of relatively small shipments direct

to manufacturers (mostly unrelated) rather than of numerous shipments to

distributors, who actually receive far fewer consignments than manufacturers

though they account for close to half the volume.

In the case of containers, the largest volume of shipments is of tin

cans and parts (the latter including can ends and presumably flattened cans);

this was shipped about half to the American Can subsidiary for further fabri-

cation and half to other manufacturers. (The great bulk of tinplate, by

contrast, was shipped to American Can.) Shipments of glass containers and

of paper and paperboard containers were about equal in volume. The former

were less numerous, however, and went largely to unrelated manufacturers; a

rather large number of consignments to affiliated firms of paper containers,

by contrast, suggests that parent firms frequently supply their subsidiaries

with the necessary packaging.


D. Characteristics and Operations of the Industrial Distributing Firms

Industrial distributing firms in Puerto Rico take on almost the same

wide variety of forms as firms in the U.S. -- brokers who do business

virtually out of their hats, agents who are essentially commission salesmen

for a small group of out-of-the area companies, agents who have substantial

independent responsibility for terms of sale and/or who stock materials on

consignment and/or provide technical services, primary distributors who







- 29 -


also double as intermediate-level wholesalers and sometimes retailers as

well, firms which sell both on commission and for their own account, firms

which provide substantial repair and maintenance services, firms which

provide degrees of manufacturing and fabrication as well as materials in

the form in which received, and so on.

Some of the varieties which exist in the U.S. do not exist in Puerto

Rico because the economic activity does not exist -- for example, carload

waste-paper brokers. Others will not be found in Puerto Rico in quite the

same form as in the States because the scale of demand either does not yet

warrant it or has not yet been thought to warrant it -- for example, steel

warehouses ("service centers"). In other cases, the relative scale of

markets tends to concentrate in one firm the functions that in the States

would be more normally found in two or three. Other differences stem from

the historical, although fading, classification of Puerto Rico by U.S. manu-

facturers as an "export" market, which leads to fewer branch and relatively

more numerous agency and importer operations; from the variations in tax

laws, which put a premium in Puerto Rico on subdivision of operations into

numerous corporations; and from socio-economic barriers (also fading) to

newcomers which mean that the frequent initiation of new distributing busi-

nesses holds little competitive threat to the already well-established ones.

Generally speaking, however, the differences between Puerto Rico and the

U.S. Mainland are primarily ones of size, emphasis, and degree.

Even the ambiguity surrounding some of the designations given to dif-

ferent types of distributors is not peculiar to Puerto Rico, but it is some-

what accentuated by the greater hybridization which prevails there as well

as by the hangovers from an insular market. The word, "distributor" itself,






- 30 -


for example, is frequently intended to have a very specific meaning, but in

such cases the connotation is clearer to the user than to the audience.

Generally, in Puerto Rico, it appears to have been applied to primary island

distributors, as contrasted with a second level, of wholesalers to which they

distribute. It also appears intended to distinguish the more substantial

stock-handling firm or exclusive agent from the broker or non-exclusive

agent. Herein, we have used the term in the generic sense of a firm which

performs any kind of distributing service, acting in one way or another to

spread one or more products among island wholesalers and/or industrial and

agricultural users.

Another pair of terms with some ambiguity is "broker" and "agent";

variations are commissionn agent", commissionn house", "manufacturers' agent",

and "manufacturers' representative". The ambiguity exists also on the

Mainland, since it reflects a whole range of principal/agent relationships,

involving degrees of negotiating authority, of physical handling of the

goods, and of control by the principal. Generally speaking, "broker" is

used to designate the kind of agency in which the principal maintains the

least control over the conduct of the agent's business, but retains the

greatest degree of control over the consummation of the individual trans-

action; it also involves the least (usually no) handling by the agent of

the actual transfer of goods. The term, commissionn merchant" has tradi-

tionally been used in the States to designate firms selling goods held on

consignment, but does not seem to be used in Puerto Rico, though the prac-

tice exists. In this study, we have not tried to distinguish between dif-

ferent forms of agency (although we have tried to describe the specific

operating practices, where known and relevant). We have thus generally





- 31 -


used terms like "broker", "agent", "commission agent", or "manufacturers'

representative" interchangeably to mean some form or other of.agency, as

distinguished from "wholesaler", which we have used to designate.one who

purchases and sells on his own account, whether at a primary distributing

or a subsidiary level.

In general, the meaning of these and other terms should be clear from

the context.

Supplies handled The kinds of industrial supplies for which distributing

firms play an important role include lumber and millwork, iron and steel,

nonferrous metals, industrial chemicals, fertilizer, lime, tires and tubes,

and various other kinds of operating equipment and supplies. This is for

supplies from the United States. For the supplies arriving from foreign

countries -- notably lumber, newsprint, iron and steel, fertilizers, copper,

brass, and bronze -- Puerto Rican distributors play an important role in

nearly every instance. By contrast, for very few of the materials manu-

factured within Puerto Rico are industrial distributors of any importance;

ammonia fertilizer is the principal exception.

Judging by Census statistics,-/ the machinery and equipment dealers do

the largest dollar volume of industrial distributing business2 -- nearly

$40 million in 1958, with a 1954-58 increase of around 10 percent per year;

about 80 percent of this business is by firms which are primarily wholesalers

or manufacturers' sales branches rather than by firms which are primarily

agents or brokers. Lumber and building materials supply appears to be the

next largest category. These dealers did a total business of. $28 million in

1958 and $21 million in 1954, of which only a Small, anddeclining, proportion

i/ U.S. Bureau of the Census and P.R. Planning Board, Puerto Rico Census of
Business, 1954 and 1958.
2/ Of the types more or less within the scope of this study.




- 32 -


went through brokers. The statistics also show only a minor, and declining,

proportion of sales for "commercial" use (rather than to "domestic consumers")

but these findings may be an accident of vagaries in classification.

Another large grouping is hardware and plumbing, of which the industrial

(including construction) proportion handled by Puerto Rican middlemen rose

from about $72 million in 1954 to $16 million in 1958 (about 20 percent per

annum). An even steeper rate of increase was recorded for electrical equip-

ment of which distributor sales to industrial and commercial users rose

from something over $3 million in 1954 to about $11 million four years

later. Statistics on chemicals and drugs suggest an industrial distribution

flow of only about $4 million in 1954 and $I- million in 1958, but this very

likely omits the large amounts handled by firms (such as the fertilizer

mixers) which are industrially classified as "manufacturing".

Industry structure Industrial distribution in Puerto Rico is characterized

generally by the existence of a few dominant firms in each field, with sub-

stantial physical plant and equipment, and a large number of small ones,

operating virtually out of homes and garages. However, the degree of con-

centration varies considerably from line to line. For example, of the 90

machinery, and so on, distributors operating in 1958, 10 did an annual busi-

ness of $1 million or more and thereby accounted for 60 percent of the total

sales; of these, two were brokers or agents and the rest primarily merchant

wholesalers or manufacturers' branches. Only 4 firms did an annual business

of under $5,000. In the lumber and building supplies field, by contrast,

only 7 of the 184 firms operating at both wholesale and retail did a busi-

ness in excess of $1 million, the same number which sold less than $5,000.

The seven largest did nearly one-third of the total volume. There was,


I/ Puerto Rico Census of Business, 1958.





- 33 -


however, a large middle group, with nearly one-third of the firms falling

into the $100,000-$250,000 category. In the wholesale hardware and plumbing

equipment field, nearly one out of five firms sold $1,000,000 or more; none

fell under $10,000 and only one under $25,000.

Only six of the machinery distributors and two each of the lumber

dealers and hardware dealers had at least 50 employees. There were no

primarily brokerage firms among them. Twelve of the machinery distributors,

twenty-four of the lumber dealers, and four of the wholesale hardware

dealers operated with no employees; there were three machinery commission

agents in this group.

More than half of both the machinery dealers and the hardware and

plumbing equipment dealers operated under the corporate form, but this was

true for barely one-fifth of the lumber dealers; 70 percent of the latter

firms were sole proprietorships.

It is virtually impossible to know, in any statistical sort of way,

how much of the foregoing, as well as other parts of the industrial dis-

tributing apparatus, involves the imposition of layer upon layer in the

movement of goods and how much involves a relatively direct chain from

source through primary distributor to ultimate manufacturing, construction

industry, agricultural, or government user. By the same token, it is not

possible to know statistically the character of the primary level as dis-

tinguished from secondary levels where these exist. We know, for example,

that lumber yards, selling in large measure to construction contractors, are

much more numerous than building material brokers; we do not know, however,

what the relative proportions may be among original importers of lumber.

We do have some broad qualitative indications on such matters from the








interviews with distributors and others which are part of the basis for this

study. These indications are clear that the distribution of firms by type

and layer of activity varies considerably according to industrial product.

In the case of supplies for the apparel industry, we have seen that the

overwhelming bulk of the materials does not pass through any Puerto Rican

distributor at all. Of the balance -- mostly piece goods for small manu-

facturers and some standard items like thread (though only a minor part

even of that) -- the bulk appears to be imported by wholesalers rather than

by agents or brokers. Some of this may be illusory, however, as consignment

selling appears to be an important practice in this area. Our one inter-

viewee in this field, though he kept some stocks, did nearly all of his

selling on a commission basis.

In the case of hides, skins, and leather, if there is any independent

distribution system, it is not much in evidence.

Rubber distribution is quite different for tires and tubes, on the one

hand, and for crude rubber and latex, on the other. To the extent that the

latter passes through Puerto Rican distribution at all, it does so primarily

on a commission basis. Distribution of tires and tubes is in major portion

handled by Puerto Rican branches of the large U.S. companies, who both carry

their own warehouse stocks and maintain consignment stocks with a second

layer of wholesalers. Industrial rubber products are also initially im-

ported by the branches, part going directly to the industrial users, part

through intermediaries. Camelback is sold by the branches directly to

users (including affiliated recapping plants). In addition to these branch

operations, there are apparently numerous direct tire-and-tube importers and

jobbers; to what extent these cater to industrial rather than private-auto-

mobile requirements is not clear.


- 34 -








The lumber and plywood picture is somewhat mixed. For the bulk of

Canadian lumber, local distribution starts with two resident agents, who con-

solidate orders, schedule shipments, and generally keep things running

smoothly. Delivery, however, is to the order of a relatively small number

of principal wholesalers, who also buy West Coast U.S. lumber at least

partly on a bid basis and import also from other U.S. and foreign sources.

(There are also direct deliveries to major users.) Much of this lumber is

never physically handled by the primary wholesaler, but is picked up by a

sublayer of lumber merchants or directly by users; other quantities, not

immediately sold, are warehoused and later sold to similar customers. In

view of the large numbers of firms statistically classified as "retail"

lumber dealers (the Census has no special classification for lumber whole-

salers other than commission merchants), it is likely that there are still

additional strata for some parts of the island and types of ultimate users.

Although, as noted above, a large part of the sales of these dealers is re-

ported as being made to "domestic consumers" -- and in fact there has long

been a lot of necessitous "do-it-yourself" in Puerto Rico -- the chances are

that much of this is actually industrial in nature, being in the nature of

sales to small artisans and contractors.

Only a small part of the industrial paper consumption of Puerto Rico

channels through Puerto Rican distributors. (Grocery bags and finished

household paper goods -- two large items have been considered outside the

scope of this study.) Of the amounts which do go through distributors, those

destined to printers and for business and government office use are most

important. Selling is direct to these customers, almost wholly on a com-

mission basis, and is reported to be highly competitive. Unlike the States,

exclusive agency is uncommon. Especially for graphic art supplies, some

distributors also carry modest stocks.


- 35 -





- 36 -


In iron and steel products, distributors have close to half the market,

the rest being bought direct. It is especially in structural steel and

other iron and steel building materials that warehousing distributors are

important; steel for industrial processing infrequently follows this

channel. A few barge firms notably Abarca, Juan Marina Garcia, Garcia

Commercial -- account for about half the distributors3 share; the rest is

handled by branches of such Mainland companies as U.S. Steel, Bethlehem,

and Armco, and by various brokers and agents.

For nonferrous metals, the total share handled by local distributors

is somewhat smaller, but again a few larger firms -- like Abarca, Arsuaga,

Jose Adolfo Pagan -- account for half or more of the distributors' share.

The same firms generally both carry warehouse stocks and act as commission

agents; Arsuaga keeps the two operations separated between two corporate

entities. Alcoa has a local affiliate which maintains an aluminum warehouse.

The structure of chemical distribution differs considerably as between

fertilizers and other chemicals. For fertilizers, Ochoa, San Miguel, and

a local branch of Armour Chemicals Division account among them for the

great bulk of the market. All are engaged in mixing as well as direct

wholesaling; in addition, Ochoa has a link with the local ammonium sulphate

producer, Caribe Nitrogen, which the Gonzalez family (owners of Ochoa)

established some five years back.

For other chemicals, the field is somewhat more finely divided; never-

theless a relatively few firms -- e.g., Ochoa Industrial Sales, Fairbank

Diversey, H.V. Grosch, and Badrena y Perez -- handle perhaps half of the

distribution that consuming manufacturers do not buy direct. The rest of





- 37 -


the field is divided between smaller distributors and branches of U.S. firms.

Both larger and smaller firms do mostly a commission business, but some of

the larger firms, as well as the U.S. branch operations, also carry stocks.

One of the Dow Chemical subsidiaries on the island is actually an international

base company; Dow's Island business is channeled through other distributors,

notably Ochoa. Du Pont also uses a number of local wholesaler-agents, while

Union Carbide and Olin Mathiesen appear to have exclusive distributors.

Most of the other large U.S. companies distribute directly from their own

branches.

Part of the local distribution system for chemicals, according to

interviewees, consists of casual sellers and agents who are not actually

resident on the island, but who intermittently dump distress merchandise

or who combine vacations on the island with sales tours. Aggressively-

selling foreign suppliers also tend to upset established distribution chan-

nels.

Physical facilities Warehouse facilities visited in the course of this

study, except those in the Caparra area near Puerto Nuevo, tended to be

both small and inefficient. Their size precluded much mechanization. The

newly developed Caparra area, on the other hand, is efficiently planned.

The Garcfa Commercial warehouses are excellent, and Bodriguez Portela's

warehouses, open storage, offices, and salesroom are all outstanding

examples of modern facilities. Other facilities which were equally good,

included those of such U.S. subsidiary companies as Du Pont, Firestone,

General Tire, and U.S. Rubber.

The lack of adequate warehouse space has been one of the most serious

deterrents to improvement and expansion of the Puerto Rican distribution






-38-


system. Because of it, supplies must move into the system frequently and

in smaller quantities than efficiency would dictate. The use of containers

and trailers such as those utilized by Sea-Land has helped to provide the

equivalent of supplementary warehouse space for some commodities, but does

not offer an economical solution to the problem. On the other hand, it

would be wrong to assume that cheaper land in appropriate areas would

immediately result in the building of the required additional storage

facilities. Many of the distributors either are not interested in, or have

insufficient financing for, the warehouse end of the business with its

concomitant risks. Some of those who do provide warehouse space make every

effort to store goods only for the customer's account, in order to minimize

risks; some of these complain that they are not always able to protect

themselves in this way, and it is unlikely that they would be inclined to

engage in large-scale expansion of storage facilities.

There are very few public warehouses in Puerto Rico, and these are

largely used for other than industrial supplies.- The four in the San Juan

area, totalling 140,000 sq.ft., are, in general, clean, dry, and well-main-

tained. None is particularly well adapted to high-speed mechanical handling,

and, in fact, none uses forklift trucks within the warehouse and none is pal-

letized. (Yard forklifts are used to some extent for loading and unloading.)

The basic charge for public warehousing is $.08/cwt. per month, much higher

than in most Mainland centers; moreover, the user must see to the delivery

and withdrawal of his goods directly to and from the storage area. That


/ The information on public warehouses is from the study by Harbridge
House, "Industrial Distribution in Puerto Rico" (March 1, 1961). See
Appendix C, herein.






- 39 -


these conditions are not too attractive compared with the alternatives of

delaying pickups at the docks, using one's own facilities, and minimizing

inventory is attested to by the fact that the public warehouses are only

half-filled. (Despite this, it is reported that they frequently reject

particular kinds of goods or particular customers.)

Distribution on the island depends heavily on hired trucking to move

merchandise and equipment, particularly from dockside; distributor-owned

trucks, if any, are most apt to be used for deliveries from warehouse to

customer. Preference for contract trucking was indicated by all the dis-

tributors interviewed, whether they had their own trucks or not. The ex-

perience of the contract truckers in handling documentation and pier pro-

cedures, and the strength of the union in this phase of the island's truck-

ing industry, have both contributed to contract truckers' near monopoly of

deliveries from the docks. The advent of Sea-Land's door-to-door delivery

has changed the pattern somewhat, but not all commodities lend themselves

to trailer delivery, and further, even Sea-Land usually uses hired tractors

to haul its vans. (They have some 100 interchange trailer contracts with

Puerto Rican truckers.) REA Air (and Sea) Express has just brought in a

fleet of its own trucks for its island deliveries, but is already consider-

ing hiring them out or selling them for rehire, as Riddle Airlines did

after a term in Puerto Rico.

There are some 3,000 truckers on the island, most of them small opera-

tors with one to five vehicles. Often they are former employees of local

firms, some of them distribution firms. Their former employers often help

them with financing and in other ways with the understanding that they will










have priority on the equipment. Larger transfer firms, like Valencia-Baxt,

have long-term contracts with distributors and manufacturers. These larger

firms, however, must abide by union conditions and find that the competition

with the smaller truckers is tough.-/

In addition to warehouse facilities and trucks, wholesalers require of-

fice space, and either wholesale or retail salesrooms, or both. There seems

to be no regular pattern concerning ownership of these facilities. Some

firms are in rented quarters, some own their own buildings. Most of those

interviewed had facilities only in the San Juan area, with salesmen covering

the island (as well as the Virgin Islands and the Dominican Republic) from

there; a few had salesmen permanently based either in Ponce or Nayaguez, but

it was not clear whether these operated from their homes in those cities or

from rented or owned office space.

Though they are not part of distributors' facilities -- owned or hired --

the physical facilities at the docks also have an important bearing upon the

efficiency and manner of distributor operations. To an important extent --

the most notable example being in lumber -- distributors use dockside facili-

ties as a distribution point for goods which they have sold while at sea

(or even after unloading) to final customers. Although there is a 5-day

limit on transit storage, it is frequently exceeded, and bills for demurrage

are ignored, even by the largest companies. The result is that the dock

areas, most of which are limited in space, become overcrowded to an extent

that has even held up the unloading of ships. Importers constantly complain

of their inability to reach their goods after locating them, which in itself

is often difficult.


I/ For further details on trucking, see Appendix C, pp. 146-147.






- 41 -


Facilities for handling traffic in the dock area of San Juan are also

inadequate. When a ship has Just arrived, there may be 50 or 100 trucks

at a time awaiting loading. In addition, the traffic arterials behind

the piers are overcrowded; this is true even behind Puerto Nuevo, where

traffic at peak periods is described as "impossible".

Facilities at Isla Grande for outdoor unloading and storage, particularly

for lumber, which is offloaded there, are very poor. The dock area and

the roads are full of potholes. The hangar area where Sea-Land breaks its

less-than-trailer loads for resorting and delivery is also inefficient and

crowded. Sea-Land has been financing dredging and the erection of addi-

tional transit sheds at Puerto Nuevo which should decrease handling and

delivery costs substantially; these are now in partial use.

Labor costs on the docks are high, with relatively low productivity.

The latter, combined with the inadequate physical facilities and relative

lack of mechanization, results in further inefficiency.

Outside the San Juan area, facilities at the port of Ponce are generally

accepted as being good. Those at Mayaguez are generally considered impos-

sible, and traffic has been diverted to San Juan, further increasing the

latter's problem.

In addition to dock storage, the advent of container transportation has

provided distributors (as well as other importers) with still another ex-

tension of their own facilities. It is not unusual for containers or

trailers to remain in customers' hands for several weeks, and the occasional

consignee may take months before relinquishing it. Demurrage is payable,

but not always paid.

Methods of operation and character of service The methods of operation

of Puerto Rican distributors encompass almost every known variation, and






- 42 -


many distributors combine several of them. Commission selling is perhaps

the most common, accompanied usually by direct shipment from the supplying

manufacturer to the customer. Some of the commission merchants have a num-

ber of exclusive (or de facto exclusive) agencies, but few confine them-

selves to a stable set of lines or brand names. Physically direct shipment

also is characteristic of some merchant operations, where selling takes

place before the distributor places his own order, or while the goods are

enroute, or even when they are on the docks; for this purpose, lots con-

signed to the distributor are frequently broken up and reconsigned. Only in

a few limited fields is there much handling of goods on consignment.

Distributor warehousing is principally of items for the construction

industry, for agriculture, or used as operating supplies. However, some

manufacturing raw materials are also warehoused in substantial quantities,

notably chemicals (stocked by branches of Mainland companies and by Ochoa,

Fairbank-Diversey, and others), lumber and plywood (Rodr:guez Portela,

Josd Adolfo Pagan, and others), iron and steel (Garcfa, Abarca, and others),

copper (Arsuaga), aluminum (Aluminum Sales Corp., an Alcoa affiliate),

latex (Badrena y Pdrez), thread (A.R. Villamil and others), and paper for

printing (Zeppenfeldt, Paper Corp. of Latin America, and so on). Most of these

stocks are either intended for small users or as standby or incidental stocks

for larger industrial consumers; few larger consumers use them as a regular

source of supply.

Most of the commission or brokerage businesses are either independent

or independently incorporated; the latter may even sell in competition with

their affiliated wholesaling companies. The larger ones usually try to sell


1/ See the profiles in Appendix B for some typical examples.




- 43 -


at a 5-percent commission, whereas the smaller operators with little or no

overhead tend to be satisfied with 3 percent or less, even going as low as

1 percent. The latter, by having the supplying or shipping companies do

their accounting for them, having the customer accept delivery at the dock,

and offering no financial, technical, maintenance, or repair services, are

able to operate at low commission rates. The larger companies, on the other

hand, usually supply some technical literature, maintain ancillary and re-

pair stocks and services, and handle more of the financial details of the

transactions; it would, however, appear that they are generally not as

aggressive as the smaller agents in direct coverage of the market.

A special type of agency is that maintained by at least two Canadian

lumber companies -- Seaboard Lumber Sales Company, Ltd., which uses Arturo

Gdigel as its resident agent, and MacMillan, Bloedell, and Powell, Ltd.,

which uses Gerardo Molina. These agents service merchant wholesalers: all

lumber orders from the island to the two Canadian firms are placed through

the agents, who consolidate the orders so that each ship bringing lumber

from British Columbia will be full; they also keep local distributors in-

formed of supplies available.

One of the most interesting trends uncovered by our interviews was the

appraisal of their businesses by the distributors in terms of services ren-

dered. Warehousing and stocking in order to prevent industrial customers'

running out of supplies and thus having to close down production was con-

sidered a major service by some, and some of the wholesalers had devised

rather elaborate record-keeping on their customers' orders in order to keep

supplies flowing smoothly. Others make a great effort to provide technical

information about current and new lines. Some provide continuing mainte-

nance and repair service, not only for equipment which they sell, but also









for independently-purchased equipment of manufacturers they represent. Not

unexpectedly, some of the smaller and newer firms place the greatest emphasis

on their service contribution; it enables them to compete with older, more

established firms which may have greater capital resources and better

physical facilities for warehousing inventories./

One distributor service is virtually universal. Of those selling on

their own account, all provide credit in varying degrees -- and some not

only carry their customers for periods which seem astonishingly long to

those accustomed to Stateside financial arrangements, but reject any idea of

discounts for payments which are prompt.

Characteristically, both small and large firms are kept under close

personal or family control. Some of these -- e.g., Abarca and Ochoa

(Gonzilez family) -- have been large family enterprises for at least two

generations. Even the later arrivals to bigness -- e.g., Garcfa enterprises --

are usually kept firmly within the family orbit. The various enterprises in

each group are technically independent and in many cases are left to compete

with one another, but effective overall direction and standards are provided

by the family presence on interlocking directorates. Desire to.maintain

control extends to a reluctance to accept outside financing -- a character-

istic which is by no means confined to the larger firms. Control does not

mean, however, a complete exclusion of "outside" management talent, which

does crop up in the larger enterprises.

Financing' There appears to be a rough correlation between age of firm and

strength of financial resources: the older, well-established companies


i/ For an independent appraisal of service standards, see Appendix C,
pp. 130-131 and 137-138.
/ For further comments on this subject, see Appendix C, pp. 143-146. It should
be noted, however, that the Harbridge House analysis includes In the cost
of financing an in-transit element and other time periods wherein goods are
more often carried by the mainland supplier than by the Puerto Rican dis-
tributor. This may contribute indirectly, in some instances, to added
Puerto Rican costs by way of higher price quotations.





-45 -


(or groups) generally have sufficient resources to cover their current ac-

tivities with ease, while the newer firms, some less than five years old,

seem to be continually pressing at the limits of their capital capabilities.

The slow payment pattern characteristic of the island's businesses tends

to tie up working capital and deter growth. It is not uncommon for the

accounts of distributors' customers to run up to 160-180 days before settle-

ment. The normal 30-day payment period of the States is rare in Puerto Rico,

and 60 days is generally recognized as the minimum. In some cases accounts

receivable may run a year before settlement; these include some of the

island's large customers, including a few of the sugar centrals.

The slow payment by distributors' customers is reflected in a general

U.S. characterization of Puerto Rican accounts as "slow". However, Mainland

suppliers do not as a result restrict credit to Puerto Rico, nor do they

generally require prepayment for goods, for example by letter of credit.

Sight draft seems to be a common procedure, which means that in-transit

time is in effect financed by the shipper. Substantial firms are shipped

on open account, with such terms as 2%, 10 days/net 60.

Financing needs of Puerto Rican distributors tend to be higher than for

their Mainland counterparts therefore, not so much as the result of

prompter payment required of them as of the laxer payment of their customers.

Theoretically, the longer supply lines and vulnerability to shipping inter-

ruptions should result in higher inventory levels and hence still higher

financial requirements on that score, but it is not at all clear that

Puerto Rican distributors do carry generally higher inventories on their

own account. Another element tending to raise financial requirements

1/ Harbridge House concluded that Puerto Rican inventories were slightly
higher (Appendix C, pp. 137-143), but their sapping m~' have given undue
weight to operating supplies as against raw materials, where inventories
are generally lower.






- 46 -


in Puerto Rico -- particularly for importers of machinery and electrical

goods -- is the imposition of excise taxes which, though recoverable, need

in the meanwhile to be financed; however, even considering the marginal cases

in which Treasury agents collect provisional tax "just in case", only a

small part of the flow of industrial goods is thus affected. Also adding to

financial requirements is a property tax on inventories; however, this also

obtains in many Mainland jurisdictions and in Puerto Rico is not applicable

to "raw material to be used in industrial processes".

More important, probably, than the relative size of Puerto Rican dis-

tributors' working capital needs are the more restricted and higher cost

avenues of meeting them. The commercial banks in Puerto Rico are probably

more predominantly specialized in trade credit than banks in the States, and

the larger ones utilize much the same standards and terms, but at rates 1/2

to 1% higher than those in New York. (There are higher-than-New York charges

also in other cities in the States, but the differential is generally nar-

rower.) Accounts receivable financing is very limited, and the rates for

this run as high as 15-20f. Warehouse trust receipt financing is either

negligible or non-existent.

Since in general, the banks in Puerto Rico find little difficulty in

profitably employing their funds (much goes into consumer goods financing,

personal loans, and agricultural credit), the availabilities to industrial

distributors are limited. Even with the larger firms getting by to a very

large degree on their own credit rather than resorting to borrowing, the

availabilities to the smaller, newer firms which are considered marginal


I/ The subject of taxation is discussed in the Harbridge House report,
Appendix C, pp. 141-143; it is felt, however, that the problem of
excise and property taxes is overemphasized.







-47-


credit risks are limited, and loans, if any, are more frequently made on

the basis of owners' personal assets like real estate than onthe basis of

the firms' inventories or receivables.

Despite these constrictions, it is of some interest that in the inter-

views with distributors, large and small, mention of a need for expanded

credit was more often made in terms of the distributor's customers than in

terms of his own needs. This reflects in part the reluctance, cited above,

to seek outside capital, but may also imply a greater interest in collect-

ing on receivables and expanding sales than in further extending the firm's

own financial risks. The fact that SBA and Fomento were usually cited as

the sources whose expansion was desired also indicates that it was a need

for medium-term, rather than short-term, credit which was more keenly felt.

Distributor problems In addition, to finances, the problem most often com-

plained of by distributors was undue competition. In some lines particu-

larly, firms were distressed by the continuing entry of new competitors,

by the casual sales made by visitors to the Island, and by the practice of

some agents and wholesalers of taking advantage of foreign offers (e.g.,

European and Japanese) which tended to undermine the going channels and

price structure. They were also distressed by the widespread bypassing of

Puerto Rican distributors in favor of direct purchases from local factories

or those in the States; in this connection, the deficiencies of service or

underlying economics which occasioned these dealings were not an evident

part of their thinking, although there were instances where the situation

was regarded as requiring more intensive sales efforts.







- 48-


Another factor of frequent mention were the physical problems of trans-

portation and port handling. In addition to the port congestion described

above, there was a tendency to regard the operation of the transportation

companies as something less than reliable.

Aside from their financial aspects, excise and property taxes were

complained of as such. The latter were held to interfere with rational

inventory practices, the former to predispose manufacturers to purchase

directly from the Mainland and avoid tax, rather than buying from the

distributors and then waiting to get the tax reimbursed.


E. Comparative Prices


Harbridge House, in its research, did some comparative pricing of raw

materials and supplies in Puerto Rico and on the Mainland. Results varied


l/ Appendix C, pp. 131-132, 133-134. Although the remarks made therein dis-
tinguish between raw material prices (which generally range from lower in
Puerto Rico to not substantially higher) and prices of operating supplies
(which were found to be considerably higher), the emphasis on the latter
tends to give the impression that high prices make for a considerable cost
disadvantage. The Harbridge analysis does go on to indicate a probable
impact on the cost of finished goods on the order of 2- to 7 o in the
case of higher raw material prices, compared with less than 1 percent
for industrial (i.e., operating) supplies. It needs also to be pointed
out, however, that operating supplies are of very small importance in
most lines of Puerto Rican manufacturing, so that the 1 percent applies
only to a limited range of industries. Moreover, the implicit assumption
made, that high percentages of raw material in value of product might be
combined with large price disadvantages on raw materials, would seem to be
an erroneous one (unless one wants to consider the manufacturers that did
not come to Puerto Rico). Also, the range of 50-75 percent assumed for
proportion of raw materials in finished product does not allow for the
many manufactured items whose raw material content is somewhat lower than
50 percent. It seems probable, therefore, that the impact of higher raw
materials on total costs would fall more into the range of about 2 to 4
percent than into the range cited (disregarding the instances where Puerto
Rican prices are actually the same or lower). This does not detract from
any of the Harbridge House conclusions as to the psychological impact of
higher prices, although in our own investigations, we found relatively
few price complaints.






- 49 -


widely. For raw materials it found that prices varied "from 5% lower than

Mainland prices (for one type of plastic) to more than 110U higher (for

special alloy steel)." For operating supplies, it found Puerto Rican prices

10 percent to 420 percent higher, with "the bulk of the price differentials

. on the order of 17% to 25%."

An earlier survey, conducted for Fomento, found that "Most of the

companies I0 manufacturing firms surveyed use U.S. materials and dif-

ferences in prices generally reflect freight charges from the United States

to Puerto Rico. Twelve of the companies using Puerto Rican materials in

large quantities find them less expensive to buy in Puerto Rico than in the

United States." (Half of the twelve were in electronics and food manufac-

turing.) The report warns, however, that the question posed may have been

subject to some misinterpretation and the results should not be taken too

literally.

The scattered plant-visit questionnaires completed by Fomento officers

as part of the current review showed a variety of responses on the specific

question of comparative prices. In the apparel industry, most manufacturers

found prices higher,because of freight. Two found prices "more or less the

same." One found that thread, purchased locally, was the same price, "but

of better quality;" another reported his thread, shipped from the parent

company, was higher (but other prices the same); another brought his thread

from the States, at a "slightly" higher cost, because he found local thread

"sometimes not up to standards;" another also found lcal thread

cheaper, but not equal in quality. One manufacturer reported his locally

produced corrugated cartons lower in price, another found them higher.




- 50 -


Firms in leather goods and related items as a rule found their raw

materials different in price only by the cost of transportation; one sub-

sidiary was billed at the same prices as would obtain in the States.

Another company indicated that the cost of some of its raw materials (pre-

sumably those locally produced) differed only by the cost of local trans-

portation.

Plastic manufacturers reported resin prices, delivered, as the same in

Puerto Rico, semifinished plastics as higher (when specified, by the cost of

freight). Among metals-using manufacturers was one who reported wood and

fabric prices higher, steel prices lower; several subsidiaries which re-

ported their parent-supplied raw materials higher; two who found their in-

dependently-supplied materials higher (one indicated by the cost of freight);

and one which found the cost the same. Included in all categories of re-

sponse were manufacturers who got some of their materials from foreign

sources. Among miscellaneous manufacturers was one who found the delivered

cost of his materials (mostly paper) lower and several who found them higher,

of which one specified that the difference was freight.

The principal generalization that may be drawn from the foregoing is

that Puerto Rican raw material costs tend to gravitate, as would be expected,

around U.S. cost plus freight. There is no evident difference in this re-

spect between orders channeling through a Puerto Rican agent or distributor

and those placed direct. It may also be generalized, however, that many

manufacturers have considered that their cost situation could be improved

by more favorable procurement and have made efforts (sometimes successful)

in this regard. it may be generalized, finally, in view of the differing

appraisals of the Puerto Rican situation even where the same or similar

materials are involved, that the prices at which procurement is effectuated

also differ considerably from plant to plant in the States.







-51-


F. Users' Problems

Indications of the supply problems of Puerto Rican manufacturers

were gleaned primarily from the limited number of interview question-

naires referred to above and from an earlier multi-purpose Fomento survey

of manufacturers carried out in 1962.- The timing of these surveys

coincided with a still uncompleted readjustment of U.S. Puerto Rican

shipping following upon the withdrawal of Bull Lines from service and

may thus to some extent have biased the replies. For if there is one

almost universally-repeated complaint, it is transportation. Ocean ship-

ping, port operations, and local delivery all come in for their share of

criticism, although usually the complaints are simply about transportation

problems in general or about undependable deliveries. A fair number of

manufacturers see the solution to their problems as local production of

more of the materials they require.

Many manufacturers surveyed indicated no concern at all with supply

problems. Of the relatively few that are bothered by inadequacies of

the industrial distribution system, complaints revolve.more around quality

of service or quality or variety of supplies available than about price.

One particularly outspoken manufacturer stated, in reply to a question

about any attempts to use alternate channels of distribution than the one

now current:

Yes. We have used a P.R. distributor, and twice had
to close our plant due to his negligence. Now buying
direct from the manufacturer in the States.


/ But see also Appendix C, pp. 131, 132 and 135. It may be also noted that
in the sample of 60 firms referred to above, none indicated any in-
adequacy of material supply and only one complained about quality (of
local hides).







- 52 -


Under the heading of "complaints", he went on to declare:

It would be to our advantage, and to the advantage
of Puerto Rico, if we could purchase raw materials
and supplies locally. Our experience, however,
has compelled us to purchase from the States, where
manufacturers are eager for business and are depend-
able to make deliveries as scheduled. In my opinion,
"Mafana" is the underlying evil in Puerto Rico.


Among otheizwho reported problems, a number cited the lack of needed

operating supplies; in most cases these were apparently occasional sup-

plies which they would have liked to purchase locally, but had to turn

to the States to obtain. One firm, in complaining of "inadequate supplies

at industrial supply firms", may have been referring to the in-stock

availability as well as to the range of supplies carried. Another firm

complained not of outright non-availability but that parts and components

were "very expensive to buy in commercial establishments". Others, who

were evidently referring to raw materials (paper), cited "no reliable

service by suppliers" and "no inventory by local suppliers".

Among metalworking firms, where complaints were most-frequent, prob-

lems both of operating supplies and of raw materials were causes for dis-

satisfaction. One firm, for example, complained of the higher cost of mill

supplies, that there was no warehouse supply of tool steel or of hydraulic

hose, and no supply of replacement motors, rewinding services, and the like.

Another complained of lack of local raw material inventory and indicated he

would like to see steel warehouses that stocked stainless steel, galvanized

iron, and galvanized angle and bars. Another indicated simply that supply

channels were "still very meager". Another stated (in translation):






- 53 -


Many products are not to be found on the market,
and of those which are, many cost considerably
more than in the United States except for some
articles on which it is not necessary to pay
(excise) taxes.

Still another found custom machine shop work and castings "slow expensive -

poor quality". A Puerto Rican disadvantage, said another, was "lack

of raw materials. Freight costs are very high". Another faced a lack

of rivets in required size.

From the standpoint of possible distributor or manufacturer oppor-

tunities, the items for which an interest in local supply sources (or

better or cheaper or fuller local supply sources) was mentioned may be

of some pertinence. The following list is gleaned both from the survey

made for this study and from the earlier Fomento survey:

Cotton thread Paper
Fabrics Glue, adhesives
Knitted palms Ink
Polyurethane Rubber dies
Imitation leather Cartons
Pocketing Waste paper
Buttons Wax
Rubber chemicals Iron scrap
Leather (esp. heavy) Aluminum scrap
Cements Silica sand (of correct grain size)
Metal findings Rivets (of required size)
Wire

It is of interest that some of these items are already manufactured locally

or carried by local distributors. Whether lack of knowledge of these

supply sources prevents their use, or insufficiency of local supply, or

differences in specifications, or dissatisfaction with service or quality

has not been investigated, although in a few cases the need for a new local

source was linked to one or another of the last three problems.












There may also be opportunities in the waste products which a number

of firms are generating and which could be made available to the local

market. The following list includes only those for which there is not

already a local outlet:

Cotton and other fabric cuttings Steel wire
Sponge rubber Steel clippings, turnings, etc.
Vulcanized rubber Brass clippings, turnings, etc.
Scrap leather and leather splits Aluminum trimmings
Various yarns Silver wire
Elastic Silver-tungsten powder
Neolite Copper wire
Newsprint and other paper
Cellulose wadding and pulp
Sawdust
Carbon

As with the raw materials demanded but not found, some of these scrap

items offered are among those in demand. Probably, the situation in

scrap is fluid enough that some of the availabilities at the time of

the survey have already found takers. However, the question remains

whether a distribution failing may sometimes be at fault in the lack of

liaison between producer and consumer of locally utilizable waste.

The transportation failings so often cited, though not strictly a

matter of the industrial distribution system, do have an important bear-

ing upon the efficiency of its functioning. Thus the resume of danufac-

turers' complaints may well be concluded with a few revealing transporta-

tion examples:

"No problems with suppliers or materials and supplies.
Actual problems are related to transportation."

"Complaints only on transportation." (This, or a
similar statement, was the one which most frequently
occurred.)

"No complaints whatsoever. Transportation needs improve-
ment."


- 54 -




- 55 -


"Shipping schedule should be improved."

(Need for) "better port facilities."

(Suggestions:) "Additional ship lines or more diver-
sified manufacturing in Puerto Rico (industries that
could supply raw materials to this factory)."

"1. More than one ship to Puerto Rico.
2. Better trucking facilities from the docks to
Humacao."

"No problems except transportation to Mayaguez."

(Complaint:) "Ponce shipping."

"Poor trucking service."

"Forwarders and carriers are slow, irresponsible, and
negligent in honoring or servicing claims. Govern-
ment should certainly enforce accepted 'rules of
conduct' with the general public."

"Tendency to raise transportation rates."

"1. Supplies do not get to the factory prompt enough.
2. Sea Land service is so poor that we have been forced
to lay-off up to 80% of our personnel due to late
deliveries."

"Wire actually brought from Belgium takes too long to
get here (two months)."

"Up to 2 week delay by air from Miami since first of the
year."

"Item 'X' takes too long to get to Puerto Rico."

(Complaint:) "Length of shipping time."

(Complaint:) "Transportation."

(Complaint:) "Distance."


Some of these transportation problems are curable, others are obviously

not. A few, through more rational procurement and/or adequate inventory

practices, are not entirely beyond the power of the distribution system

itself to ameliorate.










CHAPTER III. CHANGES IN PROGRESS


A "snapshot" of the Puerto Rican industrial distribution system,

such 's 'has been attempted in the preceding chapter, can be a misleading

thing. For if there is one outstanding characteristic of the Puerto

Rican economy, it is rapid change. In less than two decades, Puerto

Rico has converted itself from a virtually monolithic (sugar-oriented)

agricultural economy to nne in which industrial enterprise is the main-

spring of income and growth. Nor has it stopped changing. The same

aggressive development spirit which has brought about this post-war

revolution is actively at work continuing it.

Although the industrial distribution system has had little direct

prodding.from the government-employed entrepreneurs of progress, it

was inevitable that it should have responded in some measure to the

demands and the spirit of industrial development; moreover, it has not

been without aggressive and imaginative entrepreneurs of its own. If

this were not the case, and if the industrial distribution apparatus

had retained all of the attributes of a decade or so ago, the faults

and the lost opportunities which are part of the picture it presents

today would have been infinitely more glaring. By the same token, one

can be certain that many of today's inadequacies will be dissipated by

the operators of the system without any goading, guiding,or governing

from without. Nonetheless, it remains a valid question, to which it

is the aim of this study to venture some answers, whether the adaptive

lag of the distribution system vis-a-vis the industrial economy which

it is intended to support cannot in some measure be foreshortened by


- 56 -






- 57 -


appropriate aid or guidance or by action to remove the hindrances over

which it has no control.


Growth in supply requirements The principal change to which the

distribution system is being asked to respond is a rapid growth in the

total volume of industrial supply requirements. As noted in the pre-

ceding chapter, the statistical basis does not as yet exist for deter-

mining the year-by-year increase in net Puerto Rican materials consumption

(the statistical basis has in fact waned as local production has assumed

importance along with imports). The better-than-tripling of manufactur-

ing net income over the last decade does give a hint, however, of the

rate at which industrial supply requirements are growing. So do the

data in Appendix Table I, relating to imports only, which show the follow-

ing kinds of increases in the course of three fiscal years:


(millions of dollars)

Hides and skins .8 to 1.9
Upper leather 1.4 2.4
Cloth 30.6 33.4

Lumber and plywood 20.2 24.8

Iron and steel bars 4.5 7.7
Iron and steel sheet 2.5 3.5

Aluminum 2.9 3.3
Copper, brass, and bronze 3.3 -.6

Plastics 3.9 5-9
Tin cans 2.2 5.0

These are only indicative, and the list omits a number of commodities

which did not increase much or even declined, but-it suggests a kind of

growth which both makes opportunities for distributors and eliminates them.

1/ See pp. 79-83.









For in the earliest stages of a supply item's growth either the scale

of demand or the number of users is so limited that distributors fre-

quently cannot economically compete with direct procurement by the user

from outside sources. As the item grows in importance and number of

consumers, local distributive handling becomes feasible. But as the

item grows still more in demand, it becomes a candidate for local manu-

facturing, and unless the users are many and the distributors more than

well qualified to service them, direct sales from manufacturer to user

became an attractive alternative. Thus, if industrial distributors in

Puerto Rico are to maintain an undiminished role, they must be alive

to emerging opportunities where the scale of demand merits their inter-

vention and proficient enough in their rendering of service that they

are not considered dispensable when local manufacturing of any given

item is undertaken.


Changing sources Appendix Table I also tells part of the story of

changing sources of supply. The increase in foreign sources over the

last three years for which statistics are available is significant for

a number of commodities -- boot and shoe cut stock, softwood lumber, logs

and poles, various iron and steel products, copper and copper alloys, glass,

fertilizer. Some of these trends have been under way for a while; others

are new. Some, like fertilizers and iron and steel, may be the result

of temporary circumstances which will change and cause a fade-out of

non-U.S. suppliers. It is clear, however, that the interest in foreign

supplies and the ability of the Puerto Rican distribution system to handle

them (as well as of foreign suppliers to supply them at competitive prices)

are in general increasing.


- 58 -




59 -




The more important change in sources of supply is less well

reflected in statistics than in the Directory of EDA Manufacturing

Plants, wherein may be found references to virtually all of the new

domestic sources. Over the last 10 years, products like the following

have been added to the list of domestic industrial supply capabilities

(either existing or in process of establishment):

Animal feed
Chicken litter
Elastic braid
Elastic yarn and thread
Fiberglass synthetic tape
Ribbons and other narrow fabrics
Knitted trim and collars
Knitted elastic fabric
Orlon and other synthetic yarns
Banlon and other processed yarns
Oakum
Bust pads
Bones (for brassieres)
Various other brassiere parts and accessories
Reconditioned burlap bags
"Microveer" (a form of wood veneer)
Pressure-treated wood
Waste paper stock
Bagasse pulp, papei and board
Insulating boards
Fiber partitions
Polyethylene film and bags
Milk cartons
Organic reagents
Chlorine and caustic soda
Liquid oxygen and nitrogen
Phthalic anhydride
Ethylene glycols
Anhydrous ammonia, ammonium sulphate
Sulphuric acid
Herbicides
High-purity silicon
Processed resins
Various pharmaceuticals, biologicals, etc.
Various soaps and detergents
Various paints and varnishes
Putty
Adhesives






- 60 -


Various bituminous products
Various rubber parts and fittings
Rubber buckets
Polyurethane foam
Lithographic blankets
Plastic insulating tape
Glass insulators
Various other electrical wiring products
Plastic welting
Plastic heels
Other plastic parts and findings
Plastic tiles
Shoe findings
Various kinds of leathers
Canvas uppers
Glass shapes
Synthetic stone facing
Terrazzo tiles, marble tiles
Prestressed concrete structural
Hydrated lime
Abrasive products
Asbestos-cement pipes
Vermiculite
Concrete reinforcing rods
Various steel wire products
Secondary smelter products
Aluminum extrusions
Copper electrical wire
Zinc die castings
Conduit fittings
Tin cans
Crown caps and other closures
Various kinds of hardware
Tanks and boilers
Steel joists
Metal building forms
Steel door frames
Aluminum curtain walls and other building components
Miscellaneous structural aluminum products
Miscellaneous sheet metal products and stampings
Aluminum rivets
Various screw machine products, ferrous and nonferrous
Steel drums
Tools and dies, molds
Twist drills, reamers, etc.
Diamond cutting tools
Portable power tools
Ball bearings
Miscellaneous machinery parts






- 61 -


Automotive gears and transmissions
Electrical instruments of various kinds
Various electronic components
Electric motors and armatures
Various kinds of relays
Split mica
Printed circuits
Batteries
Ignition coils
Industrial thermometers
Lenses
Industrial diamonds
Miniature steel balls
Plastic buttons
Zippers
Steel measuring tape

Not all of the foregoing products are available for general market

distribution. Many are already fully committed to parent firms in the

States, others are committed to related Puerto Rican firms -- in Act would

not in many cases show up as a separate, non-integrated product ware it

not for the administrative exigencies of obtaining full credits under

the industrial tax exemption law. There are other products, however,

which are not fully committed and, even if not now sold locally, would

presumably be made available if the demand for them were brought to the

producer's attention. And even among products presently committed, there

is, for items which are sufficiently unspecialized, the continuing. pos-

sibility of inducing the producer to expand production beyond the require-

ments of related firms. Finally and perhaps most important the

parade of new plants coming to Puerto Rico has been steadily in crescendo,

and, although to a lesser degree, this has also meant an acceleration

in the number and variety of intermediate manufactured products becoming

locally available.







- 62 -


For distributors, these changes in sources of supply -- like the

changes in total volume of demand -- have a dual significance. The more

varied the supply possibilities, the more important the role of the

distributor as a specialized procurement agent and hence the greater

his opportunities. New supply possibilities, on the other hand, mean

a steady wearing away of the traditional U.S.-to-Puerto Rico movement

which has been the institutional bulwark of most distributors' business.

Furthermore, the proliferation of local manufacturing sources makes it

possible, as noted above, for large users easily to dispense with a pro-

curement intermediary. On balance, the role of the distributor would

seem to be potentially an expanding one, but it will take alertness

and flexibility on the part of the individual firm to maintain its

relative role in the system.


Emerging opportunities Some of theenerging opportunities for Puerto

Rican distributors have already been alluded to in the preceding para-

graphs and in earlier parts of this report. A few of the salient pos-

sibilities (including some not previously suggested) are worth listing,

however. It should be borne in mind that none of these ideas has been

analyzed or explored to any degree and that they must therefore be con-

sidered solely as ideas until more thorough investigations are made:

A steel warehouse or so-called "service center", in
the U.S. sense, stocking a fairly complete line of mill
products which it purchases in grosser sizes (e.g.,
wide strip) and sells to individual users in smaller
amounts and sizes (e.g., slitted, parts of rolls), as
well as in the original form. Roughly 16 percent of all
U.S. steel channels through such distributors (not count-
ing those who specialize in supplies for the oil and gas
industry).





- 63 -


A similar warehouse for nonferrous shapes and forms --
or perhaps this could be combined with the steel
warehouse.

A distributor of cotton and other piece goods. There
are enough users of cloth in Puerto Rico that the pos-
sibility would seem to be large that there are a num-
ber of varieties that have fairly widespread demand.
Such a distributor might be able to maintain a going
business solely on the basis of emergency supplying
of large consumers plus regular supplying of smaller,
local producers without Mainland connections. A
number of ancillary lines could be carried (linings,
bindings, braid, tapes, thread, and so on) or one of
the firms presently so specializing could expand into
the piece goods business. There are probably opportuni-
ties for such a distributor to supply yard goods to the
retail trade as well, and in addition to act as a
distributing point for neighboring Caribbean islands.

A jobber and converter of cotton and other piece goods.
This could be combined with the foregoing enterprise and/or
with an associated finishing mill, or could also probably
operate independently. Probably the achievement of suf-
ficient volume for viable operation would require
serving the retail trade as well as smaller industrial
users (especially of outerwear). Whether there is
enough of a characteristically Puerto Rican (and per-
haps Caribbean) demand would probably determine the
feasibility of such an operation.

A dyeing and finishing mill. Although this is tech-
nically manufacturing rather than distributing, in
Puerto Rico it might well perform a combined opera-
tion, both finishing and distributing goods on its
own account and taking on custom business. There
has been a previous unsuccessful attempt to run such
a mill, but the volume of Puerto Rican demand at that
time was much smaller than now. (There is no reason
why the mill could not also take on Mainland business.)
The particular operations which might economically be
performed would have to be investigated fairly care-
fully and might well be limited at first to some final
finishing operations on goods that could be economically
purchased in semifinished form.

Expanded paper and printing supplies (in stock). Again,
this may mean an unexploited competitive opportunity
for either new or existing distributors.






- 64 -


Expanded chemical supplies. A number of manufacturers
indicated they.were interested in improved supplies of
chemical items (e.g., rubber chemicals, cements, adhe-
sives). This may mean an opportunity either for exis-
ting distributors to fill a void or for new distributors
to move in.

A general waste material dealer. Although collection might
be part of such a dealers business, probably the bulk
would be brokerage, moving accumulations of scrap and
waste from plants which did not generate it fast enough
to warrant.shipping on a.regular basis to those which
required it (as well as to purchasers outside of.Puerto
Rico).

More or larger import merchants or brokers or agents of
foreign firms. The growing potential for securing supplies
economically from foreign, rather than U.S., sources (in
some cases these would be foreign supplies that have in
the past channeled through U.S. merchants) suggests numer-
Qus., opportunities for those who. can seek out such
supplies on behalf of Puerto Rican consumers. In some
cases, the sporadic nature of offerings and fluctuating
world market prices would justify maintaining buffer
stocks or even speculative inventories.

Purchasing agents and consultants. In view of the size of
many Puerto Rican firms, which does not warrant their
employing skilled purchasing officers, there would seem
to be a field for persons performing such a service on a fee
basis. There would also seem to be a field for purchasing
brokers, relatively specialized ,in particular fields, who
would make the best possible buys for the consumer clients
from whom they draw their commissions.

Merchant shipowners. Such persons or firms might actually
charter rather than rent ships (which might be mostly
smaller vessels for primarily regional use). Their chief
business would consist of seeking out, for speculative
gain, new sources of supply along trade routes in which
they would also seek out markets for Puerto Rican pro-
ducts. The savings on two-way carriage would supplement
the success f their entrepreneurship in making raw materials
available on an economical basis.

Contractors for industrial farm materials. There are
undoubtedly opportunities for collectors of agricul-
tural products of industrial use (e.g., fibers, cotton-
seed, slaughterhouse byproducts, coconut and other
plant wastes) to work out viable uses and/or sales
outlets for such products, collect them systematically,





65 -




and encourage increased production in some cases by
means of purchasing contracts. Some of this activity
could probably be combined with collecting and pur-
chasing edible products, for which there are also un-
doubtedly expansion opportunities but which are outside
the scope of this study.

A good local purchasing directory. This could be a
private enterprise (financed by a subscription price
plus advertising) or a government enterprise. Preferably
a classified, continually updated, looseleaf directory
would be best; and the reference would be better still
if it were a compendium of catalog material, such as
constitute some supply directories in the States. The
offerings of both local distributors and manufacturers
could be included, as well as any outside firms interested
in direct sales to the Puerto Rican market.






- 66 -


CHAPTER IV. RECOMMENDATIONS FOR IMPROVEMENT


Most of the actions which can be taken to improve the Puerto Rican dis-

tribution system -- and many of them, as expressed earlier, would have been

taken sooner or later whether this study were.made or not are within the

power and competence of the distributors themselves or of new entrepreneurs

who may enter the picture. Wasteful as it may seem to some of the present

firms in the field, and distressed as they may have reason to be by virtue

of some of the keener competitive practices that prevail, it is in just this

competition that may be found the best single guarantee of a distribution

system which adapts itself rapidly to changing demands, challenges, and op-

portunities. Concern is in order only when the competitive practices are

sharp, when they are of a nature that ultimately diminishes competition by

substituting the success of the moment for long-run efficiency as the arbiter

of survival, when they are unduly diminished by lack of resources on the

part of new competitors, or when they result in the elimination of dependable

flows of materials by undependable ones (e.g., through temporary dumping).

In these instances, it may be appropriate for public policy to take a hand.

Desirable improvements The island distributor can do a great deal to in-

crease his volume and minimize his costs by increasing the efficiency of his

operations. There appear to be three areas in which the local distributive

methods could be improved, though there are exceptions to these generaliza-

tions, and there are additional weaknesses which may characterize specific

firms.

First, better ordering procedures are needed. To achieve this goal re-

quires the cooperation of the local manufacturer, construction firm,






- 67 -


agriculturalist, or subsidiary wholesaler; obviously if the distributor has

insufficient information from his customers he can do little to forecast

their demand. However, some Puerto Rican distributors have developed

record-keeping methods which enable them to anticipate their customers' needs,

others have instituted regular sales calls on their customers to achieve the

same purpose. On the distributor's side, it is hard to escape the conclu-

sion that, with the outstanding exception of lumber, orders are fed Into the

Mainland much as they are received, without the distributor taking much ini-

tiative in consolidating them, in arranging quantity discounts or quantity

shipping, or even of attempting to standardize items ordered to minimize the

variety of inventory which must be carried either by the distributor or by

his customer. Provision of such services would contribute to increased

volume, and would in the long run tend to decrease costs.

Second, better inventory procedures are needed. As with orders, this

problem requires attention at two levels that of the manufacturer, or

other customer, and that of the distributor, if he warehouses supplies. Here

again, the element of service to the customer may enter the picture; if the

customer has inadequate inventory procedures of his own, or has inadequate

facilities for storing supplies and equipment, the distributor can as a

service undertake to fill part of the gap. Carrying inventory, either on his

own account or on customer account, can be a tricky and costly operation for

the distributor, however. Not only is it necessary for him to use his ware-

house capacity most efficiently and in many cases it is physically in-

adequate but he must also be certain that this is a kind of business he

wants to, knows how to, and can afford to, carry on. Warehouse efficiency











is only moderately dependent on adequate capital. Handling and stocking

inventory, however, may be prohibitive to the relative newcomer who operates

what is essentially a brokerage business; and to the warehouser with limited

space, the improvement of the scheduling, stocking, and delivery of supplies

may have rigid limits. Distributor encouragement to standardization would

help make smaller inventories go further.

A third avenue of improvement which is frequently open is to cut unit

costs by increasing volume. In many cases, this means decreasing prices or

commissions first. It can also be achieved by increasing services to at-

tract new customers and to hold on to old. Important services which are

performed in varying degrees by industrial distributors on the island, and

which should be extended, include:

Employment of outside salesmen and establishment of regular calling
schedules-by salesmen. This would permit distributors to have current
and up-to-date knowledge of the immediate and anticipated needs of
their regular customers, and would permit better inventory procedures
at both industry and warehouse levels. It would also avoid the loss of
business by default.

Preparation and regular issuance of catalogs. This is an informa-
tional, as well as advertising, device which would assist in ordering,
inventorying, and the standardization of supplies and equipment, as well
as in underscoring distributor brand-name relationships.

Direct mail and media advertising. This too can be informative,
particularly if it is used to introduce new lines and products, provide
technical information, or advertise price inducements.

Technical assistance. This is a service which island distributors
can offer their customers, which is not ordinarily available to in-
dustries which buy direct. Together with ...

Repair, maintenance, and stocking of spare parts, these are among
the greatest attractions that local equipment distributors have to
offer those industrial buyers who presently buy direct from Mainland
suppliers. Even the mere availability of a local firm to which to
address complaints is of value to local industry.




- 69 -


In general maintaining adequate inventories. As an island economy,
subject not only to the continuing delays of transportation distance but
intermittent outright interruptions, Puerto Rico and its individual manui
facturers have much to gain from adequate insurance in the way of island-
based inventories. There is no question but that this kind of insurance,
like any other, involves a cost, but the cost of interrupted production
lines is usually greater. The island distributor, serving a number of
manufacturers or other customers with the same material, can maintain
buffer stocks at a lower premium cost than the manufacturers themselves.
It is up to warehousing distributors to drive this point home.

Passing on the economies of consolidated orders and combined ship-
ments to customers whose individual requirements are too small to command
price reductions or discounts, or who have to pay premium shipping rates
for small orders.

Expanding and/or specializing lines. To the extent that the dis-
tributor can save the industrial customer the necessity of shopping
around for his supplies and equipment, he performs a genuine service.
Thus the addition of new lines and products with which a distributor
hopes to attract new customers will also prove an added attraction to
old customers if the new lines or products fill their needs.

While improvements along the lines indicated above would be good business

practice for any distributor anywhere, they are perhaps of greater importance

in Puerto Rico, where the surveys have indicated deficiencies in all these

elements of the distributive function and operation.

Transportation and warehousing The island as a whole suffers from numerous

problems of external and internal transportation, inadequate public warehouse

space, and inadequate off-loading space, transit facilities, and access roads

at the docks. The solution of these problems is clearly beyond the power of

the individual distributor, but they must be solved if the distribution

system itself is to function up to full capabilities. The problems are well-

recognized, of course, and various kinds of remedial action are being taken.

In general, it was beyond the scope of this report to ascertain whether

these actions were adequate or inadequate to the task.





- 70 -


The one aspect that does deserve comment here is that of public ware-

housing. This was not mentioned as a distributor opportunity in the pre-

ceding chapter,but the feasibility of additiaia (or improved) public ware-

housing space -- not only in San Juan but elsewhere in the island certain-

ly deservesfurther investigation. It is not a foregone conclusion that such

warehousing, centrally located as it must be and frequently involving goods

in additional onloadings and offloadings, is as good a solution to the ex-

tension of distributors' physical facilities as is additional or better

captive space. There are potential advantages of public warehousing, how-

ever -- such as that of pooling the overflow needs of various distributors,

providing a more acceptable basis for trust-receipt inventory financing, and

providing facilities which may be used casually by distributors not ordinari-

ly stocking goods -- which may well justify more, better, or cheaper public

space. Perhaps a new kind of public warehousing is needed, in which the

warehouseman serves as a materials-handling technician with superior facili-

ties for breaking bulk, transshipping, re-packing, order-picking, inventory-

taking, etc., thus relieving shipping companies and merchandising companies

of duties which they cannot always perform as efficiently (and, in the pro-

cess, relieving port areas of some of their congestion).

Financial improvements It is evident from the interviews carried out both

by ourselves and Harbridge House, and from other sources, that Puerto Rico

does not enjoy the full complement of financial aids to distribution that

may be found in large communities in the States. It is also evident, however

that improvements on this score have been occurring steadily and it is pos-

sible that the availability of such resources may be increasing pretty much

apace with the demonstrated demand, though greater publicity given to the





- 71 -


needs and opportunities should speed the process. It is also evident that

the large, well-established distributing firms do not lack for financial

resources; the distributors with problems are the same as any other kind of

businesses with problems, namely, the newer and smaller ones and the ones

with an uncertain operating record. The same small-loan programs that

exist to help all businesses such as Government Development Bank and SEA --

can help distributing businesses as well, and if they are not now doing so in

equitable measure, the administrators of these programs should be reminded

of the substantial economic contribution that most such businesses make.

Whether new kinds of government financial assistance are called for is

dubious, although government acquisition assistance, loans, guarantees, or

direct financing may possibly occasionally be justified in connection with

the expansion of physical facilities.

One clear financial initiative that distributing firms can take on their

own is to work toward reducing the cost of carrying accounts receivable. The

mainland practice of allowing 2 percent for cash is in most cases worth

emulating. Moreover, there is no reason why distributors should not also

experiment with adding an interest charge -say, 7% for carrying accounts

more than 30 days. The second kind of initiative will not work, of course,

unless distributors are prepared to cut off customers who do not comply. It

is hard to believe that such action will not enable distributors to quote

prices or offer service which will more than make up for the presumed com-

petitive disadvantage of not continuing to extend indefinite cost-free

credit.








- 72 -


Commonwealth Government actions possible Apart from working toward the

improvement of transportation facilities and providing some financial as-

sistance, there are a number of actions the Commonwealth Government can take

to foster improvement of the industrial distribution system:

1. First and foremost, the Government should initiate an office which

will specifically concern itself with the problems of industrial

distribution and industrial distributors. There is already a

Commercial Distribution office in the Department of Commerce, and

this Department is probably the place for an Industrial Distribu-

tion office as well. The kinds of problems with which the former

office is concerned (consumer goods -- mostly food) are so sub-

stantially different, on the whole, from those which are pertinent

to industrial distribution that it is probably best that the new

group be constituted as a distinct entity, although the two offices

could function under a common head. The group should include, in

addition to a number of administrative and record-keeping personnel,

one or two technicians in the fields of industrial procurement,

the operation of distribution businesses, warehousing, and so on;

these may have to be recruited on a consultant basis. The office

should function not only as a source of advice to distributors

especially small distributors on how to improve their

operations and where to get other assistance, but of advice to

manufacturers, distributors, and others on sources and means of

industrial procurement. One of the functions of the office would

be to maintain a directory service, as specified in the following

recommendation No. 2.





- 73 -


2. Second, until such time as an adequate private directory or directory

service is available, the government should undertake such a service

on at least a minimum basis. At the very least, funds and personnel

time should be made available to maintain the compilation of "trade

lists" of the type issued earlier by the Office of Economic Re-

search of the Economic Development Administration before this

function was transferred to the Department of Commerce. The compila-

tion of such lists should be regularized either by making col-

lateral use for this purpose of the statistical surveys and census-

es conducted by other government departments or by making a separate

annual survey so that the lists can be kept reasonably current

and at least broadly indicative of the goods handled by each dis-

tributor or offered by each manufacturer. A currently revised

looseleaf compilation would be best, or at the very least, addi-

tions, deletions, and other corrections should be maintained up-to-

date by the "Office of Industrial Distribution," so that it can

provide directory service on request. Preferably, the directory

should confine manufacturers' listings to goods actually locally

offered, and among suppliers' listings should distinguish between

goods locally stocked and those offered on an agency basis. There

might conceivably be a subscription charge for such a directory

service, or..the complete compilation might be sold as an annual or

semi-annual bound volume. It might eventually be relinquished to

any competent private group that was willing to take it over.

3. Working through the Economic Development Administration, or by

direct survey, the "Office of Industrial Distribution" should






- 74-


periodically ascertain, as has been done in some earlier surveys,

the needs of manufacturers for raw materials, operating supplies,

service, and so on, which they feel are not currently being met (or

economically met) by the existing distribution system. Summaries

of the findings from such surveys should be.given publicity, and

the specific needs brought to the attention of existing and pros-

pective firms which may contact the office seeking such information.

4. Either within the Department of Commerce or within the Department of

Justice, or both, there should be established a trade practices di-

vision, which would administer such antimonopoly laws and regula-

tions as Puerto Rico has on the books, recommend new ones, and

refer cases to the appropriate agencies. Whether or not such a

division is established as such, the "Office of Industrial Distribu-

tion" should undertake to monitor distributive trade practices to

ensure that competition is working as it should, in the best long-

run interest, and not serving in individual instances, through

unfair practice or otherwise, to maintain undesirable institutional

rigidities or positions of privilege.

5. The Commonwealth Government should set up effective procedures for

considering its policy position in respect to U.S...trade agreement

negotiations. This is a broad need, which has been considered by

the Commonwealth in other connections. The choice of position is

not always an obvious one when the question arises with respect

to any particular item whether Puerto Rico's greater interest lies

in the low-duty or duty-free entry of foreign supplies or whether

the greater over-all net income will result from maintaining some





- 75 -


protection for domestic production. Sophisticated and imaginative

analysis will be necessary to settle both the individual case and

-the broad policy. Decisions of this kind will be particularly perti-

nent in the coming months as the Commonwealth considers what stand,

if any, to take on proposed U.S. duty concessions under the new

U.S. Trade Agreements Act.

6. The very aggravating question of shipping stoppages (underscored by a

long strike in progress even while this report was being written)

raises the question of whether it is not in order for the Common-

wealth to take defensive actions beyond what is possible for in-

dividual distributors. One kind of action is to give extraordinary

assistance -- low cost loans, extra tax incentives, and so on -- to

important raw material producing domestic industries. Another is

to encourage the development of non-U.S. sources of supply. Another

is to offer some kind of inventory-carrying assistance -- perhaps

in the form of indefinitely-renewable low-interest loans -- to

distributors carrying specified kinds of stocks which are Judged

to act as valuable buffers against shipping interruptions.

7. The Commonwealth Government, through its "Office of Industrial Dis-

tribution", might well take the lead in promoting standardization.

Committees of users and distributors in various industries might be

formed, to investigate the possibilities of reducing the numbers of

different kinds of raw materials and components which are used, with

the purpose of (a) gaining the economies of larger-scale purchases,

(b) making smaller stocks go further in meeting both regular and

emergency needs, and (c) laying the basis for an earliest possible

scale of demand sufficient to support local production. Even if







- 76 -


nothing tangible wereaccomplished, the very deliberations of these

committees would serve a highly educational purpose. Possibly the

Association of Manufacturers and the Chamber of Commerce could be

interested in cooperating in (or taking over) this activity, but

to insure the public policy interest, the Government should retain

a hand in the deliberations.

8. Two tax reforms should be seriously considered: (a) the elimination

of excise taxes on all items which have predominantly industrial

applications and (b) the complete elimination of personal property

taxation. The two changes together would probably not cost more

than 1 percent of all Commonwealth revenue. While the direct cost

impact upon distributors is also limited (i.e., in terms of net

taxes paid), the indirect costs (in terms of interest on refundable

taxes and cost of extra accounting) and the economic disincentive

to carry larger inventories are significant enough that they are

hardly worth the revenue gained. (In fact, when one considers

the business lost to Mainland distributors as a result, there may

be no net revenue gain.)

The personal property tax is particularly noisome and inequitable,

despite the fact that distributors seem less concerned about it.

For the honest firm, it usually means accounting procedures that

go beyond what is needed for income tax or business operating

purposes. For the less honest firm, some degree of evasion is

easy. And for many smaller, unincorporated businesses, collection

can almost be presumed to be hit-or-miss.





- 77 -


It is not believed that the Commonwealth Government, apart from ad-

vising, through the "Office of Industrial Distribution," what kinds of

opportunities appear to exist, should take unusual steps to promote, or

should subsidize, particular industrial distributing enterprises. It is

believed that there is no real lack of entrepreneurship-- local and outside -

to export, without material delay, any really worthwhile opportunities that

develop. Moreover, aside from the modest technical assistance, small-

business loan assistance, and possible low-interest inventory loans men-

tioned above, it is not considered that any subvention is desirable in

order to maintain any distributing business that would not otherwise be

self-supporting.








- 78 -


APPENDIX A. STATISTICAL TABLES



industrial supplies,
Table 1. Puerto Rican imports of selected raw materials,/and containers
from U. S. and foreign countries, fiscal years ending
June 30, 1958-61


II-A. Shipments of industrial and agricultural raw materials and
containers from the United States to Puerto Rico, by. class
of consignor and consignee, during sample months of 1961/62
(thousand pounds shipping weight per month)

II-B. Shipments of industrial and agricultural raw materials and
containers from the United States to Puerto Rico, by class
of consignor and consignee, during sample months of 1961/62
(number of shipments per month)







Table I (cont'd.) Puerto Risn u porter of Selected Ray Materiale, Industrial Supplies, and Containers fran U. 8. and Foreign Countries,
Fiscal Years Ending June 30, 1958-61


Unit Q uantity F. 0. B. value 3 million Percent fro U. .
ofetit f .L_ 1 t ty : : By vIT lue


RAW MAWRIALS (cont'd.)


Poles, piling, logs, etc.
Lumber & ties
Principal type:
Softwood lumber
Plywood
Millvork

Paper
Unbleached kraft paper
Olass
Iron & Steel
Btrs, exc. concrete reinforce-
ment
Concrete reinforcement brus
Sheet


S.8 .1 .7 .7 .1 .1 1 94 91 91 83
lIl.bd. ft. 36.1 73.4 27.1 80.2 30.7 96.7 25.5 109.5 3.5 6.1 2.9 6.9 3.3 9.3 2.4 9.3 33 25 24 19 36 30 26 21

S 33.0 59.7 24.6 67.1 28.7 84.6 22.9 991 3.1 4.6 2.4 5.2 3.0 7.6 2.0 7.8 36 27 25 19 40 32 28 20
mil.sq.ft 12.3 6.9 10.3 9.9 16.9 14.0 15.6 14.2 1.2 .8 1.3 .6 1.9 1.2 1.6 1.1 64 51 55 52 60 68 61 59 8
/ .4 b .5 b .5 .5 .4
mil. lbs. 42.7 26.9 53.1 27.5 46.0 22.7 48.0 25.2 4.4 1.6 5.2 1.6 4.8 1.4 5.2 1.5 72 66 73 66 73 76 77 78

S 5.8 8.9 .9 10.3 1.1 8.2 1.5 .7 1.0 .1 .9 .1 .8 .1 100 91 90 85 100 90 9 89
aJ 1.7 .2 1.4 .4 1.5 .4 1.2 .5 89 78 79 71
1/ 13.2 6.5 14.7 8.3 14.0 5.6 14.5 13.2 67 64 71 52

. bs. .3 2.8 1.9 6 2.3 9.2 3.8 11.3 .6 2.6 .5 .5 2. .5 61 23 20 25 75 66 54 62
10.5 68.1 .8 934 9.4 69.7 5.0 134.2 .7 3.0 1 3.4 .7 3.8 .4 6.0 13 12 19 3 16 6
24.2 28.0 5.7 28.2 6.5 27.7 5.7 2.5 2.8 .4 3.2 .5 3.1 .4 99/ 83 80 83 99/ 88 86 89


Iten









Tble I (coat'd.) Puerto Rian Imports of Belected av Material, Industril Supplies, and Containers fro U. 8. and Foreign Countries,
Fiscal Year Ending June 30, 1958-61


Unit u ant Iy
It em of r
quantity u

RA MAIEIAUL (coctd.)
Tinplate, plain mil. lbs. 11.3 15.2 11.9 14.7
c st iron soil pipe 5.9 3.4 7.5 .6 7.8 .9 7.2 .1
Cut iron pressure pipe 234 1.2 15.2 8.1 15.8 6.3 25.0 2.5
Tubes, pipes, etc. (exc. cast iron) 15.1 6.4 14.1 14.2 8.3 21.9 11.1 20.3
Aluminun /J
Plates, sheets, castlng,
forgings & ve nill. lbs. 4.6 .4 5.7 .1 5.0 3.4 -
Metals & aloys, crude 2.2 .7 3.6 2.2 5.9 2.0 5.9 2.6
Copper, rass & Bronze
(incl. insulated bldg. ire) a/ aj
Lrea nil. lts. 1.7 .1 4.6 3.2 3.8
Industrial Cmenis l
Agricultural Chemicals
Fertilizers


e. v. a. was... ..anan.x,


or. r .r.. S r. r.


1.2 1.7 1.2 1.6
.5 .2 .6 .6 .5 *
1.5 .1 1.0 .4 1.0 .3 1.5 .1
2.7 .6 2.7 1.1 1.4 1.7 2.2 1.5
2.7 .3 3.2 .5 4.2 .5

2.0 .2 2.1 2.4 1.3 -
.5 .2 .9 .5 1.5 .4 1.4 .6


3.2 .1 4.4 1.0 3.9 1.7 2.0 2.6
.3 .6 .5 .5 -
3.7 2.5 3.1 2.6 3.5 3.0 3.4 .7


4.2 1.3 2.2 2.1 1.8 3.8 1.7 1.3


Percent from U. .
vlue
195:!1959.10:191i :AW1W


100 100 100 100 100 100 100 100
63 93 90 99 71 99/ 99/ 99/
95 65 71 91 94 71 77 94
70 50 27 35 82 71 67 59
47 87 89

92 98 100 100 93 99/ 100 100
73 62 74 69 71 6 79 70


97 8L 70 43
94 99/99/ 100 99/ 99/ 99/ 100
60 54 54 83


76 51 32 57











ab1e I (oant*4.) Puerto Rat o oNt of Seleoted Ba Itemrila, Inctrwll applie, d Coatami rs fra U. B. e d Farip CContrl es
niso Teym Aing June 30, 195-81


Item

aM WMlMn (atnta.)
kmMtlm algate
PIestlide
LUm
Pletlcs


*lnoe ouaieu (e.nato)

Lh tauk ires, e
OtM-e-rod time, 1n2l.
hewa arnt. es

Abasle ves .
In., se, rim kmto s




We"
rta

som
veflUad so q02184
em aye,
thrllsd Olpneng ocetalenes
CRO- -s, ooalefte
ON11 bottle & eutaIer
cloees b/


F. 0. B. Value 4 atoll ) Perent fr U. a8.


tlou.a.ta 64.7 30.4 8.8 37.6 5.7 93.3 3.0 23.1
a ol.lr. 3.6 4. 3.6 4.1
hous.h.taos 3.1 3.4 .1 13.0 .2 19.4 .2






thado 59..4 an.. 56.6 .d. 54.8 n.a. 48.1 n. .

9.0 5.9 7.8 9.5


-th**s* 1775 tI 1983 I 1687 t/ S058 1013




llt4.s. 17. 18.3 M0.7 -.4


-.lbe. 10.4 a.m. 9.7 a.m. 8.5 n.m. 19.8 n.S.
.6 1.4 3.1 2.9 "
.4 1.1 3.6 9.1
.ir.O. 1.5 4.6 3.7 2.8

all. lI; a.. 1.8 1.0 1.9 "


1.9 1.0 .3 1.3 .1 .B8 .1 .7
1.3 1.6 1.7 1.9 -
.2 .6

3.9 / 5.9 S/ 7.1 / 59 4/


1.8 _/

2.3 n.m.
.4
1.2 -
.5 *

:9 /
.5 *


2.6 e/
2.1 na..

.5 -
.7 *

.5 *


2.5 3/ 2.4 0/

1.9 n.m. 1.8 n.m.

.5 .6
.8 .6 .1
.7 .5

1.0 o 1.0 .2
.7 .5 *


68 19 6 11 67 19 3 13
100 100 100 100 100 1o0 100 100
100 97 98 99 100 100 100 99/


100 100 oo0 86

67 83
99/ 99/ 99/ 991


.5 4 .7 .7 99/ 99/99/ 99/
.6 .0 .8 6.0 1 100 100 l10 1o00 1o 0oo 1oo
11.0 .0 2.7 1.7 100 100 100 100


2.2 na.. 2.0 n.a.
.2 .4
.1 .3
.8 1.2

1.0 1.0


1.8 n.. 5.0 a.*.)
.7 .6 )
1.0 1 .5 )
1.0 .6 )

1.1 1.1 )


--- ----;----


~-~--


lar~
outlb` r~s 191~J 1961









Tsble I (cont'd.) Puerto RicanImports of Selected Fw Materials, Industrial Supplies, and Containers ftr U. S. and Foreign Countries,
fiscal Years iEding June 30, 1958-61


Footnotes
Less than hal of unit shown.
Less than one percent.
n.1. Not available.

SAiltities not available in terns of any common denominator. (million)
bJ Included in "Other wood manufacturers of which imports from foreign countries amounted to: M 1

SIncludes manutactures. ($ million)
9/ Included in "Other industrial chemicals," of which imports orm foreign countries amounted to:8 61

($ million)
e/ Not given separately froa passenger car tires. Imports of all types trm foreign countries amounted to: 1

($ million)
9 Included with "Other advanced manufactures imports of which tru foreign countries amounted to: 1 1 2 60

g/ Although details are not available, aggregtive data indicate U. 8. supplies either 99/ or 100), both in quantity and values, of ech item.
y Assumed to be predominantly metal. Quantity is shipping weight: net weight not available.

Source: Puerto Rico Planning Board, External Trade Statitics 1958, 1939. 1960, plus as yet unpublished data supplied by Office of Economic Research, Puerto Rico 2cononic Developaent
Adainistation.












Table II-A. Shipments of Industrial and Agricultural Raw Materials and Containers from the United States to Puerto Rico, by Class of Consignor & Consignee, during Sample Months of 1961/62
(thousand pounds shipping weight per month)


Colnsine


mig. esuobsiary
Mfr. unrelated to consignor of c i Distributor Unidentified Tota 1
M W B U T7ot M W B U Tot M W U Pet M W R/ U Tot


Rides, skins & leather 70 3 8 81 338 6 6 8 62 70 414 3 8 70 495
Rubber 170 6 14 190 134 5 5 309 6 1 329
Cotton m a &thread 70 6 76 74 1 16 15 15 160 21 181
Cotton fabric 598 69 8 675 718 19 1 56 76 50 5 75 56 186 1385 6 200 64 1655
Wool yan 88 30 18 56 144 30 174
Wool fabric 8 8 1 9 9
Synthetic yarn & fiber 963 1 57 1021 372 2 5 20 27 1337 5 1 77 1420
Synthetic fabric 138 18 8 164 224 13 3 16 18 20 135 173 393 18 31 135 577
Poles and logs 23 66 89 766 766 789 66 855
Lumber 127 79 206 1662 216 5 1883 300 30 228 558 2089 30 523 5 2647
Plywood 24 1 3 28 22 25 47 46 26 3 75
ilpork 244 244 244 244
pa9er 974 37 867 4 1881 799 112 60 1 3 176 34 5 46 85 1919 102 868 53 2942
Pu ar & cardboard 601 601 601
C aner, pulpard, etc. I/ 920 6 169 1095 219 14 2 36 55 6 61 1208 28 6 169 1411
lass containers 1134 8 1142 58 319 34 2 1 356 125 125 1686 42 2 1 1681
lass, not containers 96 390 486 7 42 42 16 16 161 390 551
Iron & steel, exc. tinplate 2636 394 75 133 3238 1153 3719 208 115 10 4052 391 76 32 132 631 7899 678 222 275 9074
Tinplate 376 376 2311 -- 2687 2687
Tin cans, incl. lids 2009 1 2010 2116 9 9 4134 4135
Containers, n.e.i. 3 -- 3 2 5 5
Aluinum 464 2 466 97 8 8 569 2 571
Copper- alloys 167 14 2 183 460 65 4 3 5 77 2 2 7 11 694 18 5 14 731
Lead 4 4 25 18 43 2 2 31 8 49
Industrial chemical 364 39 2 5 41 18 301 1 6 308 36 1 37 885 39 4 11 939
Fertilizer 406 406 12 12 2 418 418
Pesticides 14 14 137 10 2 149 115 2 27 1 145 266 12 27 3 308
Lime 1470 20 1490 3420 8 3428 32 158 190 4922 186 5108
Plastics 1059 35 1094 608 88 30 3 121 1 7 5 13 1756 30 7 43 1836
Total 14375 522 1584 474 16955 10531 11024 387 430 35 11876 1180 129 558 479 2346 37110 1038 2572 988 41708
Percent, by consignor 87.2 3.2 9.6 100.0 100.0 93.1 3.3 3.6 100.0 63.2 6.9 29.9 100.0 91.1 2.6 6.3 100.0
Percent, by consigee / 0.0 57.4 78.6 43.0 / 30.7 42.6 21.4 30.2 100.0 100.0 100.0 100.0
For footnotes, etc. see end of Part B.










able II-B. Shipments of Industrial and Agriculturl Raw tMterials and Cotainers rfro the United States to Puerto Rico, by Class of Consignor & Consignee, during Sample Months of 1961/62

(number of shipments per month)

fg.subsidiary
Consignee Mfr. unrelated to consignor of consignor Distributor Unidentified T o t a l
Consignor M w /E U Tot M M W E U Tot HM S E U Tot M vW /E U Tot
Hides, skins, & leather 30 1 3 34 46 2 2 31 15 47 79 1 31 18 129
Rubber 22 2 2 26 10 2 2 1 1 35 2 2 39
Cotton yarn & thread 18 1 19 30 7 7 3 4 55 1 4 60
Cotton fbric 103 25 3 136 116 16 1 15 32 2 2 9 5 44 268 3 49 8 328
Wool yarn 10 1 11 7 1 18 19
Wool fbric 3 3 1 1 4 4
Synthetic yarn & fiber 78 4 3 85 30 1 6 7 109 4 9 122
Synthetic fabric 63 5 2 70 58 6 2 8 10 11 15 36 137 5 15 15 172
Poles and logs 1 1 2 5 5 6 1 7
Lumber 7 2 9 30 8 1 39 12 1 7 20 9 17 1 68
Plywood 3 1 1 5 2 4 -2 5 3 1 9
Millwork 4 4 4 4
Paper 11 3 3 1 18 8 6 6 1 2 15 4 1 7 12 29 10 4 10 53
Pulpbcard & cardboard 2 2
Containers, pulpboard & cardboard 28 1 5 34 27 3 2 5 4 1 5 62 3 1 5 7
01 containers 40 2 42 6 7 2 1 1 11 9 9 62 4 1 1 68
Olase, not containers 8 6 4 1 4 4 3 3 16 6 22
Iron & steel, exc. tinplate 80 11 5 12 108 51 69 9 5 5 88 19 2 2 5 28 219 22 12 22 275
Tinplate 7 7 13 20 20
Tin cas, incl. lids 18 20 14 33 2 35
Containers, n.e.i. 2 2 1 3 3
Aluminum 16 2 18 13 8 8 37 2 39
Copper & alloys 50 9 2 61 29 17 2 3 1 23 1 1 1 3 6 97 12 4 6 119
ead 3 5 1 6 3 3 11 12
Industrial chemicals 24 2 1 2 29 8 21 1 2 24 11 1 12 64 2 3 4 73
Pertiliser 1 1 2 2 3 -- 3
Pesticides 4 4 12 1 2 15 2 1 1 1 5 18 2 1 3 24
Lie 17 1 18 36 1 37 1 1 2 54 3 57
Plastics 65 6 71 3 19 5 1 25 4 2 2 8 120 5 2 9 136
Total 717 39 52 42 850 50e 284 29 39 15 367 116 10 66 62 254 1619 78 157 119 1973
Percent, by consignor 2 89 5 6 100 100 81 8 100 61 5 34 o00 87 4 9 100
Percent, by consignee / 48 57 65 50 4/ 19 43 43 21 100 00 100


For footnotes, etc., see next page.












able II (cont'd.) Shipments of Industrial and Agricultural Raw Materials and Containers from the United States to Puerto Rico, by Class of Consignor & Consignee, during
Sample Months of 1961/62

Footnotes

M Manufacturer (or affiliated sales corporation)

W Wholesaler, warehouse, etc.

B Broker

E Exporter

U Unidentified (including freight forwarder)

Less than 500 Ibs.


/ Including knocked-down containers.

SExcluding unidentified shipments.

2/ 29.3% of shipments by manufacturers, 26.8% of total shipments.

/ 33% of shipments by manufacturers, 29% of total shipments.

Source: Based on shipments from New York via the Alcoa Line in January, February, and March 1962; via Sea-Land in January and March 1962; and frmn New Orleans and Mobile via
Alcoa during October 1961 and March 1962.














APPENDIX B. DISTRIBUTOR PROFILES





Page No.

Abarca Warehouses Corporation . ... 88
Anibal L. Arsuaga, Inc. Arsuaga & Santana, Inc. 91
Badrena y Pdrez, Inc. . . 94
Fairbank-Diversey Corp. . . 96
Garcia Enterprises . .... 99
Import and Export Corporation . .... 102
Juan Marina Garcia, Inc. . ... 105
Needle Trades Equipment Corp. ... . 107
Ochoa Industrial Sales Corp. Ochoa Fertilizer Corp. 109
Commercial Adolfo S. Pag6n, Inc.. . 112
Rodriguez Portela & Co., Inc. . ... 115
U.S. Rubber International Corp. ... .......... 1.18
A. R. Villamil . .... ..... 120
M. A. Zeppenfeldt .. . ... 123










88 -
Distributor Profiles


Abarca Warehouses Corporation

(See also Juan Marina Garcia)


This company is part of a family-owned complex of nine companies, in-
cluding industrial raw material and equipment suppliers, foundries and ma-
chine shops, a sugar mill, and a construction company. The principal dis-
tributing companies are Abarca Warehouses Corp., covered herein, and Juan
Marina Garcia, covered in a separate profile.

Abarca claims that its complex of companies, the first of which was
founded in 1850, is the oldest in Puerto Rico and one of only about a half
dozen in all of Latin America which has remained continuously in the hands
of one family for over a century. With 1,600 employees, it also ranks among
the largest business groups in Puerto Rico.

Although much of its activity is oriented toward supply and maintenance
for the sugar industry (the Abarca mill is run largely as a machinery show-
place), Abarca Warehouses is involved broadly in meeting industrial raw
materials, supply, and maintenance needs of Puerto Rican industry generally,
as well as in other parts of the Caribbean and Latin America. Their many
lines, including the products of nearly fifty companies which they represent
on a commission basis, comprehend such diverse items as welding equipment,
pneumatic tools, conveyors and other materials-handling equipment, diesel
engines, power plants, compressors, pumps, hoses, power transmission compo-
nents, bearings, valves and other pipe fittings, furnace parts and refrac-
tories, electrical control equipment, blowers and fans, cooling towers,
various special parts for sugar mills, electric motors, industrial lubri-
cants and greases, wire cloth, cloth cutting and drilling machines, special
sewing machines, industrial water filtration systems, metal working tools
and tool steel, industrial control instruments, protective clothing, hand
tools, air conditioning equipment, filtration materials, nuts and bolts,
ferrous and nonferrous plate, sheet, bars, rods, and other shapes. Aside
from the metalworking stock, much of which is undoubtedly intended for main-
tenance and repair use, it may be seen that the great bulk of items handled
fallsintb the supply, rather than the raw material, category.

Facilities Abarca Warehouses maintains three warehouses in San Juan, which
serve not only all of Puerto Rico, but customers outside the island. They
are large and well run. The company also has a fleet of trucks, used solely
for local deliveries, and requisite mechanical equipment for their yards and
warehouses. Movements from dock to warehouse or from dock to customer are
handled by contract trucking.






- 89 -


Sources of supply Although most of the companies represented are U.S. firms,
Brtisn and Canadian firms are also included, and European manufacturers and
exporters are gradually being added. For a number of the larger U.S. com-
panies, it is the international division or subsidiary that is the point of
contact.

Methods of operation About 80% of Abarca's sales are from warehouse stocks,
the remainder comprising mostly items sold on a commission or "indent" basis
and delivered directly from the manufacturers they represent. Their stocks
are purchased for their own account; as a matter of policy, they handle
nothing on consignment. One of the largest of their customer groups is the
sugar centrals. Since these usually do the great bulk of their purchasing
once a year, they make a 5-10% seasonal bump in Abarcars sales. (On the day
interviewed, in September, Abarca was shipping one central 20 tons of supplies
and equipment.) Unlike some of the other suppliers, they service all cus-
tomers, including those who do their principal buying directly in the States
and come to Abarca only for emergency supplies or services.

As already noted, all of their business, including sales to affiliated
companies, is handled out of San Juan. They have 11 sales people, including
three executives and the three sales clerks who work at their wholesale-
retail sales counter. At this counter they sell to other distributors, whole-
salers, and retailers, including even their own competitors. Because Abarca
is so large and well-stocked, it is not uncommorobr others to use them for
odd sizes and types of equipment and supplies. Abarca, for its part, has
found that such sales through competitors help to support prices. Dealings
with affiliated companies are on the same basis as with unaffiliated ones -
that is, at arm's length.

In dealing with the companies for which they are exclusive representa-
tives, Abarca will usually order deliveries made directly to the ultimate
customer, but in other cases will purchase for warehouse stock. In some
cases it will accumulate its own customers' orders, or purchase in excess of
firm orders, in order to take advantage of quantity discounts.

Much of the company's most valued clientele is in the southern part of
the island. The salesmen cover the territory aggressively, phoning in
orders so that delivery, where possible, can be made on the same or the
following day. Air commuting back to San Juan is also common. It is felt
that this kind of service is necessary in order to offset competition from *
local agents, especially where the latter also maintain warehouses (as in
Ponce or Mayaguez).

The affiliated Abarca foundries and machine shops are among the largest,
most active, and versatile in Latin America, drawing their business not only
from Puerto Rico but from Mexico, av- Central America, and the more norther-
ly parts of South America. (The foundry is claimed to be one of the three
largest in Latin America.) An indication of their size is that they order
and use as much as 1,000 tons of steel at a time. The value of these metal-
working facilities to Abarca as a distributor is that they enable the sale of
standard parts and supplies to be combined with repair work and custom fabri-
cation, thus providing complete customer service.






- 90 -


With the foundry products included, sales to government constitute
10-13% of Abarca's total. Most of these are on a bid basis, although some
are purchased at list. A considerable variety of items is included.

Abarca's services to its customers include the provision.of technical
assistance and catalog material. They engage in institutional-type adver-
tising, mostly for themselves, but also promoting their suppliers and
customers.

Abarca has aggressively expanded its facilities to take advantage of the
the post-war opportunities in Puerto Rico. In general, however, its approach
is on the conservative side. Although they add new lines from time to time -
and have lately added a number of European products they do not actively
seek new fields. With over a hundred years of history and a very successful
enterprise, they are not anxious to alter it very much. Nonetheless, they
are currently embarking upon a thorough re-examination of their marketing
policies, to insure conformance with modern needs and c ncepts.

Stocks In general, Abarca tries to maintain an inventory of at least 3-6
months, supply. For the annual M & R items, they aim at enough to be able
to meet all emergency requests. They also maintain limited special stocks
as requested by their customers.

Their inventory has not been kept too well under control, as was dis-
covered by a new marketing manager who found some items stocked in the a-
mount of 12-18 months' supply. They have set themselves a current target of
reducing these excesses to a 6 months' supply and ultimately to a 3 months'
norm.

An exception to the 3 months' target is made for goods from Europe, for
which a 4-6 months' lag in delivery time must be taken into account, and fcr
supplies from the North American west coast -- in both cases owing to the
relative infrequency ofsteamerservice. Increased European sales efforts in
Puerto Rico are expected eventually to result in improved quality of trans-
portation from that area.

Financial aspects Slowness in payment on accounts receivable has not pre-
sented the same problems for Abarca as for smaller, less affluent firms, even
though some of their customers take as much as a full year to liquidate their
accounts. Though others settle their accounts in 10 days or less, Abarca
does not encourage prompt-payment discounting. Of their sugar-mill customers,
5 last year paid in 30 days or less, 9 paid in 30-60 days, 7 in 60-90 days,
and the balance took longer. Most other accounts pay within 90 days, al-
though some take as much as 6-9 months, and some 3% of accounts take more
than a year. The company is strict in assessing the credit limits of its
customers, but liberal in pressing collections.

The company does all of its own financing and owns all of its real
estate and equipment. They seek no financial help from anyone, nor do they
need it or want it.





91 -
Distributor Profiles

Anfbal L. Arsuaga, Inc.

Arsuaga & Santana, Inc.


The first of the two distributing firms controlled by Arsuaga, Anfbal
L. Arsuaga, Inc., also known as "La Casa del Cobre", represents a number of
U.S. producers of which Anaconda is the largest and most important. It
operates a retail-wholesale store and a warehouse which stocks and sells
copper tubing, sheets, welding rods, strip, and bar; plumbing fittings,
mostly brass and bronze; special welding supplies and equipment; and refrig-
eration and air-conditioning supplies, including industrial insulation
products and packing. They sell primarily to contractors, but also to manu-
facturers, builders, liquid gas distributors, sugar mills, oil refineries,
distillers, and other industrial concerns requiring copper, brass, and
bronze products. They deal with the Federal and Puerto Rican governments,
especially the Puerto Rico Aqueduct and Water Resources Authorities.

Arsuaga and Santana, Inc., dealing in the same type of product, operates
strictly as a manufacturers' representative, selling only on a commission
basis. They also sell electrical equipment and materials, such as trans-
formers, sub-stations, pole line hardware, etc.

Arsuaga has about 12 competitors in Puerto Rico, some of whom are also
Arsuaga customers. Many are hardware stores which compete directly with
the Arsuaga stores. A large competitor, particularly in sales to the tele-
phone and electric companies, is the Phelps-Dodge wire and cable plant on
the island, but this competition is limited to large companies. Arsuaga
feels greater competition from smaller companies, which offer lower prices,
more service, and are more aggressive in their sales efforts.

Chase Brass attempted a warehousing operation on the island which
would also have been competitive, but abandoned it as unpromising. Any
local manufacture of copper, brass, and bronze products must face not only
a limited local market, but also rough competition from both the United
States and abroad. Examples of competitive products include Japanese
valves and fittings and antennas, and English, Norwegian, and German copper
alloy products. Further, both U.S. suppliers, who sell exclusively through
U.S. agents, and foreign producers allow full freight from plant or ware-
house to point of delivery.

There is a small local smelter, using copper scrap, that preempts the
very limited local market for copper ingots, and Arsuaga makes no sales
in this area. The major across-the-board competitor is Abarca, which
deals heavily in tubing and alloy products, though much of Abarca's busi-
ness is in products not normally handled by Arsuaga.


Facilities Arsuaga has a retail store and warehouse, both relatively
small but well maintained, and upstairs office facilities rented at
$14,000 annually. No mechanical equipment is required. The commission
business needs no warehouse facilities, as it just takes and forwards orders.





- 92 -


The firm has three trucks for local deliveries but uses contract
truckers for deliveries from pier to warehouse, pier to customer, to
points outside San Juan, and for all their asbestos cement business.

Sources of supply An indication of the competitive pressures for the
limited Puerto Rican market is to be found in Arsuaga's arrangement with
Anaconda. Anaconda, with plants in Mexico, Canada, and continental U.S.,
permits Arsuaga to draw from whichever of the three can best meet island
competition, allowing free freight to the Puerto Rican delivery point.

In the manufacturers' representative and commission phases of their
business, Arsuaga tries for exclusive representation. Most U.S. manu-
facturers prefer not to sell on a consignment basis, but this is not
always true of European companies.

Methods of operation As indicated above, Arsuaga carries on two types
of business, commission sales, and sales of goods inventoried in its own
warehouse. Although these are basically separate, in certain fields in
which Arsuaga acts as manufacturers' representative, such as air-con-
ditioning equipment, they carry spare parts and do service work.

The commission business accounts for 60 percent of Arsuaga's total
sales by weight, but under half in dollar value and profits. The re-
maining 40 percent by weight is retail and wholesale business, accounting
for more than half the dollar value and profits. Of commission orders,
60 percent are shipped direct to the customer, on a CIF basis.

The company began business in 1956, and has prospered and expanded
since. Sales increased 40 percent in 1960/61 over the previous year's
level, and 30-35 percent in 1961/62. Retail sales are between $1 and
$1.5 million annually; commission business $1.5 to $2 million.

In general, about half their business is with plumbing and other
contractors and builders, including refrigeration and air-conditioning.
This is the most competitive part of their activity, but is the bread-
and-butter of their business. There is a growing market for copper
tubing, at a 5-10 percent mark-up, taking the place of galvanized tubing
which, sold from stock, brings a 20 percent mark-up, but does not hold
up in Puerto Rican climate.

Another quarter of their business is with the U.S. and Commonwealth
governments. Arsuaga provides copper for the Aqueduct Authority and
fittings for Water Resources.

The remaining 25 percent of Arsuaga's business is with industry.
Arbas Industrial Supplies, a south coast affiliate, sells copper tubing
to the oil industry and other large users. Other industrial customers
include manufacturers of screw-machine products, electrical parts, and
millwork, as well as brewers, and rum distillers.

Arsuaga adds new lines and new products as opportunity permits. In
addition to Arbas, the affiliate mentioned above, they have formed
Polychemicals, Inc., to make a light-weight plastic for use in their
refrigerating and air-conditioning business.




93 -


The firm has about 25 employees, including a sales manager, who also
handles large customers. In addition, there are four salesmen working
out of San Juan, each with a specialized line, e.g., refrigeration and
air conditioning or welding. One of these specializes in industrial
accounts. At the time of interview there were three salesmen in Ponce,
who also covered Mayaguez; a fourth was to be added after January 1.
However, much of the firm's business is transacted by phone rather than
through salesmen's calls; this applies to the extensive business carried
on with customers in the Dominican Republic and the Virgin Islands.

The firm uses manufacturers' technical and other literature, but also
gets out special bulletins to its customers. They have a technical staff.

Arsuaga has set up a trust fund for its employees, and what they
believe to be Puerto Rico's first profit-sharing plan. The trust fund will
be used to finance a new building to replace their present rented quarters,
which Arsuaga will rent from the fund.

Stocks Arsuaga's stock averages $300,000, including some 600,000 feet of
copper tubing up to 4 inches. They plan to stock tubing up to 6 inches
in the near future. Special inventories are carried for particular cus-
tomers, but usually only in readily resaleable items.

Average inventory is 2-3 months, with turnover about 5 times a year.
They use a visi-record system for inventory control.

Financial aspects No information obtained on this subject, other than as
indicated above.






- 94 -


Distributor Profiles


Badrena y Pdrez, Inc.


This ten-year-old family-owned business deals in a wide variety of mer-
chandise, including plastics, latex and other rubber products, and indus-
trial and school supplies and equipment. Manufacturing and industrial
plants account for 70 percent of their business, government 10 percent, and
contractors and local retailers or distributors the rest. About 65 percent
of their sales are on behalf of manufacturers, on a commission basis, with
shipment direct to the customer.

The company believes that there are growing opportunities for local
manufacture based on the kind of goods in which they deal, particularly
products of plastics, rubber, and rubber compounds, and they hope to expand
in this area. They would like to increase this phase of their business both
in across-the-counter sales and as manufacturers' agent, and also to move
into manufacturing themselves. In order to effectuate these ambitious ex-
pansion plans for local production by themselves and others, they would like
to see more SBA or other financial assistance made available.

Facilities The company rents the building in San Juan which houses its
offices, store, and warehouse. It is a good building, although crowded,
with a relatively small warehouse. If the company continues to expand,
larger quarters will be required.

Badrena y Perez have no materials handling equipment, but they do own
three trucks, used for service only, and 18 cars, most of which are used by
their fifteen salesmen. Contract trucking is employed for cargo handling
between dock and warehouse.

Products handled and sources of supply About 95 percent of the materials,
machinery, and equipment sold by the firm comes from the States, the rest
from local manufacturing plants. The firm constantly seeks new products and
lines, but is less interested in European products than U.S. or local goods.

Methods of operation Eleven of the company's fifteen salesmen are trained
engineers, each a specialist in a particular line or commodity, such as
rubber compounds, plastics, light or heavy machinery, or electronic supplies.
Contrary to the usual practice, the salesmen sell by product group or line,
rather than by geographic territory. However, they are not strictly limited
by line; they work cooperatively, and each tries to pick up business in
other company lines as well as in his own specialty. In such cases the com-
mission is split.

The company sells across the board to all types of customers at all
levels, either direct from the manufacturer or from its own warehouse stock.
Their sales operations have been gradually expanding despite stiff competi-
tion, including that from Carborundum's local plant on abrasives, Dow and
General Electric distributors on plastics, and Goodrich on rubber and rubber
compounds. Direct purchase by local industry from Stateside sources also
presents a competitive problem.






- 95 -


In addition to the sales staff, the firm employs eight clerical employ-
ees and two who help in the warehouse. They maintain an office in the
Dominican Republic and agents in Mayagez and Ponce.

Extensive technical assistance and service are offered to customers, in
the belief that the company's competence in rendering such service has been
a major contribution to its growth. They issue no catalogs, but they do
distribute literature and technical material from their suppliers, such as
Norton (abrasives); Naugatuck Chemical Company, a subsidiary of U.S. Rubber
(latex and rubber compounds); and California Chemical Company, a subsidiary
of Standard Oil Company of California. Such companies offer excellent tech-
nical backing.

Stocks The firm carries a 60-day warehouse stock on the average. However,
some stocks are held on special account for specific customers, in order to
assure them of supplies in case normal ordering and delivery routines are
interrupted. This provides a safety factor for customers whose deliveries
generally come directly from the manufacturer. Because of this practice,
inventory turnover rates are difficult to figure. In order to protect it-
self against the possibility of loss in cases where such back-up stocks are
held, the company tries either to secure these goods on consignment or with
a manufacturer's agreement to take back unused stocks. So far they have
succeeded in only two instances in protecting themselves in this way.

Financial aspects The firm uses normal bank financing. For its expansion
program and planning of new plant it would like to have more credit made
available, either privately or through SBA or Fomento assistance.








-96-


Distributor Profiles

Fairbank-Diversey Corp.

This firm, a subsidiary of the Diversey Corporation of Chicago, deals
in janitorial supplies and equipment, chemicals used in sanitation, in-
cluding water softeners, chemicals for water and sewerage, chemical solutions,
chemicals for swimming pool sanitation, cleaning supplies, soaps, polishes,
and detergents, and so on. The firm was started in 1945 by Mr. Fairbank, a
former Puerto Rico Government official, who began operations as a manufac-
turers' agent, with Diamond Alkali as his principal account. While he was
able gradually to expand the business, he was short of capital, and made the
present arrangement with Diversey in 1957; this followed a short-lived ar-
rangement with Diamond Alkali on a jointly owned manufacturing plant for
bleaches and detergents, which Diversey also took control of. It was at this
time that the firm expanded into sanitation supplies and equipment, as
Diversey specializes in this area.

The company maintains a local retail-wholesale counter in San Juan and
a large warehouse from which it serves the entire island. Principal custom-
ers are chemical manufacturers, plating and electronic firms, hospitals,
public institutions, hotels, and contractors for janitorial and similar
services. They sell little directly to retailers. Though the sugar industry
was at one time a major customer for caustic soda and other chemicals,
Fairbank-Diversey sells little to it currently.

Facilities The company owns its own office and warehouse and has its own
trucks for local deliveries. Deliveries from dock to warehouse and all
deliveries outside San Juan are made by contract trucks.

Products handled and sources of supply The firm's products are supplied
almost entirely from the States. Exceptions are their own locally-manufac-
tured chemicals as well as a few other locally-produced chemicals, and some
items from Japan and Germany. This was the only one of the distributors
interviewed which pointed out, in connection with its financial and credit
problems, that many U.S. continental manufacturing sources treat Puerto Rico
as an export market, even though there are no tariff, customs, or exchange
problems.

The company acts as manufacturer's representative for a long list of
U.S. firms:


Allied Chemical International Corp.
General Dyestuff Division
Fine Organics, Inc.
Udylite Corp.
Jackson Buff Corp.
Clarke Floor Machine Co.
Hydraulic Manufacturing Co.
Minnesota Mining & Manufacturing Co.
Davco Corp.
Protection Products, Export Co.
Phillips Chemical Corp.
Diversey of Puerto Rico, Inc.
Sellers Injector Corp.


Diamond Alkali Inter American Corp.
Antara Chemicals
Richmond Oil, Soap & Chemical Co., Inc.
United Laboratories Company
G.S. Blakeslee & Co.
Gojer, Inc.
Sheila Shine, Inc.
Elgin Softener Corp.
Mec-O-Matic, Inc.
Fiberite Corp.
Chemical Corp.
Clayton Manufacturing Co.
Bay West Paper Co.


Chicopee Manufacturing Corp.




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