Sunday, February 26, 2006

The furor over a United Arab Emirates company taking over some operations at six U.S. ports underscores the global nature of the shipping industry and the minor role played by American interests.

Foreign-owned companies dominate the maritime industry amid the war on terrorism, and many U.S. ports would be drowsy backwaters without them.

The role of U.S. shippers, stevedores and terminal operators has declined since the late 1990s, when two shipping firms were bought by foreign competitors.

The Bush administration’s quiet approval of Dubai Ports World’s $6.8 billion purchase of Peninsular and Oriental Steam Navigation Co. (P&0), based in London, sparked a fierce public debate over port security and the threat of terrorists penetrating P&O operations.

The decision also shed light on the international nature of the shipping industry and underscores consumer ignorance of how everything from beer to automobiles is moved around the world.

“I’m willing to guess there’s a very large segment of the U.S. population that doesn’t know where many things are made, or more importantly, how they got from where they are made to the target in Peoria,” says Michael Berzon, president of Mar-Log Inc., a Maryland supply-chain and supply-chain security consultant.

Scandinavian ships flying the flag of Panama, where the vessel is registered, employing Filipino workers, regularly sail into the Port of Baltimore. A German ship flying the Greek flag arrives weekly at the Virginia Port Authority’s terminals in Norfolk with cargo from China.

“This is a global business, not an American business. Maybe we as an industry have not done a good job explaining that, but we’ve never been asked,” says Peter S. Shaerf, managing director of merchant banking firm AMA Capital Partners LLC, in New York.

International operator

Mr. Shaerf describes Dubai Ports World as a respected, well-run terminal operator. Under the terms of purchase, the United Arab Emirates company would operate some terminals at six ports — Baltimore, Philadelphia, Miami, New Orleans, New York and Newark, N.J.

In Baltimore, the company would take over operation of two of the 14 terminals. In addition to U.S. contracts, the P&O Ports acquisition covers ports in Vancouver, Canada, Buenos Aires and locations in Britain, France and several Asian countries.

Dubai Ports World, owned by the Dubai government, already operates 22 marine terminals in 15 countries, including China, India, Venezuela and Australia. Other ventures include trucking operations, freight transportation logistics, airport operations and business-enterprise zones.

The purchase was scheduled to take effect Thursday, but Dubai Ports World said late last week it will not exercise control over new operations in the U.S. while the Bush administration tries to soothe congressional critics and alarmed governors who raised concerns over port security.

President Bush said he will oppose efforts to block the transaction, and Dubai Ports World said it intends to complete its purchase of P&O.

The Treasury Department’s 12-member foreign-investment committee reviewed the sale and unanimously agreed it posed no problem, according to the department.

Like others in the industry, Dubai Ports Chief Operating Officer Edward H. Bilkey last week said the company was puzzled by the U.S. response to the purchase.

“The reaction in the United States has occurred in no other country in the world,” Mr. Bilkey said. “We need to understand the concerns of the people in the U.S. who are worried about this transaction and make sure that they are addressed to the benefit of all parties.”

Global commerce

Dubai Ports World is surrounded by other foreign competitors at U.S. ports. Foreign businesses keep many ports running.

The top 10 containership fleets are based in Denmark, Switzerland, Taiwan, China, Germany, France, Japan, Hong Kong and Singapore.

The world’s top terminal operators are not U.S. companies. Hutchison Port Holdings, the largest, is based in Hong Kong. PSA International Pse. Ltd., owned in part by the investment arm of the Singapore government, is the second-leading terminal operator. Dubai Ports World ranks seventh and would become the second-largest terminal operator, based on the number of containers handled, after its takeover of P&O.

“It’s the reality of the globalization of commerce. Ports and terminal operations are no exception to that,” says Kurt J. Nagle, president and chief executive of the American Association of Port Authorities, which represents 86 of the nation’s public port authorities.

At the Virginia International Terminals, the operating arm of the Virginia Port Authority, Cooper/T. Smith Stevedoring and P&O Ports North America Inc., a subsidiary that would be owned by Dubai Ports World, announced they will combine operations in a new company to be called CP&O LLC. The merger is to be completed Oct. 1.

Stevedoring companies are hired by shipping lines to load and unload cargo ships. Ceres Marine Terminals Inc. is the Virginia port’s other major stevedoring firm and is owned by Japanese shipping firm NYK Line. Norfolk also is the U.S. headquarters of CMA-CGM Group, a French shipping line, and Israeli shipper Zim-American Israeli Shipping Co.

Denmark’s A.P. Moeller-Maersk, the largest terminal operator in the United States and owner of the world’s largest shipping fleet, owns APM Terminals NA, which is building a $500 million private container terminal in Portsmouth, Va., scheduled to open next year. The terminal will be used solely by Maersk vessels.

“If you pulled the foreign shipping companies out of this port or any port, I don’t know what we would do. It’s as international a business as you can put your hands on,” says Joe Harris, spokesman for the Virginia Port Authority, which operates three terminals.

America’s role

There haven’t been any major U.S. container shippers since Maersk bought Sea-Land Corp. from CSX Corp. in 1999. Maersk now navigates an operating fleet of 585 ships. That’s more than twice as many vessels as its nearest competitor, Swiss-owned Mediterranean Shipping Co., with 282 ships.

While it was independent, Sea-Land had an operating fleet of 70 ships.

Neptune Orient Lines, in Singapore, bought California shipper American President Lines in 1997.

“America plays a very small role in terms of liner and container companies,” Mr. Shaerf says.

The biggest American container shipper is Matson Navigation Co. Inc., in Oakland, and it ranks 31st in terms of shipping capacity with 18 ships, Mr. Shaerf says. Horizon Lines Inc., in Charlotte, N.C., with 16 ships, is the world’s 35th-largest shipper.

Sea-Land is credited with starting the container shipping industry when it sailed a cargo ship from New York to Houston in 1956. The first trans-Atlantic container ships sailed 10 years later.

Landlords at ports

Among terminal operators, U.S. companies have a larger presence, but they are overshadowed by foreign competitors.

SSA Marine, a privately held family firm based in Seattle, is the world’s ninth-largest terminal operator, based on the number of containers handled. It operates 105 terminals worldwide.

The four busiest U.S. ports are operated by government port authorities that act as mere landlords and contract with privately held firms such as SSA Marine and P&O to manage terminal operations.

The Port of Los Angeles, the nation’s busiest port, has been run by private companies since 1911. It and the Port of Long Beach, Calif., account for 43 percent of U.S. imports.

Terminal operators want to expand their reach to manage terminals at ports in states including Georgia, South Carolina and Virginia, but those states are among 32 port authorities — run by states, cities and counties — that chose to operate ports on their own and shun the landlord approach.

South Carolina did employ terminal operators, but took back control of ports from unions to avoid labor strife. The port authority reported revenue of $130 million in fiscal 2005. The Virginia Port Authority reported fiscal 2005 revenue of $202 million.

“The industry wants to privatize,” says Chuck Carroll, general counsel for the National Association of Waterfront Employers, a trade group representing private-sector terminal operators.

It’s not clear that privatization would help U.S. terminal operators compete with bigger, foreign-backed competitors.

Increasingly, the companies managing terminals are foreign businesses that also own shipping lines and unload cargo. In the fragmented shipping industry, behemoth foreign firms are in greater position to acquire smaller competitors and broaden their reach into more U.S. ports.

“Most people look at the port in Baltimore and say ‘That’s a port,’ and they move on,” Mr. Berzon says. “Now all of the sudden they say, ‘Arabs are going to run the port.’ Well, it’s two terminals and it’s an international business.”

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