Overseas Firms Entrenched in Ports
Despite Dubai Company's Withdrawal, Others Are Likely to Stay Put

WASHINGTON (By Paul Blustein, Washington Post) March 10, 2006 — The decision by Dubai Ports World to abandon its effort to take over terminal operations at six U.S. seaports was a victory for the numerous politicians who have thundered in recent days that foreign companies have no business handling U.S. port operations.

But foreign firms remain deeply embedded in nearly every major port in the country. And transferring ownership of those operations to U.S. companies could cause serious problems in an industry in which nearly all of the shipping is controlled by foreign interests. An immense amount of capital from those foreigners will be required to expand the nation's port system in coming years as global commerce continues to burgeon.

For an example of the industry's international nature, consider Inchcape Shipping Services, a London-based company that provides ship agency services -- arranging the smooth arrival and departure of vessels -- at 200 ports around the world, including more than two dozen in the United States. Inchcape was purchased in January by a Dubai company whose chief executive, Sultan Ahmed bin Sulayem, also heads Dubai Ports World.

Or consider Maersk, a Danish shipping giant. Its U.S. subsidiary operates much of the commercial fleet that serves the U.S. Navy, which means that its vessels transport items such as fuel and ammunition to U.S. military operations abroad.

Theoretically, such arrangements involve security risks. Terrorist operatives might infiltrate Inchcape or Maersk and send strategic information about ship or fleet movements to enemy forces. Many maritime security experts consider those risks small, especially compared with the lack of reliable policing at dozens of ports in poor countries that send goods to the United States.

But whatever the security ramifications, foreign ownership dominates the maritime industry, including the U.S. facilities where giant ships dock and unload thousands of containers filled with products for U.S. consumers.

"There is no other part of our critical infrastructure that is owned by foreign interests the way the maritime infrastructure is," said Stephen E. Flynn, a former Coast Guard commander and a port security expert at the Council on Foreign Relations.

Because of the Dubai ports flap, the public has learned that the majority of terminals at U.S. ports -- especially big ones such as Los Angeles and Long Beach in California, and New York and New Jersey -- are managed by companies from Singapore, Taiwan, Denmark, South Korea and other countries. And as President Bush pointed out in defending the Dubai Ports World deal, the port-management company targeted for takeover, Peninsular and Oriental Steam Navigation Co., is British.

In this highly globalized business, crews typically come from Southeast Asia or Eastern Europe, flags are often Liberian or Panamanian, and few large container ships are owned by U.S. interests. (A 1920s-era law called the Jones Act requires ships plying routes between U.S. ports to be U.S.-owned, but they are minor exceptions.)

There is an important reason why terminals are usually managed by foreigners: The shipping companies themselves are largely foreign, and they have generally sought to control terminals so that they can be certain of having the most reliable, efficient facilities possible for loading and unloading their vessels quickly to reduce costly time in port. That arrangement has suited local port authorities; they want to ensure that their ports will draw enough traffic to generate revenue and employment.

"Why are there so many foreign terminal operators? There are no global American liner companies anymore -- that's really the crux of it," said Peter Shaerf, managing director of AMA Capital Partners LLC, a merchant bank that specializes in transportation.

That development goes back to the 1970s and 1980s, when U.S. shipping firms struggled to compete with foreign lines that employed low-wage crews and were subject to looser regulations concerning safety, crew training and other issues. In the 1990s, much of the once-mighty U.S. merchant marine fleet was bought by foreigners, as Singapore's Neptune Orient Lines snapped up APL (better known as American President Lines) and Maersk purchased Sea-Land from CSX Corp.

Some members of Congress recently proposed legislation that would require that U.S. companies take over terminal management operations at U.S. ports from foreign firms. Logistically, that would be possible, according to Bob Watters, a vice president at SSA Marine of Seattle, the largest U.S.-owned terminal management company, which operates three terminals in the Port of Long Beach, two in Oakland and two in Seattle. Although contracts with the foreign shipping companies would have to be renegotiated, the longshoremen and supervisors working for the terminal firms could simply become employed by new U.S. owners.

But keeping the foreign-owned companies in the ports may be essential for another reason: the nation's need for financing to increase port capacity. Foreign shipping companies, eager to increase their business, will presumably be willing to provide the funding; it is unclear whether enough money can be obtained domestically.

"The numbers being kicked around are that trade will double by 2020, so we'll have to handle roughly twice the numbers of containers -- it's 9 million this year, and will be roughly 18 million by 2020," Flynn said. "So we are going to have to upgrade our facilities significantly. It's a combination of dredging, finding more real estate, buying more gantry cranes, building bridges, roadways, rail heads -- a big investment."

In Virginia, for example, the port authority has estimated that it will need about $10 billion to expand its ports over the next few years, Flynn said.

"If you do this as a state enterprise, you have to go to the good people of Virginia and say, 'We need $10 billion.' How is that going to work, with all the needs to deal with traffic jams and education?" he said. "Or you can turn to a U.S. company. Well, this is a very capital-intensive industry. . . . If we want to own all the infrastructure, I'm not sure where that capital comes from. Americans don't want to save. And they don't want to pay taxes."

That still leaves questions about how relaxed Washington should be about foreign control of certain operations. The Dubai Ports World controversy has caused much criticism of the Committee on Foreign Investment in the United States, the secretive interagency panel chaired by the Treasury Department that reviews foreign takeovers of U.S. firms with national security implications.

The purchase of Inchcape in January by Istithmar, a Dubai company, could stir further debate. In an e-mail, an Istithmar spokesman said, "CFIUS was contacted by Istithmar's U.S. counsel about this transaction and it was determined that approval was not required." But Tony Fratto, a Treasury Department spokesman, said late yesterday, "I cannot confirm that the CFIUS was contacted by parties to that transaction."

The takeover shouldn't arouse alarm, several security experts said. The ship agents employed by Inchcape around the world are almost invariably citizens of the countries where they work, because their jobs require them to handle a wide range of logistical tasks such as arranging for fuel, water, and medical care when ships dock.

Moreover, "they have to undergo, in most cases, background investigations, to permit them to enter the restricted areas of a port, the same as longshoremen and others," said Kim E. Petersen, president of SeaSecure LLC, a maritime security firm in Fort Lauderdale, Fla.

Flynn agreed. "It's hard for me to say this is a big worry," he said. "That's not to say we have no worries about ports. We have lots of worries. But as I try to prioritize what they are, foreign ownership is down on the list. It's just a fact of modern global transportation logistical life."