U.S. replacement doubtful for Dubai operator at port

March 07, 2006|By MEREDITH COHN | MEREDITH COHN,SUN REPORTER

If a deal that would give some control of U.S. port operations to a company owned by the government of Dubai is eventually squashed, it's still unlikely to pave the way for an American replacement, maritime experts say.

Through a wave of consolidation in recent years, foreign cargo-handling companies have grown and left few major U.S. ones to take over for Dubai Ports World, the company that has drawn fire for its pending acquisition of six U.S. port contracts as part of a larger $6.8 billion purchase of a British company.

British courts cleared the deal yesterday, which is now slated to close March 16. But U.S. lawmakers of both parties continued to criticize the move, which remains in limbo for 45 days as a federal panel re-reviews it for security threats.

U.S. Reps. Benjamin L. Cardin and C.A. Dutch Ruppersberger, both Democrats who serve on committees overseeing port and security concerns, said after a tour of the port of Baltimore yesterday that they remain concerned about a foreign government having any role there.

"I still feel it's not worth the gamble of letting a foreign country in," said Cardin, who has introduced legislation to ban foreign government-owned companies from a port once their existing contracts expire.

Cardin said his preference is for the ports to run operations themselves, or to hire U.S. companies, but that might not be possible if Dubai Ports World divests immediately or when contracts expire.

Many U.S. ports have committed to foreign managers of their terminals and cargo for years.

The most likely contenders to replace the Dubai company would be the world's largest terminal operating companies, including Hutchison Port Holdings of Hong Kong, PSA Corp. of Singapore and APM Terminals of the Netherlands, maritime experts say. Dubai Ports World, currently No. 7, would become No. 3 after the deal closes with Peninsular & Oriental Steam Navigation Co.

Some, such as PSA, the No. 6 firm Chinese Ocean Shipping Co. of China and Dubai Ports World, are backed by their governments.

The largest U.S. operator, SSA Marine, is ranked 9th on the global list, according to Drewry Shipping Consultants Ltd, an independent maritime adviser based in London.

SSA Marine has made foreign investments - and this deal would come with other contracts besides those in the United States - but it did not bid when P&O was for sale the first time, likely because of the cost. The biggest companies also have named it as a potential acquisition target. SSA Marine didn't respond to a request for comment.

Neil Davidson, a research director for Drewry, said he doesn't expect Dubai Ports World to sell its new U.S. assets acquired from P&O.

"I think that it is highly unlikely that DPW would voluntarily sell the P&O assets in the U.S.A., and would only do so if forced. If this were the case ... then there would be no shortage of interested parties lining up to buy them," Davidson said in an e-mail.

PSA sought to buy P&O this first time, even sparking a bidding war for a time, but backed off when Dubai pushed the price too high, PSA said in a statement.

Davidson said the foreign operators have grown large through consolidation over the past several years because they have seen a chance to spread their risk by operating terminals around the globe.

In addition, those companies have tended to be foreign because many of the terminal operators are also shipping lines, a business U.S. companies have mostly left because of what they viewed as high U.S. labor costs and cumbersome regulations, said Peter S. Shaerf, managing director of AMA Capital Partners LLC, a merchant banking firm in New York and Baltimore that focuses on the maritime and transportation industries.

Controlling the ships and the terminals gives the companies a more predictable and regular schedule, he said. It also gives the companies economies of scale.

The result has been the growth of foreign-owned companies operating in the United States, the world's biggest consumer. The port of Baltimore, for example, has no American-owned cargo-handling firms. The largest container shipping line calling at the port is Swiss and it also handles some of its own cargo.

P&O, the fourth-largest operator, found its way into Baltimore and other U.S. ports in 1999 when it bought the New Jersey firm International Terminal Operating Co. P&O sold its own shipping line last year to the No. 3 firm, APM Terminals of Denmark, which also handles cargo at Baltimore and other ports.

Then, Dubai Ports World moved to buy P&O. Dubai acquired the Asian and South American port operations of CSX Corp., an American transportation company, last year.

Foreign companies, sometimes backed by their deep-pocketed governments, are the ones that can afford to buy others, Shaerf said.

"They see money in it," he said. "The global growth of the industry has averaged in excess of 10 percent for the last five years. If there's a sale, then I don't see an American company stepping up. They had opportunity before and didn't."

That's where the political debate becomes skewed from reality, said Donald Kettl, director of the Fels Institute of Government at the University of Pennsylvania and author of books including, System under Stress: Homeland Security and American Politics.

The debate should be about vulnerabilities in the system, such as securing cargo containers overseas, Kettl said. But it's become focused on who should handle the containers after they've already gotten to U.S. soil. The result could be swapping one foreign company for another without improving security, or worse, alienating governments that could help build the level of security or large corporations that have a huge economic interest in a secure system, Kettl said.

"In many ways, it's the wrong answers to the right questions," he said. "They've stumbled onto the issue, and surely we need to worry. But we're running the risk of maneuvering ourselves out of what we say we want, which is security at the port."

meredith.cohn@baltsun.com

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.