Thursday, March 02, 2006

The Dubai Ports World Saga

I should have been rubbing my hands in glee, basking in smug, self-satisfaction to see my obscure, niche, academic field get its moment under the sun. I cannot turn in any direction without a constituent of the American and international media pontificating over the takeover of P&O by Dubai Ports World. I've loved and studied ports for the last four years now, and back when I started there were but a handful of academic port experts in the country, one of the finest being one of my own mentors. That was rapidly changing even then, as the September 11 events saw a great sense of urgency around port security. I have little to no academic interest in port security matters, but that's where the money was being poured in, and the greatest buzz of activity.

However, even though congestion and environmental pollution concerns in the Los Angeles region garnered the two local ports regular headlines in the local papers, ports had not yet become a matter of tremendous national interest. Animated discussions over the maritime industry was the substance of academic conferences, and mention of a dissertation on ports did not invite too many other questions. For the past two months or so I had been following the bidding war between the Port of Singapore Authority (PSA) and Dubai Ports World (DPW) over P&O, one of those venerable British companies that are almost institutions, with great interest. The matter was being reported in the pages of finance publications and tucked away in the business pages. Till on February 10, PSA decided to bow out of the race, and DPW was all set to acquire P&O.

At that point, something curious happened. Within the next few days, rumblings of controversy started brewing in Washington with some Senators expressing strong reservations over the takeover of P&O by DPW, as P&O had leases to operate terminals at six US ports. Well, actually, that is not how it appeared in the media, as newspaper after newspaper proclaimed around February 16 that six US ports were being sold to the Dubai based company, which of course is not the same thing as a terminal lease. The argument advanced was that this would compromise security at the ports, as Dubai banks had been a conduit for al-Qaeda money and the UAE government had recognized the Taliban regime.

Now, just like all other industry experts and professionals, I see no problems with the deal. What is very amusing to me, and a bit disconcerting is the near-hysterical coverage of the issue, and lack of rigorous and accurate information on the matter in the media. The number of self-proclaimed port and port-security experts have multiplied several fold overnight, and it seems that everyone and their grandma have an opinion on the matter which they are eager to dump on newspaper opinion pages. There are honourable exceptions, of course, and industry standard business publications such as Forbes, International Herald Tribune and the excellent Journal of Commerce (alas, subscription only) have managed to bring us consistently good coverage of the matter.

The issue has very quickly degenerated into a slanging match which has curiously turned the direction of all the verbal polemics that we have seen between conservatives and liberals in the American media. After a few years of hearing liberals accuse conservatives of racism against Arabs and Muslims, and conservatives denying the charge stating they are merely acting out of nationalism and security concerns, now the tables are turned. Hilary Clinton (Democrat) (with Senator Robert Menendez) writes:

But by first failing to adequately secure our ports and now approving the sale of operations at those ports to a company controlled by a foreign government, it is the administration itself which has put this nation dangerously at risk.

The entire piece is full of factual inaccuracies, not the least of which is the simple fact that companies controlled by foreign governments already run terminals at US ports (they don't own them, no country in the world except for United Kingdom allows for fully private ports). American ports are without exception landlord ports, they lease terminals and collect fees for use of the premises.

The outrage is bipartisan, and a number of Republicans have also expressed deep dissatisfaction with the deal. A Republican Congressman Duncan Hunter (from California no less) stated "I intend to do everything I can to kill the deal". Additionally he wants a rollback of all foreign investments in ports, electricity plants, and other areas critical to American security. Ahem....good luck with that. Senator Richard Shelby says "Everything in this country can't be for sale". Well sure, but these assets that you speak of belonged to a British company anyway, whose shareholders are scattered internationally.

Now while politicians and commentators at large are having a field day, I scan for news and opinion pieces for well-known experts in the area, officials from the Maritime Administration, high ranking port officials, shippers, terminal operators, academics, journalists who specialize in reporting on ports, etc. Very little is forthcoming. I'm a little puzzled by the lack of expert voices in the media, till I realize that most true experts have wisely decided to watch from the sidelines as politically motivated warriors battle it out over flimsy logical grounds.

Finally, day before yesterday (February 28), the Senate Commerce, Science and Transportation Committee called in a panel of experts for a hearing, where the respondents provided extensive information on the maritime industry and the very international nature of the terminal operations and shipping business (do watch the video if you are interested in global trade and have 3 hours to kill). The clarifications provided by the respondents were excellent. Wish I could say the same about some of the questions. Senator Barbara Boxer (California, again!) mentioned the dismal state of women's rights in the UAE as she grilled the Chief Operating Officer of Dubai Ports World, Ted Bilkey, about UAE's boycott of Israel! Besides the fact that it was a throwaway remark for which she probably had no evidence, if that was the basis for deciding business deals, most of them would fall through. And strangely, she asked Bilkey how many women were in senior management positions in the company. Huh???

Another Senator repeatedly asked Michael Jackson, Deputy Secretary, Homeland Security if the money spent for port security was "enough". Well, it all depends on the level of security desired, doesn't it? The fallacy of only 5 percent of containers being screened was repeated ad nauseaum till Jackson clarified that all containers were screened, and only 5 percent inspected. Which is exactly what I was told on my visit to the Maersk terminal at the Port of Los Angeles.

Senator Maria Cantwell wanted to know if DPW would require ALL their terminals around the world comply with US programmes such as worker background check, electronic seals, radiation devices, as a requirement for getting the deal cleared. Regardless of whether these terminals send goods to any US terminal or not!! It's pretty amazing, the Senate Commerce Committee seems to be ignorant about the way the shipping and port operations business is organized. It is almost as if the heavy foreign ownership of the terminal operations business came as a big surprise, almost a shock to them.

Actually, almost none of the American operators have any sort of global presence in the shipping or terminal operations industry. The field is dominated by players from East and South-east Asia, with a few key European operators like Maersk. And now, in a spectacular trajectory of growth, DPW has gone from starting with the port of Jebel Ali, UAE in 1999 to acquiring CSX International in January 2005 and now poised to acquire P&O to become the third biggest terminal operator firm in the world. Of course they've hit a roadblock in the American sector for the moment.

So yes, moral of the story. Contrary to a lot of the rhetoric around the world about Americans being at the forefront of globalization and expanding aggressively to other nations, sometimes they are caught by surprise to find the globe in their own backyards.


Anonymous Sanity Starved said...

Well, I am not surprised that you say you didn't find any expert opinions in the media. Well, not exactly the media's fault, since it is difficult for a reporter or a newsgroup to find out experts in every field. It is largely the influential lot. It is for a reason that we don't reference the media in our papers, isn't it?

I am not surprised at the types of questions asked actually. During skydiving, I learnt that the USPA (parachute association) and the FAA (aviation) have a mutual understanding that the USPA will self-regulate itself. It is for good reason since the FAA is accountable to the Pentagon and the standards are as strict as those for the armed forces. It would mean even the main pararchutes would be subject to the reserve parachute standards which cost thousands of dollars more, in their maintenance too. But probability of a reserve parachute not opening is zero (to quite some significant numbers). It is a matter of being thorough and those stupid questions are part of the process.

Foreign investments. Isn't it the only thing that's keeping the US alive in spite of what the Bush administration thinks of spending?!!

6:17 AM  
Blogger Adagio For Strings said...

Ah! A day in politics. It is so typical. Its like Ekta Kapoor serial. Same story line for every serial. Be it Intelligent design, NASA mission to moon and mars (with corresponding budget cuts for NASA science programs), the war....just take your pick. So little of politics about logic. As a matter of fact I am realising most of the real world isnot about logic.

1:31 PM  
Blogger Naveen Mandava said...

I had been party to a recent freight security workshop here, and the refrain was common. More freight capacity needed; high costs of carrier capacity; problems between customs and homeleand security passed on to shippers; port capacity unevenly distributed as in too many unprofitable routes...point being it probably is a good time to be a port expert/ counsultant to shippers carriers!

4:29 PM  
Blogger thalassa_mikra said...

Pidus, that's absolutely correct. For a field that has kept a very low profile over the years, it is really hard for reporters to track down experts when faced with deadlines.

Foreign investments, immigration and treasury bonds, not necessarily in that order :).

Adagio, we expect our politicians to arbitrate matters they have no clue of. Perhaps it's time for the technocrats to take over.

Naveen, welcome! Did we attend the same conference? I attended on on freight last month, and your description sounds more freight capacity building than port security. It is a good time to be doing ports, but the downside is having to endure non-experts jockeying for limited research money through politican manouevering.

11:35 AM  
Blogger Adagio For Strings said...

Yes but one has to choose their battles. One cant fight all battles let alone expect to win them all. I just hope there are technocrats out their who are more inclined to joining politics right now.

1:54 PM  
Blogger Red said...

[i]Another Senator repeatedly asked Michael Jackson, Deputy Secretary, Homeland Security if the money spent for port security was "enough[/i]

Ah, so Mikey is in charge of Home Security. That explains everything [;)]

3:39 PM  
Blogger thalassa_mikra said...

Adagio, I hope no one's abandoning the battle against "intelligent design" anytime soon.

Red, welcome. Hahahaha, yeah I'm sure the poor guy gets that all the time. Though imagine the possibilities if the "moonwalker" was indeed incharge of Homeland Security :)

4:14 PM  
Blogger Naveen Mandava said...

Because it was a private sector workshop (of RAND) so the theme started with the costs of freight security borne by companies and customers. But it quickly developed into a call for capacity building of freight, especially railroads. BTW, do you have any articles of yours wrt ports that I can pass on to those interested in freight here at RAND?

And again, I am interested in three specific questions for N America:
1> What kind of goods are used by companies for ports, and an intra-comparision of costs across ports for them?
2> Cost comparision wrt other modes
3> Regulatory structure and possible costs of it
4> Technical factors of ports that influence their future increase or decrease of capacity.

I am not looking for answers to all, but a couple of articles from a grad on ports (which is really really specific:-) that give me a flavour will help to start my own search. Thanks!

9:46 PM  
Anonymous camobel said...

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4:46 AM  

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