Saturday, February 25, 2006 6:55 PM
One small importer's perspective on the Dubai Ports World soap opera
I usually eschew political monologue here since it is so rarely relevant to my post-Microsoft life as an importer, food aficionado, and struggling business owner. In college, I wore my progressive and occasionally radical politics on my sleeve, but I’ve mellowed out considerably over the years, even if I maintain a relatively similar belief system. I promise I’m not going to turn into my relatively unread blog into a political soap-box, but I do have something I must gently rant about.
I have been increasingly frustrated by the thinly veiled anti-Arab, xenophobic reaction to the news that Dubai Ports World is buying out another foreign company that manages terminals at a half dozen ports around the U.S. With a few exceptions, progressives, liberals and conservatives, Democrats and Republicans, have responded in a completely reprehensible, opportunistic fashion. At the same time, the administration’s own handling of the eruption of controversy is also laughable, with the “we didn’t know anything about it, but really it’s fine with us” performance worthy of a cameo appearance by John Kerry.
The hostility toward this deal is full of opportunistic misunderstanding about how ports work, and the fuel for this uproar is equivalently opportunistic hostility and fear of Arabs and the Muslim world. Why react intelligently when you can create a fire-storm?
This is not about ceding U.S. control of our ports infrastructure to foreign companies, as Dubai Ports World has only gained control of a lease allowing them to operate terminals at US ports. This gives them the power to hire US labor to do such low-margin work as unloading shipping containers, and passing paperwork from one company to another. For their efforts, they will have the power to repeatedly touch high volumes of money that produce very low margins. Only an Arab buy-out of a municipal bond hedge fund could possibly be more uninteresting.
The way ports work is not a big secret; thanks to British trade practices dating back hundreds of years, almost every port in the world relies on the same tedious paperwork with un-memorable acronyms designed to squarely clarify title and liability for every piece of cargo and every set of hands that might touch it. The operational side is pretty much the same worldwide, except for variations in things like union-negotiated restrictions on which job description is allowed to do what kind of work. “The terrorists” aren’t going to gain substantially more insight into our security weaknesses than they could by working at a any port closer to home for a few weeks.
Security is still firmly the responsibility of the U.S. Coast Guard (for seaports) and the TSA (for airports), in addition to other agencies such as local police forces and local port authorities. The terminal managers are usually only responsible for securing their own facilities, an interest which all for-profit enterprises share; Dubai World Ports is no more interested in allowing terrorists to rifle through its paperwork or sneak into its warehouse facilities than any other company.
The United Arab Emirates port of Dubai is the only Arab port participating in the innovative Container Security Initiative, which improves container security by stationing U.S. customs personnel at the port of origin, enabling risk assessment and security inspections as early in the supply chain as possible. Aside from the obvious benefit of early detection, this expedites cargo release on the U.S. side, since Customs merely needs to be satisfied that the freight containers have an intact seal before releasing cargo to the consignees.
UAE also subscribes to maritime security treaties and has a solid record of cooperation. The US Navy trusts the maritime infrastructure enough to regularly dock and service its ships at Jebel Ali, all managed by Dubai Ports Authority, closely tied to Dubai Ports World.
By buying the U.K. company which previously held these port leases and various small offices around the United States, DPW is tying its success to the future of U.S. trade. This is a textbook example of how the U.S. could improve relations with the Arab world through constructive engagement. Aside from this, Dubai Ports World’s executive staff is as multinational as any other conglomerate. Their (soon-to-retire) Chief Operating Officer is an American, their Head of Business Development and commercial business unit’s Senior Vice President, and their Chief Counsel are all American. Most of their other executives are Indian or European. Although executives are replaceable, the current management’s success is clearly not tied to an Islamist extremist future.
Some people complain that DPW is state-owned, but UAE’s government is also no friend of Islamic terrorists; they do have some human rights problems that merit concern, but this is not particularly relevant to the security of U.S. ports. Singapore’s Neptune Orient Lines can be accused of the same, and they lease a terminal in Oakland, CA; a number of Chinese state-funded enterprises lease terminals and smaller facilities at ports around the U.S. The only reason why DPW would merit special consideration is the fact that they are based in an Arab country, and the only justification for such concern is racist or anti-Islamic fear.
The security of ports in the United States is not going to be determined by the country in which the corporate parent of the shipping and logistics vendors operating in our terminals is based. It’s going to depend on the quality of the people working at those facilities, most of which are meagerly paid U.S. citizens, Hispanic immigrants, and so on, much like any number of other foreign companies operating in the United States.
Additionally, security is going to depend on the amount of resources available for inspecting incoming cargo, the biggest hole in the equation. This is about a $2 billion dollar problem, with 9–10 million containers entering the United States each year. If customs had 30,000 people whose full time job was to inspect every container that came in to this country, it would cost $1.4–2.0 billion, assuming a roughly $50–65,000 average annual cost per employee. This would add about $250 to the cost of every shipping container. That’s a lot of money from an importer’s perspective (our margins are thin, too) and I certainly would like to avoid having to pay for it, but it would do far more than disallowing companies that come from parts of the world that scare us to handle stevedoring and paperwork.
The concerns about foreign control of U.S. shipping operations are also completely misplaced. The reason why some 80% of U.S. shipping terminals are operated by foreign companies is that most U.S. companies aren’t interested in that kind of low-margin money. Imagine trying to wow shareholders of a public company with single digit profit margins, even in good years with double-digit revenue growth, as DPW has achieved through strategic acquisitions. At the same time, you have high operating costs, rapidly depreciating, expensive fixed assets (airplanes, empty containers and ships) and completely virtual strategic assets (leases and contracts).
What does that get you? A reliable source of modest income. For companies from developing countries, or countries without a lot strength in intellectual-property driven enterprise, that’s potentially compelling. But for anyone else, you could buy a mutual fund and get the same thing without all the headaches.
Technorati: Dubai, Dubai Ports World