Thread: American Shipping Firms Outbid, Outrun by Foreign Cos.

http://www.foxnews.com/story/0,2933,188179,00.html

The recent uproar over the Bush administration's plan to allow a Dubai company to run terminal operations at some major U.S. ports was an eye-opener for many Americans: It was the first time they learned just how few U.S. companies are involved in running ports and shipping lines.

It wasn't the first — and likely won't be the last — time Congress has revolted against the idea of allowing a foreign government-owned firm take over parts of America's infrastructure it thinks could make the country more vulnerable to a terrorist attack. Some lawmakers now are offering legislation that puts stronger restrictions on foreign takeovers of U.S. entities and infrastructures.

But some global economy experts stress that foreign investment is essential to our economy, and warn that it may be dangerous to abide by protectionist rules when it comes to deciding which companies do business with the United States.

"I think the president and the Congress need to make clear, particularly after the Dubai Ports World incident, that U.S. policy remains one that welcomes foreign investment," said David Marchick, a Washington lawyer who co-authored the forthcoming book, "U.S. National Security and Foreign Direct Investment."

"Attracting foreign investment in itself is a national security objective in the United States because our economy can't grow and thrive and support our national security establishment without investment."

The Ports Problem

Most U.S. terminals are operated by foreign companies because most shipping companies are foreign-owned. Companies want their own terminals to ensure their ships can quickly unload and receive new cargo. Terminal operators also are responsible for their storage and repair facilities as well as management offices at the ports.

During the 1980s, some U.S. terminals sat empty — the result of a shortage of ships and cargo to fill them, said Bob Watters, vice president of SSA Marine. If the terminals were idle with few shipping lines docked, it didn't look good to taxpayers. So state and local port authorities around the country encouraged foreign companies to take leases at their terminals while many used some sort of state tax revenues to build up terminals to accommodate more foreign volume.

"What the ports wanted to do is they wanted to tie up shipping lines to stay at their ports," said Watters. "The ports really in a sense put the U.S. terminal operators, more of them, out of business, because they were targeting the shipping lines."

SSA Marine is the largest American company in the market and is one of only two major U.S. terminal operators. Based in Seattle, it competes for contracts to run terminal operations, then finds shipping lines to lease the terminals. This method often works well for smaller shipping lines that don't have the volume to cover all the costs to lease terminals themselves, and it often allows for better utilization of the terminal, Watters said.

"It's a capital intensive business to get into and ... to actually have the leases, it's very difficult because the port authorities want to give the leases to shipping lines rather than terminal operators. We would have a lot more terminal leases if we could," Watters said.

Ports are owned by local, state or national government authorities that maintain physical structures like wharfs, docks, piers, transit sheds, loading equipment and warehouses. Port authorities also provide additional security for their facilities. The nation's larger ports have many separate facilities within them including oil refineries, warehouses, fuel farms, power plants and factories. Most port workers are American Longshoremen, but foreign ships also have their own workers.

Although at least 80 percent of terminal operations are foreign-run, those in the shipping and ports business say increased foreign investment is just a fact of life in the global marketplace.

"What we have is a supply chain that is global in nature ... and we have in this country many foreign-owned corporations operating in ports," said Michael Jackson, a deputy secretary at the Department of Homeland Security. "Our ports are owned by public authorities in the United States. Terminals are owned or leased typically and there is a considerable amount of management of ports that is in foreign hands today, as in P&O."

London-based Peninsular and Oriental Steam Navigation Co. is the firm that sold the U.S. port terminals in question to United Arab Emirates-owned DP World for $6.8 billion.

"You'll find that the larger companies like DP World, P&O ports … that they are major conglomerates where they are vertically integrated in terms of the transportation links and the supply chain that start anywhere in the world from the ports of embarkation" to the time the destination is reached and cargo is unloaded, said Dennis Rochford, president of the Maritime Exchange for the Delaware River and Bay.

Rochford noted that 2,500 out of the 2,700 ships that travel on the Delaware River are foreign. That's because in the past, higher labor costs and taxes plagued some U.S. shipping lines that also had to compete with foreign companies employing lower-wage crews and dealing with fewer regulatory burdens.

"It's just simply more economical and more competitive to fly under foreign flag ships than American flags," Rochford said. "It's the economics of the marketplace that are driving it."

Added FOX News market analyst Tobin Smith, chairman and chief investment officer of ChangeWave Management, LLC: "The only way you can make money in the terminal business ... is to own terminals throughout the world … that's why no American company bid on this, because no American company has the wherewithal to fill terminals of these American docks."

Sen. Robert Menendez, D-N.J., has said more should be done to entice American companies to bid on terminal contracts, but he has not laid out details on how to do so.

"It simply runs contrary to the national security interest of this country to turn over control of critical security assets such as port operations to a foreign nation," he said this week after he and Sen. Hillary Clinton, D-N.Y., introduced legislation to prohibit any entity owned or controlled by a foreign government from leasing, operating, or owning "real property or facilities" at U.S. ports.

Other lawmakers have introduced similar bills.

But industry officials say the threat to U.S. security is not so much who's running the terminals but the lack of overall security within the supply chain, and the lack of checks and balances abroad before cargo is even loaded onto U.S.-bound ships. Another problem is that many foreign ship workers don't have standard identification cards.

Stephen Flynn, a senior fellow for national security studies at the Council on Foreign Relations, laid out a scenario earlier this month for lawmakers that he said keeps him awake at night:

A container of athletic footwear is loaded at a plant in Surabaya, Indonesia, destined for malls across America. A local truck driver sympathetic to Al Qaeda picks up the container, then he and his cohorts load a dirty bomb wrapped in lead shielding into the cargo. The container goes the port of Surabaya, then Jakarta, then onto an Inter-Asia ship that goes to Hong Kong. From there, it's loaded onto a huge container ship that crosses the Pacific and is unloaded in Vancouver, British Columbia. Because it originates from a trusted name brand company that has joined the Customs-Trade Partnership Against Terror, the shipment is never tagged for inspection by the U.S. Container Security Initiative team in Vancouver. It then continues by train into the United States, where the bomb could eventually go off.

Security and shipping experts say that because of this scenario, instead of pushing potential foreign partners away, the United States needs to work more closely with them to tackle broader security issues on a global scale.

"The bottom line is as it is today, as we see the world today, in terms of foreign-owned port operators and shipping lines, all that isn't going to change any time soon. I'm not sure what, if any policy the U.S. should undertake for more American companies to incentivize them to get into that," Rochford said.

"I think the government should not prohibit investment in specific sectors," added Marchick. "With few exceptions, like the airline and a few other industries, we've long maintained an open foreign investment regime."

Foreigner Backlash?

The recent ports debacle may cause lawmakers to be more wary of other foreign acquisition deals, as well.

The House Appropriations Committee last week unanimously approved a report that directs the Department of Transportation to put on hold for 120 days a Notice of Proposed Rulemaking that would allow foreign interests to control U.S. airlines — a sticking point to the European Union's approval of an "open skies" agreement with the United States.

Under current law, only an airline that is owned and under the actual control of U.S. citizens can provide service between various U.S. cities or on international routes obtained by the United States through international agreements. DOT wants to allow foreign investors to control all commercial decisions of an airline, including fare prices, cities served and routes.

"There remain too many unanswered questions regarding the impact this rule will have on our nation's homeland security, future access to air service, and American jobs," Rep. Frank LoBiondo, R-N.J., said during a hearing on the issue last month.

LoBiondo, along with Rep. James Oberstar, D-Minn., introduced a bill that would delay DOT's finalization of changes to those airline ownership rules. The bill has 160 co-sponsors.

"In essence, what [the DOT was] doing, if you believe this, they said 'look, we know this is what Congress said when they put it into the law saying no foreign control, but we don’t think you meant that,'" said John Mazor, spokesman for Airline Pilots Association International, a union that represents 62,000 airline pilots and 39 airlines in the United States and Canada.

"It's a combination of bureaucratic chutzpah and wishful thinking. … the Congress, rightfully, got upset. Here you have an executive branch agency attempting to change what the law says by an administrative fiat."

Lawmakers are also calling for the U.S. Committee on Foreign Investment in the United States (CFIUS) to set a higher security bar for the way it approves foreign ownership deals. But some experts are wary that this could lead to greater reluctance from foreign investors.

"I think the way CFIUS was already being implemented since Sept 11 has had a chilling effect on foreign investment," said Marchick. "In this new environment, I think foreign investors are going to be even more cautious and even more reluctant to invest in certain types of U.S. companies."

Congress last year overwhelmingly recommended against the Bush administration granting permission for a Chinese company, CNOOC, to purchase Unocal, a U.S. oil services company. In 1999, just before the Chinese company Hutchison Whampoa took control of the shipping yards that line the Panama Canal, retired U.S. admiral and former chairman of the Joint Chiefs of Staff Thomas H. Moorer warned the Clinton administration of a "nuclear Pearl Harbor." U.S. concerns also blocked the attempted 1987 acquisition of Fairchild Semiconductor Corp., a high-technology manufacturing company, by Japan's Fujitsu, Ltd.

"The Chinese proposal to buy Unocal hit a nerve. The American people are concerned," Sen. Richard Shelby, R-Ala., recently told FOX News. "We benefit from foreign investment ... but when it gets toward national security, or the perception of national security, we have to be very careful. We have to vet it; this issue with Dubai was not vetted."

it may be dangerous to abide by protectionist rules

So they dont want us to be protected??? More doublespeak. You cant have it both ways. We see right through you.