U.S. companies weighed anchor on ports years ago
By Simon Romero and Heather Timmons The New York Times
FRIDAY, FEBRUARY 24, 2006
HOUSTON In the outcry over who should run America's seaport terminals,
one clear trend appears to have been overlooked: U.S. companies began
withdrawing decades ago from the unglamorous business of stevedoring,
ceding the now-booming industry to enterprises in Asia and the Middle
East.
People in the shipping industry have watched with dismay as their
fast-evolving business is sometimes misinterpreted in the uproar over
the $6.8 billion sale of a venerable British concern, Peninsular &
Oriental Steam Navigation, to Dubai Ports World, a rising operator
from the emirate.
It is no accident that U.S. companies are not in the top ranks of
global terminal operators, which have ridden the coattails of the
explosion in world trade. That shift has transferred growing financial
clout to a handful of seafaring centers in Hong Kong, Singapore and
now Dubai.
Indeed, the takeover of P&O came down to a battle between two foreign,
state-backed companies: Dubai Ports World, owned by Dubai's royal
Maktoum family, and PSA, the world's second-largest port operator,
which is part of the Singapore government's investment arm.
The acquisition price also reflects the advantage that a number of the
fastest-growing companies enjoy - their governments' deep pockets.
Dubai Ports World paid about 20 percent more than analysts thought the
company was worth. Publicly traded companies that were potential
bidders were scared off long before Dubai Ports World's final offer.
Some non-American operators also have been more profitable because
they are vertically integrated: They operate terminals at the export
site, manage the shipping lines that transport the cargo and then
operate terminals that unload the cargo at the other end, often in the
United States.
Such soup-to-nuts management allows these operators to cut costs,
increase efficiencies on high volumes and achieve higher margins.
Moreover, the international shipping business has evolved in recent
years to include many more containers with consumer goods, in addition
to old-fashioned bulk commodities, and that has helped lift profit
margins to 30 percent, from the single digits. These smartly managed
operators now manage about 80 percent of port terminals in the United
States. The figure is 90 percent in Britain, a country that used to be
the world's biggest shipping power.
Though two U.S. companies now rank eighth and ninth among the world's
top 10 operators, it would not be easy for other American companies to
get into the business.
The retreat began decades ago amid rising labor costs and slow growth,
while non-U.S. companies spotted opportunities.
"For a long time in the United States, no one wanted stevedoring on
their business card because it was not a glamorous job," said Prabir
Bagchi, a specialist on supply-chain management at George Washington
University. "Control of many of those low-paying jobs went east, and
now look who's cheapest and best at providing customer service."
The biggest players in the global port and terminal management
industry are a mixed group. Some are state-owned, some are publicly
traded, some have shipping operations, and many are still run by
wealthy families or their founders.
Hutchison Whampoa, the world's biggest container port operator, for
example, is a conglomerate that is publicly traded in Hong Kong. The
company's founder, Li Ka-shing, is often referred to as China's
richest man, but the company has been priced out of recent bidding
wars, in part because Hutchison's mobile phone business is
cash-strapped.
APM Terminals of Denmark is part of the shipping giant AP
Moller-Maersk, which is publicly traded but controlled by the Moller
family of Denmark. The group has been buying up shipping assets, and
purchased the container carrier P&O Nedlloyd in January.
"Certain port operations in certain locations recognized the potential
years ago, and embarked on acquisitions," said Neil Davidson, a
container ports analyst at Drewry Shipping Consultants in London. When
approached, "P&O had an obligation to their shareholders," he said.
"An offer came in which was too attractive to turn down."
P&O earned $383 million on revenue of $2.4 billion in the first six
months of 2005. The company itself grew in the United States through
an earlier wave of industry consolidation, taking over local companies
like Gulf Service of New Orleans in 2000 and International Terminal
Operating of Jersey City in 1999.
Similarly, Neptune Orient Lines of Singapore in 1997 acquired one of
the oldest American terminal operating and shipping companies,
American President Lines, which originated in the Gold Rush of 1848.
The opportunities for well-run non-American terminal operators to grow
in the United States are clear. American ports are considered somewhat
backward by shipping experts outside of the country.
For example, most major ports overseas operate 24 hours a day, seven
days a week. But until recently in the United States, ports were shut
down at night. Transmitting shipping orders electronically to some
American ports does not necessarily save time because the orders need
to be rekeyed into the ports' computer systems, a concession to unions
trying to preserve jobs.
Operators outside the United States, on the other hand, have benefited
by running several lower-cost port operations around the world in
places like Hong Kong, Singapore and Dubai, all of which have become
huge export and transshipment centers for international trade. Ports
in the United States operate largely as local harbors, receiving ships
with goods meant for nearby consumption.
"It's like we're used to flying out of a small airport while they've
been using O'Hare or JFK," said Bob Watters, vice president of SSA
Marine, a family- owned company in Seattle that is the largest
terminal operator in the United States and that has been a force
behind developing a large transshipment port in Panama.
With large volumes of trade, some of these non-U.S. operators have
leveraged ties with their major customers, the large shipping lines,
into much closer relationships. The arrangements resemble that of
FedEx with Cisco Systems, where FedEx does everything from air and
road transport to minor assembly to procurement from suppliers, said
Bagchi, the professor at George Washington University.
--
"The president and I cannot prevent certain politicians from losing
their memory, or their backbone, but we're not going to sit by and
let them rewrite history." -- ***** Cheney 11/16/2005
"War is God's way of teaching Americans geography" -- Ambrose Bierce
"America is a vast conspiracy to make you happy." -- John Updike
"Long term commitment in relationships is only necessary because it takes
so damn long to raise children. Marriage may well be some kind of trick
to keep the males around beyond sexual satiation." -- Captain Compassion
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMverizon.net
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