Foreign Landscape
On Southern California’s bustling docks, there’s a queasy familiarity to the uproar over a state-owned Arab company’s push to manage port terminals in six U.S. cities.
That’s because it happened here at the nation’s busiest port complex in the late 1990s, but the foreign government involved then was China. The fears were about espionage and smuggling, not the terrorism concerns that plague Dubai Ports World’s $6.8-billion purchase of a British company’s worldwide shipping business.
In the end, China Ocean Shipping Co.’s plan to build a cargo container terminal at the former Long Beach Naval Station was killed by Congress as too risky. But the company, also known as Cosco, didn’t go away. The Beijing-based company quietly became one of the biggest terminal operators in a port -- and an industry -- where nearly all the players are foreign-owned.
“It’s just the way things are now. This is an international business. These are the shipping lines that bring the goods from overseas that Americans are clamoring for, and they take back with them the raw materials used to make some of those goods,” said Tom Teofilo, managing director of maritime services for the Port of Long Beach.
Last month, a bipartisan firestorm erupted in Congress when lawmakers learned that the Bush administration had found no reason to keep Dubai Ports World, which is controlled by one of the United Arab Emirates’ seven city-states, from buying London-based Peninsular & Oriental Steam Navigation Co. Legislation has been proposed to block the transfer of or to prevent foreign corporations from controlling facilities deemed crucial to U.S. national security.
To calm the turbulence, Dubai Ports World said Thursday that it would “transfer fully” the U.S. holdings -- including leases of cargo terminals in Newark, N.J., Baltimore, Philadelphia, Miami and New Orleans, and a cruise ship terminal in New York -- to a U.S. entity. It wasn’t clear whether Dubai Ports World planned to sell the assets or transfer them to a joint venture or other structure.
To the companies that remove tons of cargo from ships calling at U.S. ports, the Dubai Ports World controversy seems far removed from the way their business works.
The ports of Los Angeles and Long Beach count foreign companies as managers at 13 of 14 port-owned container terminals, and three of those companies are controlled by foreign governments.
Cosco, China’s largest shipping line, co-manages a terminal with Seattle-based SSA Marine at the mouth of Long Beach’s port; another huge shipping company controlled by the Chinese government, China Shipping Co., operates a terminal at the neighboring Los Angeles port, as does the APL subsidiary of Singapore’s Neptune Orient Lines. A publicly traded shipping line based in Hong Kong and companies from South Korea, Taiwan, Japan, Denmark and land-locked Switzerland also manage terminals in the region.
“Only one of them is all-American, a terminal in Long Beach run by Matson [Terminals of Oakland] and SSA Marine. Isn’t that something?” said Manny Aschemeyer, executive director of Marine Exchange of Southern California, which monitors ship traffic for the port complex.
These terminals are quite different from the kinds of indoor facilities normally associated with trains, buses or subways.
They look like vast, open-air parking lots at the water’s edge, where towering ship-to-shore cranes unload as many as 40 steel containers an hour. In these sprawling temporary storage facilities, the cans are stacked several rows high, resembling miniature skylines, until they are picked up for rail or truck transport to their final destinations.
Each 40-foot container -- big enough to hold about 12,300 shoeboxes, 20,000 toy dolls or 6,600 dresses on hangers -- is packed and sealed overseas and usually isn’t opened until it reaches its importer’s warehouse. Federal authorities, not the terminal operators, inspect 5% to 10% of the shipping containers, which are scanned by X-ray machines or opened for a more thorough search. All containers pass through a machine that detects radiation.
Cosco began sailing into Long Beach in 1981, using space where it was available, but lacked a terminal lease of its own. In 1996, with space tight, the port announced a tentative deal with Cosco to lease terminal space at the shuttered Long Beach Naval Station.
That ignited a political furor that would last for the next two years. Critics charged that Cosco was a front for the Chinese military and would use the facility to conduct espionage.
“They were within a mile and a half of that Navy complex for 15 years and there had never been any issues raised anywhere, or about the fact that they were calling at other U.S. ports at the same time,” said Dick Steinke, now the executive director of the Port of Long Beach. “Despite all the information we brought to the table and all the information we tried to bring to the public, it was prohibited.”
In 1998, an amendment to a defense budget reauthorization bill contained language that expressly forbade one company -- Cosco -- from leasing property at one site -- the old Long Beach Navy facility.
In 2001, the Port of Los Angeles lured away Long Beach’s biggest tenant, Copenhagen-based A.P. Moeller-Maersk Group, allowing the Long Beach port to negotiate a long-term lease with Cosco for the old Maersk space. There, the company has earned kudos as a model tenant.
“They are a fine company,” Steinke said. “They have respect within the international trading community. They work with the largest shippers and retailers in the world, and they have made great strides over the years in moving the world’s goods.”
Officials from Cosco and China Shipping Co. declined to be interviewed, citing the public climate surrounding Dubai Ports World.
Foreign companies have become common at U.S. ports in the last decade as most U.S.-based shipping lines were bought by overseas operators. Moody’s Investors Service estimates that 20% of U.S. port terminals are managed by U.S. companies.
APL, formerly known as American President Lines, was one of the oldest U.S. shipping companies and still dutifully names its ships after former U.S. heads of state even though it has been owned by Neptune Orient Lines since 1997. Sea-Land Service Inc., the last of the U.S. merchant shipping giants, was bought by Maersk in 1999.
When Aschemeyer of the Marine Exchange graduated from the California Maritime Academy in 1963, “we still had a U.S.-flagged merchant marine of between 400 and 500 ships and there were 35 to 40 American steamship companies. You had your pick of who you wanted to work for and where you wanted to work.”
But in the 1970s, federal subsidies that kept American lines competitive began to dry up. Aschemeyer ticked off a number of companies, many of whom he worked for, that no longer exist: Grace Lines of New York, Lykes Bros. Steamship Co. of New Orleans, Delta Steamship Lines of New Orleans, Prudential Lines of New York and Moore-McCormack Lines.
“Foreign companies took over and they want proprietary rights at the terminals they lease,” Aschemeyer said.
Port officials contend that it would be foolish, if not completely impractical, to try to operate their facilities without leases with companies that are in the countries that produce the vast majority of goods that are exported to the U.S.
“Mainland China is our No. 1 trading partner. It is critical to have a company link there. It locks them into a business relationship with us and maintains that trade corridor,” said Jim MacLellan, director of marketing for the Port of Los Angeles.
In 2003, the port negotiated a deal with China Shipping that opened operations at a terminal it leases jointly with U.S.-based West Basin Container Terminal. MacLellan said that China Shipping was the port’s environmental flagship company, the first to participate in the port’s “cold ironing” program, in which ships turn off their massive diesel engines and plug into the electrical grid while at anchor.
“They are excellent tenants and we are happy to have them,” MacLellan said.
Doing business with companies that are affiliated with their host governments could bring benefits, a security expert said.
“You have more avenues of contact. You can extract more promises and guarantees. There could even be diplomatic contacts,” said James E. Moore II, a professor at USC’s Center for Risk and Economic Analysis of Terrorism Events.
Doing business with such companies also may be unavoidable in a global economy, he said.
“It’s not rare in the developing world for some industries to be nationalized,” Moore said. “As a result, if you are going to do business on a global scale, half the time you are going to be doing business with a quasi-national entity.”
