Ports after the Storm

The brouhaha that erupted over the prospective Dubai Ports World acquisition of P&O Ports was dominated by politicians out-shouting a shy and reticent industry that shuns the limelight. While critics of the deal presented some legitimate security concerns, what is really needed to ensure US port security is speedier implementation of the Maritime Security Transportation Act of 2002 (MTSA), along with some tightening of its rules and additional legislation enabling goods to flow (while alleviating issues surrounding foreign ownership).
Drive up to a guardhouse at most US ports and a guard will take a quick and desultory glance at whatever identification you show him.
"At some waterfront facilities around the country, all you need to get in is a driver’s license — if the facility grants you access," observed Lisa Himber, vice president at the Maritime Exchange of the Delaware River and Bay, and vice chair of the National Maritime Security Advisory Committee (NMSAC).
NMSAC was established under MTSA and set out to establish comprehensive standards for maritime and port security. The ongoing flap over foreign port ownership underscores the fact that important specifics of the MTSA legislation have not yet been translated into the actual rules.
From storm to hurricane
The shipping industry, providing the often-invisible infrastructure for globalization, has long been dominated by Asians and Europeans — not Americans.
In late February, when Democrats and Republicans alike were railing against the Dubai Ports (DP) World-P&O Ports deal, many stevedoring executives couldn’t understand the fuss and furor. Indeed, P&O Ports, the company being purchased, had been in play since late November, when the bidding war between DP and PSA International (a multinational port and terminal operator owned by the Singapore government) erupted.
Shortly after PSA dropped out of the bidding in early February (which caused the P&O share price to rise spectacularlyfrom 303 pence to 545 pence, driving up the value of the deal to $6.8 billion), a terminal owner in Florida, in a joint venture with Britain’s P&O Ports, began complaining about its partner’s pending transformation.
On Feb. 16, after wire services picked up the story, The New York Times ran an editorial imploring President George Bush’s administration to reverse the decision made by the multi-agency Committee on Foreign Investments in the United States to approve the deal.
Maritime executives at US-based terminals and ship agencies are not a public bunch; they’re typically most comfortable in the shadows of anonymity. Suddenly, the secretive world of shipping was clashing, hurricane-style, with a media-driven world full of grandstanders and headline-grabbers.
Consolidated industry
Consolidation among global shipping players, who operate locally across multiple continents, is rampant. Profitability in the provision of services to international shippers centers on economies of scale, which, in turn, drive these companies to seek numerous points of presence.
Over the past few years, a wave of consolidations has swept the shipping lines themselves, which are the customer base for the service providers. Two years ago, the P&O Ports’parent company, London, UK-based Peninsular and Oriental Steam Navigation Company (with roots back to the 1830s), sold its own container line to Nedlloyd, a Dutch concern; last year, that combined carrier was swallowed up by Danish behemoth Maersk.
Foreign ownership is an accepted part of the business. P&O Ports either fully or partially owns US-based operations in nearly two dozen ports dotting the map of the US Gulf and East coasts, including major ports like New York (where Maersk and P&O jointly operate a terminal under a long-term lease).
Another example is the Norwegian-owned Barwil Agencies, which handles the business of vessels in ports; that business may include entering cargo data into Customs and Border Protection’s AMS system or transmitting vessel and crew information via the Coast Guard’s electronic Notice of Arrivals/Departures system. Barwil operates in 160 countries, with outposts in dozens of US ports. Inchcape Shipping Services, another worldwide agency outfit active throughout the United States, was sold by its previous owner, a London-based private equity investor, earlier this year to Istithmar PJSC, a major investment house also based in the United Arab Emirates.
Security factors — and vulnerabilities
The furor over the prospective Dubai Ports World purchase of P&O centered on the question of whether US ports owned by DP would be secure against terrorism — the implication being that a port with even partial Arab ownership would be far more vulnerable than one wholly owned by Americans.
However, there’s much outside of ownership that impacts security. Where MTSA dictums have been already been implemented, they may need to be fine-tuned or, perhaps, tightened further to enhance security. One example is the sharing of security plans.
Since July 2004, a system has been in place (in the 33 Code of Federal Regulations (CFR) Section 105) requiring security plans for thousands of individual waterfront facilities. These are then rolled into an Area Maritime Security plan covering individual ports or regions — each of which has a local Area Maritime Security committee.
"The CFR does address the issue of sharing security plans," Angela McArdle, a Coast Guard spokesperson, told HSToday. She added that "some portions [of the plans] are considered Security Sensitive Information, and access to plans is limited to certain persons with a need to know."
Further, "portions of the plans are protected in accordance with 49 CFR 1520," which deals with access to SecuritySensitive Information, on a "need-to-know basis." However, she indicated that information contained in Area Maritime Security plans (as well as minutes of local security committee meetings) can be shared with stakeholders in the port community at the discretion of the local Coast Guard Captain of the Port. However, "there is no across-the-board rule stating that any plans or communications are protected," she said — meaning there is no single standard for who gets access to this sensitive information.
Another example of a place where simply tightening existing measures would provide greater security is the Transportation Worker Identity Credential (TWIC), initiated even prior to MTSA. TWIC sounds like a positive jolt in the arm for port security. When implemented, the names of workers would be compared to the FBI’s terrorist watch list after they apply online for the card and provide a biometric identifier — in this case, a fingerprint.
But the reality is that TWIC started with a bang and got mired in a bog of non-standardized data and shifting priorities. In January 2006 testimony before the House Subcommittee on the Coast Guard and Maritime Transportation, Himber of NMSAC expressed concern that the Transportation Security Administration (TSA) still needs to standardize the TWIC program across ports and clarify issues surrounding background checks for card holders. In conversations with HSToday, Himber indicated that joint rulemaking and implementing the MTSA language on TWIC are expected to be promulgated this July. She added: "I hope that they don’t slip off that schedule."
As an example of how the original rules can be enhanced legislatively, Rep. John Doolittle (R-Calif.) introduced HR 4833, the Americans Securing American Ports Act, "to require that only United States persons may control security operations at seaports in the United States or enter into agreements to conduct such security operations." This is intended to remedy the fact that there is no citizenship requirement in the current regulations detailing qualifications for facility security officers. Rep. Peter King (R- NY), chairman of the House Homeland Security Committee, stated in televised interviews that a White House suggestion requiring DP World to subcontract management of US-based terminals to US entities would be worth considering — and this was the solution ultimately reached.
As the debate raged in late February and early March a number of bills were introduced in Congress to force in-depth investigation of the Dubai Ports deal. Some were specific to that deal, and were rendered moot when Dubai Ports World conceded that American companies would run specific facilities. Other bills, though, dealt more generally with foreign investment in US infrastructure, and will likely continue their path through the legislative process, since the ports debate heightened overall attention to foreign investment, well beyond the maritime sector.
One piece of legislation in accordance with the maritime industry’s view of the world is the Foreign Investment Transparency and Security Act of 2006 (S 2374), introduced by Sen. Norm Coleman (R-Minn.). According to Coleman’s website, "the bill will permit foreign governments to own and invest in such facilities provided that the foreign government establishes a US general business corporation. Much like the concept of a blind trust, the foreign government can own and benefit economically from its investment, but cannot control or manage day-to-day operations in the US." The bill also stipulates that US citizens comprise the US company’s board.
Both Coleman’s bill and King’s measure follow a precedent for clearly separating financial ownership from day-to-day operations. This can also be found in recent interpretations of the Jones Act — a decades-old set of rules establishing that cargo transported between US ports must be carried by vessels built in the US, owned by US concerns and crewed by US mariners.
The Jones Act is often justified by the requirements of national defense. Even though American vessel prices and operating costs greatly exceed those for comparable vessels built abroad and managed through cheaper foreign registries, national defense is an important justification for keeping it in place. Following American shipbuilding initiatives in the mid-1990s, foreign companies sought to own US maritime businesses, using financially engineered leases. Critics saw these as tools for skirting requirements that owners be US citizens.
That problem was solved through a common-sense separation of finance from operations. After years of debate, but no legislative activity, the matter came to a head in 2002 and 2003, when French ship owner Groupe Bourbon sought to invest in New Orleans-based Rigdon Marine — a startup building a dozen offshore service vessels to support oil drilling in the Gulf of Mexico. In February 2004, the Coast Guard and Maritime Administration issued rules stipulating that foreign vessel owners (or their affiliates) must derive a majority of their revenues from financial activities (not vessel operations) to comply. Restrictions were also placed on the eligibility of foreign owners to engage in the operation of vessels under the US flag.
DP World was also criticized for Dubai’s alleged participation in the Arab boycott of Israeli businesses. John Ring Jr., president of Century Shipping USA (based in Long Island, NY), a longtime bulk shipping executive and consultant and maritime arbitrator with over 40 years of experience in the business, told HSToday that commercial interests have always found practical ways to work around political impediments.
"International traders, both shipping and commodity firms, commonly deal with the possible commercial interference, due to boycotts, by inserting in their contract a clause whose broad language allows the charterer to be protected from any consequences arising out of a boycott, picketing, black-listing or other similar incidents," he said.
Speedy implementation of MTSA and common-sense clarifications by members of Congress, such as representatives Doolittle and King, would go a long way toward raising the comfort level of people concerned about port security on both sides of the aisle.
Actions by TSA and the Coast Guard should be proactive and driven by larger realities: The maritime business is global (with foreign ownership readily accepted by participants), and the consolidation trends will continue as service providers seek to gain the business of global carriers across continents.
In spite of company pronouncements, this international business would prefer to operate underneath whatever radar is scanning the horizon. TSA and other agencies touching maritime trade will not change this, but they can positively channel the sudden attention to maritime security to get out in front of events. The agencies’ objective should continue to be the creation of solutions that keep commerce flowing while providing security.
Consider the gauntlet thrown down in Himber’s January 2006 testimony before the House Subcommittee on the Coast Guard and Maritime Transportation: "The National Strategy for Maritime Security identifies a need for international cooperation, yet after three years of discussing the issue, the Transportation Security Administration program has not offered a solution to this last question."
With proper implementation of MTSA, supplemented by logical amendments and add-ons, cargo can keep moving, benefiting America and world trade generally — and at the same time enhance the security of American ports from the threat of terrorism.
Barry Parker is managing director of BDP1 Consulting Ltd., which provides guidance on maritime business, technology and security. His previous article for HSToday, "High Seas Security," appeared in the September 2004 edition. He can be reached at [email protected]

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The Government Technology & Services Coalition's Homeland Security Today (HSToday) is the premier news and information resource for the homeland security community, dedicated to elevating the discussions and insights that can support a safe and secure nation. A non-profit magazine and media platform, HSToday provides readers with the whole story, placing facts and comments in context to inform debate and drive realistic solutions to some of the nation’s most vexing security challenges.

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