More ports stuff.

Sunday, February 26, 2006
Back in the saddle following a time when I had to travel and do some actual work, during which the whole Dubai thing came to a head. Since this is an area that I do know something about, and at Seneca’s request, here is a somewhat long-winded post. But it needs to be said, because it shows us what can and can’t be expected in a modern port so far as foreign ownership and control are concerned. OK, now we dive in to the deep end of the pool . . .

In the US - and to a degree in Canada - ports fall in two broad classes. There are "operating ports", in which a publicly-owned or very rarely a private entity owns both the land and the assets on the land including the terminals and their equipment. The port operates the terminal, schedules and works the ships, and hires the unionized labor force. To generalize, most small US and Canadian ports are operating ports. While most are public, there are a very few private operating ports; the Port of Benicia in San Francisco Bay is one.

The second category includes "landlord ports", in which a public entity like a city department or a state owns the land and provides some services (e.g., the fireboats) but leases the terminals to private operators. This is very much like an airport allocating gate space to the various airlines. The airport owns the gates, but American leases C2 through C46. Before about 1990, these marine terminals were leased by terminal management companies, which were often regional or family owned US companies, but since that time the operators have often been the steamship lines themselves.

The shipping lines have preferred to assume control for several reasons. The first is that as ships get bigger and as increasing numbers of containers are transferred among vessels, trucks and railcars, the lines find it more efficient to do everything themselves - in other words, a single work force does all the coordinated loading and unloading of vessels, trucks, and railcars. This coordination has become much more critical given the increasing sizes of ships and the demands of just-in-time shipping. So since the 1990's, large shipping lines have increasingly chosen to demand their own terminals. The cargo volumes are such that they can in effect demand of a port that a large facility be built exclusively for their use. The APM terminal on Pier 400 at the Port of Los Angeles is an example of this; when it was built in the 1990's by the Port of Los Angeles - on spec - there were perhaps only three shipping firms in the world that could use a terminal of that size. In such a terminal, the work force is unionized, but under the operational control of the shipping line.

Second, a large shipping company often takes smaller feeder lines under its wing. An example would be Terminal 5 in Seattle, where APL, a Singaporean company, hosts other smaller carriers. Again, there is an analogy to the airlines, where a major carrier may sublease gate space to the little puddle-jumpers of a small subsidiary or affiliate. Another reason for a shipping line to want to run its own show.

Container shipping is now an oligopoly, similar in many ways to oil or agribusiness industry. Within this oligopoly, container shipping companies form "alliances" as a way to reduce the chronic overcapacity inherent in ocean transport by pooling fleet capacity to offer more frequent service to their "just-in-time" customers. And it helps if all members of the alliance call at the same terminal in a given port. What the lines increasingly want is that the terminal serve the "alliance". Thus the growth of massive "terminal operating companies" like P&O or DPW. They allow alliances to manage their activities without these alliances having to create their own terminal management companies at every port. A firm like DPW can manage terminal activities for the alliances on both sides of the ocean, another attraction.

Returning to ports for a moment - an individual port is usually an amalgam of both the "operating port" and "landlord port" models. In other words, there may be one terminal - usually a small general cargo facility or the marina, or maybe a cruise ship terminal - that is owned and operated by the port. The remaining terminals, normally the large container facilities, are owned by the port, but leased to the shipping lines or terminal operating companies. This is one of the things that makes port “ownership” and operation so difficult for a layman or the media to comprehend.

What does the structure of the industry have to do with US security? Since the virtual disappearance of the US-flag deepwater fleet beginning in the 1970's, most of the innovation in marine transportation and terminal technology has come from Europe and increasingly from Asia. Just as there are no world-scale US shipping lines, and no prospect of any appearing in the foreseeable future, so there are no US world-scale terminal management companies. So the choices for Americans are outfits like DPW or PSA (a global company run by the highly innovative Port of Singapore) or the individual foreign-flag container shipping lines or nothing at all. While it is theoretically possible that some radical new way to move cargo across oceans could result in a revitalized US shipping industry that cracks the oligopoly, there is no such technology on the horizon. That means that for as far into the future as we can see, the major container port facilities of America will be run by non-US companies. We have to begin with that reality when considering our port security.

20 comments:

terrye said...

Thank your for some straight forward information. We could use more of that.

I wondered...if Hillary manages to get her law passed which states that only American companies will do this work..where are they?

I read somewhere in the last few days that 24 out of 25 of the big firms that actually do this kind of work are not American.

David Thomson said...

“I wondered...if Hillary manages to get her law passed which states that only American companies will do this work..where are they?”

They do not exist. A nightmare would occur if we mandated that only American companies could henceforth manage these ports. We would literally have to start from scratch. Might this silliness even push us into a recession? I suspect it could. The financial costs would be enormous.

Skookumchuk said...

I wondered . . . if Hillary manages to get her law passed which states that only American companies will do this work..where are they?

Well, that is just it. There ain't none. Actually, there are some US companies that do run container terminals, but none are big enough - global enough - to be taken seriously by the large shipping lines. I mean, terrye and Skookumchuk could buy a farmer's field somewhere and announce that we are opening a new international airport, but would American Airlines come a-calling? Probably not.

There are very legitimate concerns about port security, but first we have to start thinking about this stuff with our feet on the ground.

terrye said...

skook:

Gee maybe someone should tell Hill.

My guess is she will try to turn it into some kind of a public works programs.

Barry Dauphin said...

Skook,

Really great post and very straightforward. Unfortunately, such facts go right by the likes of Chuck Schumer. Can we put him on a slow boat to China?

Rick Ballard said...

Skook,

Excellent. If I could write long I would add only the fact that the Sailor's Union destroyed our deepwater fleet and that the Teamster's keep it buried. Very few people know that you cannot ship a container from Seattle to LA via the the floating railroad - freight between US ports may only be carried by US flagged vessels. The law was passed to "protect" our maritime industry and instead destroyed it - and now the Teamsters fight to keep the idiotic law on the books so that their long haul drivers can move lumber from Seattle to LA at three times the cost (and twenty times the pollution) that would occur if the freight moved by steamship.

No manager or owner in their right mind wants to deal with either the Sailor's or the Longshoreman. Crooks and Commies at the top and rotten all the way through.

Odd that Al "Green" Gore never suggested changing that law in order to get a few big rigs off the road? Such vision and courage.

Btw - Hawaii is included and is the only reason we have any "blue water" vessels left - and the Hawaiians pay through both nostrils full time for the "privilege".

MeaninglessHotAir said...

Skookumchuk,

Thanks for an excellent post. I now have a much better understanding of the situation than from anything I've read in the presse ancienne.

Why did it occur that there is no US-flag shipping industry? That seems incredibly odd to me, given: a) we are the world's largest market, b) we do massive trade via the oceans, shipping in both directions, c) we have always been a major maritime power, d) we have all of the technological infrastructure present, e) this is a country full of entrepreneurs always looking for new opportunities.

I don't quite agree that there's nothing we can do about it. We could always pass a law saying that only US flag carriers can ship into US ports. The rest of the world would have to accomodate us. It would probably cost us economically to do so, but it's not impossible.

Skookumchuk said...

Rick:

It is also interesting to see what longshore labor has done to the global productivity of US container ports. A rough measurement of port productivity is how many 20-foot long containers can be moved through an acre in a year. The US West Coast ports are in the lead compared to the rest of North America, pushing about 4,500 containers per acre per year. New York is a bit less.

Singapore pushes 12,000 per acre per year. With a better safety record.

The one place where we do lead is when the containers move inland and are handled by the railroads, which have generally transferred their container terminals to non-union operators. In those cases, productivity can approach Singaporean values. As one railroad exec told me when I asked about the productivity of his inland terminals in comparison to those in our ports, "anybody can beat those guys."

David Thomson said...

"It would probably cost us economically to do so, but it's not impossible."

How much more are you willing to pay for your imported products? 5%, 10%, 20%, or higher? Furthermore, such an action would set off a wave of worldwide protectionism. Are you ready for an economic recession? This would be the inevitable result.

Skookumchuk said...

meaninglesshotair:

c) we have always been a major maritime power . . .

But not a commercial maritime power. I can't recall the reference, but we have been going downhill in that department for a very long time. I dimly recall that about half the ships of the British Empire were once built in the Atlantic colonies. There was a strong maritime tradition up to about the Civil War. The impetus to build a fleet in World Wars I and II was strategic, not purely commercial. Labor was the coup de grace as Rick says, but history shows it goes well beyond that in some mysterious way.

I've often thought about this one and keep drawing a blank. The only reason I can come up with is that we simply don't want to do it. It isn't attractive to us in some deep cultural sense, the way it is to the Norwegians and the Danes and the Japanese, who despite the high labor costs have been very successful at what they do.

Rick Ballard said...

MHA,

We're back to Gramsci and the Reds again - take a look at Harry Bridges and the infiltration and take over of the ports and maritime unions. It was no accident.

Clear away the dumbass laws concerning who gets to do what and the featherbedding union rules and you wouldn't need any mercantilist restrictions whatsoever. You could run a decent Merchant Marine and pay $15 - $20 per hour (we ain't talking brain surgery) and make a go of it. You can't when work rules prescibe three men to do one man's work and all three are getting $50 per hour.

Skookumchuk said...

Rick:

Clear away the dumbass laws concerning who gets to do what and the featherbedding union rules and you wouldn't need any mercantilist restrictions whatsoever.

And in fact this will happen, eventually, and our container ports will become automated, with remotely guided vehicles moving boxes around, like they do today in Rotterdam. When it will happen is another question. Not in the near future.

In part this is because land is cheap and our container densities are low. In places like Hong Kong, land isn't cheap and densities are high, which spurs innovation.

But it will happen here too. And it does raise a still-hypothetical security concern in the longer term. Much is made of the fact that US workers are doing the work and US managers are managing the work and that this is somehow to be taken as a plus for security. Perhaps. But what happens on that distant day when the remotely guided vehicle is programmed from some console in an office building in Dubai?

Rick Ballard said...

Skook,

Don't you have to return to the root problem in order to resolve this at some point?

Terrorism is simple extortion and extortion is predicated upon fear. The Arabs are quite familiar with extortion and fear and the weakest hand that we ever showed them was in allowing OPEC to come into existence. They have preyed upon us since and they will continue to prey on us until we say "enough".

Human history has few examples of victory through the use of "soft" power and many more examples of the tempered use of inflexible hard power to achieve long lasting (if one is to consider the Roman Empire long lasting) positive results.

The Emirs of the UAE and Kuwait fear their neighbors. Their existence depends upon our dispensation. The same is true to a lesser extent wrt the KSA. We should not, therefore, expend much effort with them, except to price our demands on a reasonable basis.

It really doesn't take all that much to whip a bully - except for the will to whip the bully.

Skookumchuk said...

It really doesn't take all that much to whip a bully - except for the will to whip the bully.

Well, yes. Agreed.

My point is that this current political "discussion" on port security now taking place in Washington, or what passes for a discussion, is focused on all the wrong things. If it has a focus at all, beyond simply being a manifestation of BDS. . .

It probably doesn't matter one whit where the terminal operating company is based. What matters is how we will monitor the operational transactions of global entities in the modern world, especially as the maritime industry continues to automate, first in Asia and Europe and some day here in the US. Do the GS-9s sitting at their desks in DC have the chops to do this? I think we all know the answer to that one.

Rick Ballard said...

Skook,

You're heading into high territory. I wouldn't trust those guys to find their way out of a phone booth.

Most of the world - and I say that advisedly - won't let the little fella out from under the big boys heel. Market capitalism won't do a lot better job than socialism in providing the opportunity to enjoy the personal liberty that I hold dear - unless it is logically constrained to provide more than just an opportunity for the gifted (and the well born) to exercise power.

The determination of the necessary constraints - and perhaps a conscious effort to encourage spiritual endurance rather than the current American focus on materialism are keys to 'peace' in the future. If 'peace' is actually available to be found.

I don't think that the practical can be resolved internationally until the philosophical is dealt with - and I don't see any institution capable of doing so.

Perhaps via the internet - but a more global language has to evolve first. I think it may be happening but it's early days.

vnjagvet said...

Skook:

Incisive, substantive and clear information from someone who really knows is about as good as it gets.

Who will benefit most from this information, and how can we help to get it to them?

Do you believe that those who vetted this have this info?

MeaninglessHotAir said...

What matters is how we will monitor the operational transactions of global entities in the modern world

I can assure you that this very problem is being worked on by private industry. Can't tell you how I know that though. ;-)

Skookumchuk said...

meaninglesshotair:

Yes, it certainly is. :-)

terrye said...

I read somewhere that OPEC took control because of a change in the Texas Railroad Commission guidelines pertaining to oil producttion in the US. As if I knew what the hell that is supposed to mean.

I think people spend a lot of time trying to offset disasters when the really scarey stuff just kind of blows up in your face.

So carrying on about something like this decades after we let our own shipping industry go to hell lets us know that we really are not good at looking ahead.

America is about land. Some people say the US let its shipping industry go because the profit margin was too thin and the labor costs was too high. We go to sea when we go to war. Once upon a time New England whalers spawned communities in places all along the eastern seaboard, but they are a dim memory now. Just think there was a time when that whale oil was worth risking life and limb for.

But Skook is right, if they wanna get you they don't need to be here to do it.

BTW, what about the Canadians? Do they do this kind of work? This deal will effect Vancouver as well.


Are there any big shipping companies from this hemisphere at all?

Skookumchuk said...

terrye:

No, not any major companies here in this hemisphere.

The Canadians also don't have much of a deep water fleet. And they have nothing like our Jones Act, so they have even less than us.

Their major ports however, especially Vancouver, are generally doing at least as well as ours. One reason is that US West Coast ports are pretty congested and the Canadians are well-positioned to grab import cargo from East Asia going by rail to Chicago and other Midwestern points. British Columbia also has several very large coal export facilities that gather coal from throughout North America by rail and send it all around the world in very large vessels.