More ports stuff.

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.