Wednesday, February 22, 2006

Seaport Security – Tip of the Iceberg or Another Verse From Chicken Little?


The proposal to sell long-term leases to six U.S. seaports to Dubai Ports World, a company from the United Arab Emirates, has raised the important question of seaport security. A great many people assume that the sale, if it goes through, would weaken US security and potentially allow terrorists access to the United States through our ports. The debate has generated a lot of noise and anger already, making it difficult to sort out the facts from the paranoia.

First, what was the reason for suggesting the deal in the first place? Basically, a British-owned company, P&O Ports, wants to sell operating leases to six of the ports it controls in the United States. And this is important when you look at the makeup of U.S. seaport operations.

There are 361 seaports in the United States. The Top 25 by freight weight (2003) are in the following locations (tonnage in ‘short tons’):

South Louisiana, LA (198.8 Million Tons)
Houston, TX (190.9 Million Tons)
New York, NY-NJ (145.9 Million Tons)
Beaumont, TX (87.5 Million Tons)
New Orleans, LA (83.8 Million Tons)
Huntington, WV (77.6 Million Tons)
Corpus Christi, TX (77.2 Million Tons)
Long Beach, CA (69.2 Million Tons)
Texas City, TX (61.3 Million Tons)
Baton Rouge, LA (61.3 Million Tons)
Plaquemines, LA (55.9 Million Tons)
Lake Charles, LA (53.4 Million Tons)
Los Angeles, CA (51.3 Million Tons)
Mobile, AL (50.2 Million Tons)
Valdez, AK (49.9 Million Tons)
Tampa, FL (48.3 Million Tons)
Pittsburgh, PA (41.7 Million Tons)
Baltimore, MD (40.2 Million Tons)
Duluth-Superior, MN-WI (38.3 Million Tons)
Philadelphia, PA (33.2 Million Tons)
St. Louis, MO-IL (32.4 Million Tons)
Pascagoula, MS (31.3 Million Tons)
Norfolk Harbor, VA (31.2 Million Tons)
Freeport, TX (30.5 Million Tons)
Portland, ME (29.2 Million Tons)

Of these, Peninsular & Oriental navigation (P&O Ports) has part or whole ownership of the operating leases in eleven of the top U.S. ports. P&O Ports is a British company based in London, which has part or whole ownership in 85 seaports worldwide. And P&O Ports has decided to divest itself of about half of its U.S. seaport investment. Why?

Because seaports are expensive and sometimes difficult to run. American seaports often have environmental and operational restrictions which annoy the lease owners and chase away capital investment. The whole reason for the leases, in actual fact, is that there are four classes of people working through the ports:

· Ship owners and operators, who want to move freight
· Property owners, who often build warehouses near the port facilities
· The Port Authority for each port; and
· Operations Management companies

At the risk of sounding trite, port operation is not all that different from running a very large grocery operation – you have to move a lot of items, some fragile, some time-sensitive, some just plain difficult to move, in a very short frame of time. You have to keep ship traffic flowing and you have to keep all kinds of inspectors and officials happy. And no one pays any attention to you, unless and until something goes wrong.

I suspect this was how the deal was pitched to the President – as a change only in operational management, with no change at all in the substance. The Department of Homeland Security still holds authority for security, with the Coast Guard and the Customs Service as the first responders to any concerns, regardless of who holds the operations lease. The individual ports each also stipulate conditions for ship traffic, cargo documentation and handling, and these are based on long experience and attention to practical feasibility. The Port of South Louisiana, for instance, the largest U.S. port in terms of tonnage, notes that the requirements and restrictions on port operations of any kind are subject to the terms agreed to by the Gulf Seaports Marine Terminal Conference, whose members are all American citizens and all with direct and specific experience in ports and shipping, represented by members of Port and Navigation authorities from thirteen separate U.S. ports or navigable waterways.

As for the fact that two of the 9/11 terrorists were from the U.A.E., this is in no way a valid indicator to pretend U.A.E. is not a staunch ally of the United States. After all, Timothy McVeigh was a U.S. citizen and served in the Army, but that hardly means that the Oklahoma City bombing was popular with or sanctioned by the U.S. Army. Same lack of logic, you see.

Also, there is a trade problem with the deal. The British held the leases without any restriction about selling them, and so it will come across to many nations as unreasonable for the United States to now say a British company must abide by a condition not stipulated to in any of the agreements, and on no better basis than the fear that an ally of the United States would fail to use good judgment in their oversight of DP World. Imagine, as a counterpoint, if the People’s Republic of China retaliated by demanding the immediate redemption of U.S. Treasury Bonds in specie. No, that condition is not mentioned anywhere in the bond sales, but if national interest without evidence can be so used, what would stop China from making just such a demand?

Also, there is an historical component to the deal. Most Americans do not realize that foreign investment was not only common to the early American industry, but was actually essential. More than seventy percent of the First Bank of the United States was owned by foreign investment, at a time when such investment could easily have led to manipulation of U.S. policies. So too the case for our railroads, which were largely made possible by capital investment by other countries. So, foreign ownership of strategic resources is by no means new or unreasonable in most cases.

Yet I am not willing to say we should rubber-stamp the deal. I do not think it is right to immediately castigate the deal, but neither do I agree that we should ignore the action. Certainly, it is a good idea to explain how the operating lease works, what must be done by the buyer to protect security and what prevents the buyer from causing or allowing actions which put the United States in danger. I am one of those people who believes the U.A.E. is a good ally to America, who should be encouraged to invest here and take part in our mutual future. Yet I also believe it is best for the foreign investor, whatever his homeland, to be transparent about his intention and policies.

It is also important to understand the scale of our danger, however. The Department of Transportation notes that freight comes into and out from the United States in a number of ways, including seaports but also airports, trucks, and rail. So in addition to ships, you have to worry about trains, planes, trucks and automobiles bringing in bad people and dangerous weapons. And as for the ports, I personally worry less about the most significant ports, which also attract the bulk of attention from law enforcement and the DHS, than I do about the hundreds of small ports which get very little attention at all. If I was going to sneak in a WMD, for example, I wouldn’t try New York or Houston or Long Beach, but rather one of the places no one ever thinks about. Just like the coyotes who have been bringing illegals across the border have done for more than a century.

And let’s not forget about who could be helping terrorists besides port lease operators. Remember I mentioned that ports have a lot of warehouses in their territory? Well, those warehouses are not inspected nearly as closely as the cargo coming in through the port. In fact, if I wanted to have a chemical weapon go off at, say, the Port of Houston, instead of trying to sneak it in through the Port, I would just truck it in over the border, park the trailer in one of the port warehouses, and boom. Or, I could just rent storage near one of the major airports, if I preferred, say, to take out Bush Intercontinental Airport. Not that hard to do, because there is a lot of unmonitored storage space at seaports, docks, airports, and railyards.

And let’s not get too happy on the idea that Arab countries are the only source of terrorism. Sure, the Jihadists are a pretty nasty bunch, but let’s not forget that Spain’s home-grown ETA helped plan and carry out the Madrid bombing, and that British Muslims helped carry out the London bombing. So we really don’t need to worry about the U.A.E., whose doctrine and policies have always been very pro-U.S., when we can find so many dangerous types very close to home.

I still haven’t made up my mind about whether the deal is a good idea or a bad one. But we should try to keep separate the assumptions from the facts, and the prejudice from better judgment.


weasel said...

A well reasoned and considered post. Just one thing, Dubai Port World bought P&O lock, stock, and barrel rather than P&O selling off the leases. The US port operation leases, part of P&Os worldwide portfolio, came with the deal, much like the stove when you buy a house.

DJ Drummond said...

Ah, I did not know that. Thanks for the correction, Weasel.