DP World: Anatomy of a Crisis

The public outcry on learning that DP World would begin operating terminals at U.S. ports through its acquisition of P&O Ports has focused attention on one very small thread of the complex tapestry that is global logistics. The deal became an emotional issue for Americans when some lawmakers voiced concerns over the ownership stake the government of the United Arab Emirates has in DP World. Some shippers say they would shift freight away from ports or carriers using the former P&O terminals.

Drawing connections between some of the hijackers who carried out the terror attacks in the U.S. on September 11, 2001, the foundation was laid for a bitter, public argument that would pit the Executive and Legislative branches of the U.S. government in a battle that led President George W. Bush to threaten the first exercise of his veto power.

Taking the discussion out of the realm of politics and emotion, here’s why the deal is not a simple matter.

DP World was formed in 2005 to separate the commercial functions of the Dubai Ports Authority and DPI Terminals from the regulatory and administrative functions associated with the Dubai port and the government of the United Arab Emirates. “The separation of powers allows for better focus and a clearer presence abroad,” said Jamal Majid Bin Thaniah, vice chairman of the board of Ports and Free Zones and CEO of the Ports and Free Zone Authority. That was in September 2005 when the announcement was made.

Earlier in 2005, what later became DP World acquired the international terminal business of CSX World Terminals from CSX Corp. The $1.15 deal involved nine terminals, none of which are located in the U.S. The sale was part of a strategy former CEO and current Treasury Secretary John Snow developed to focus CSX on its core rail business.

Snow’s connection to the Dubai deal for CSX World Terminals is arguably only as driver of the strategy that put the operation on the market, but, as Treasury Secretary, he is chairman of the Committee on Foreign Investment in the United States (CFIUS) which reviewed and approved the DP World acquisition of the U.S. operations of P&O Ports. The CSX connection and the earlier sale of assets to DP World does not appear to have any material impact on the P&O deal, but it has not escaped notice.

The Bush Administration’s position on the CFIUS review is that the committee includes representation from the Department of Homeland Security (DHS) as well as other critical groups like the Department of Defense (DOD). The initial reaction from the White House was that the review was adequate and did not suggest a need for a deeper probe.

Reportedly, an assistant secretary from DHS sat on the CFIUS committee that reviewed the acquisition, but did not inform DHS Secretary Michael Chertoff of the deal. White House Press Secretary Scott McClellan had earlier stated in a press briefing that President Bush only learned of the deal after press reports had begun to raise questions on the matter. The position of the Administration and CFIUS was that proper review of the deal’s potential security impact was completed and no “red flags” were raised.

During congressional hearings, Senator Susan Collins released portions of a U.S. Coast Guard report stating that intelligence gaps precluded the agency from performing an overall threat assessment. Responding to the undated report, a Treasury Department official reportedly told the Senate committee the concerns were addressed. U.S. Coast Guard Admiral Thomas Gilmore confirmed the review and a letter of assurance on port security from the companies addressed the issues.

As the controversy grew, DP World asked CFIUS to conduct a broader, 45-day review of the transaction. It also agreed to segregate the U.S. operations while it completed the remainder of the P&O acquisition.

As one of the world’s largest port terminal operators and stevedoring companies, DP World has operations in more than 30 countries. Its home port of Dubai is one of the ports covered by the U.S. Customs and Border Protection (CBP) Container Security Initiative, as are many other ports where it operates. As one major shipper pointed out, “If anything was going to happen to that freight, it would have happened at origin, not at the port of entry, especially in the U.S.” He went on to point out that CBP and other Homeland Security departments will “follow the suspicious trails.”

How have shippers responded to the issue? The biggest concern is the potential delays that could be caused by added inspections or scrutiny that might affect cargo passing through the terminals DP World might operate in the U.S. “If it goes in that direction, you would hear us having a more public point of view,” said the major shipper whose company did not want to be involved in the political back-and-forth over the deal itself. His view, based on large volumes of imports handled by other non-U.S. terminal operators and with DP World operations outside the U.S. was that DP World is a highly efficient operator and that terminal operations in the U.S. are typically manned by U.S. citizens and secured by U.S. port personnel and Homeland Security (U.S. Coast Guard, CBP etc.). Pressed on how he would respond to delays resulting from added scrutiny at select terminals, he admitted he’d vote with his freight. Many shippers wouldn’t wait for delays. A Quick Poll of Logistics Today readers asked how they would respond to increased security concerns at DP World-operated terminals, and 50% said they would switch ports to avoid delays or change carriers to avoid the terminals.

In the U.K. where terrorists set off bombs in the underground rail system in 2005, discussion of the DP World takeover of P&O Ports has centered on the U.S. reaction. In addition to the fact P&O Ports was a British-owned company, it operates the Southampton Container Terminals.

Australia, whose citizens were victims of terrorist bombings in Bali, also covered the deal and controversy over security as a U.S. story. P&O Ports operates container terminals in most major Australian ports and provides stevedoring services in many others.

In a fact sheet issued by the Department of Homeland Security, DHS said it is the mission of U.S. Customs and Border Protection (CBP) to “prevent terrorists and terrorist weapons from entering the United States.” It further pointed out, “The Coast Guard routinely inspects and assesses the security of U.S. ports in accordance wit the Maritime Transportation and Security Act and the Ports and Waterways Security Act.” Every regulated port facility is required to establish and implement a comprehensive security plan that includes controlling access to the facility, verifying credentials of port workers and inspecting cargo for tampering.

“Whether a person or a corporation,” said the DHS fact sheet, “the terminal operator is responsible for operating its particular terminal within the port. The terminal operator is responsible for the area within the port that serves as a loading, unloading or transfer point for the cargo. This includes storage and repair facilities and management offices.”

National, state or local government entities own, manage and maintain the physical infrastructure of a port, said DHS.

“DP World will not, nor will any other terminal operator, control, operate or manage any United States port,” said DHS. “DP World will only operate and manage specific, individual terminals located within six ports.”

The P&O Ports terminals DP World will acquire include: Baltimore (2 of 14 terminals at the port), Philadelphia (1 of 5 terminals), Miami (1 of 3), New Orleans (2 of 5), Houston (4 of 12), Newark (1 of 4) and it will be involved in stevedoring activities at all five terminals in Norfolk. In total, DP World will acquire operations at 11 terminals out of a total of 43 terminals at the six ports, according to DHS.

Results of our News & Views Quick Poll. Click here to see real time results.

Dubai World Ports’ purchase of P&O Ports raise concerns over security at P&O’s U.S. operations. Would increased security measures at those terminals cause you to (Check as many as apply):

Switch ports to avoid delays.

15%

Switch carriers to avoid using P&O terminals.

35%

Review security status of suppliers (e.g., CSI, C-TPAT, etc.)

18%

Make no change.)

32%

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