DP World Deals Unintended Consequences

March 8, 2006
The fall out from the DP World acquisition of British-based P&O Ports reaches deep into U.S. commerce and into logistics. As the U.S. government extends

The fall out from the DP World acquisition of British-based P&O Ports reaches deep into U.S. commerce and into logistics. As the U.S. government extends its investigation into the deal and questions whether it raises security issues, another deal pending between Dubai International Capital and a U.K. engineering firm, Doncasters Group, has raised parallel questions on security.

Doncasters Group supplies aircraft makers and jet engine manufacturers and it operates U.S. plants. The critical nature of the operations and their support of U.S. military contracts led to calls for a thorough vetting of that deal.

U.S. lawmakers have vowed to revamp the review process performed by the Committee on Foreign Investment in the U.S. (CFIUS) or remove it entirely from the U.S. Treasury Department where CFIUS currently resides and place it in the Department of Homeland Security. The process, supporters of the change argue, is too heavily weighted to financial concerns and not enough to security. This has raised some concerns that foreign investors could look elsewhere if they face a long review process to enter the U.S. market.

Along those same lines, Representative Duncan Hunter (R-CA), chairman of the House Armed Services Committee, said he would introduce legislation forcing foreign companies to divest of their holdings in critical U.S. infrastructure (as determined by the Department of Defense and Department of Homeland Security). This has added to concerns in the maritime and logistics communities over the impact it would have on international operators who already have U.S. holdings.

Though many foreign companies lease terminals or provide logistics services in the U.S., a group of 13 members of the World Trade Organization have asked the WTO to press the U.S. to allow more international competition for U.S. port services. The request has been made before and was repeated during the current round of WTO talks, only coincidentally occurring during the present controversy. The European Union, China and Japan are among the WTO members requesting liberalization of U.S. port services.

Industry experts don’t appear to share the view of the general public that the DP World deal should not be allowed. Polls reported in various media show public opinion supports opposing the deal while industry polls show the opposite.

A logisticstoday.com Quick Poll asked how shippers would respond to increased security at DP World terminals. Early responses tracked at 50% saying they would either switch ports or switch carriers to avoid those terminals. As the issue continued to be discussed here and in the general media, the percentage of shippers that would shift their imports was falling, reaching 44% one week after the Quick Poll first appeared. There was a corresponding rise in the number of people who would reexamine the security status of their supply chain. The number of people saying they would do nothing remained steady at 30%.

Maritime industry reaction has shown less concern for security issues than those voiced by the general public, but there is a rising concern over the impact of the aggressive stance U.S. legislators have taken. General Wesley Clark, former presidential candidate and former was reported as saying the argument over ownership is weak, that the U.S. is not inspecting containers coming in and it must work with the foreign ports because that’s where the threats originate.

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