Political Fallout Threatens Retail Cargo

A proposal to hand over management of some terminals at certain U.S. ports to an Arab-controlled company wouldn’t affect retail cargo directly but political fallout from the plan has the potential to create disruption, according to the March Port Tracker report by NRF and Global Insight.

A change in top-level port management would not be likely to result in a change in the day-to-day managers on the docks or in the longshoremen handling cargo, according to the report. But a number of Democrats and Republicans in Congress have vowed to block the move, ignoring the fact that most U.S. container terminals are already run by foreign companies. Some legislative proposals would prohibit foreign ownership of terminal operating companies, while others call for stepped up security measures such as inspecting 100 percent of cargo.

“A massive invalidation of existing terminal leases and a fire sale of terminal operating contracts would have real potential for confusion at the top levels of terminal management,” Global Insight Economist Paul Bingham said. “It is possible that such confusion could trickle down to affect operations on the docks, especially if inexperienced port managers or federal government employees are brought in to make decisions. The magnitude of the impacts and the risk of this occurring are unknown because disruption of this order is unprecedented anywhere.”

“We’re going to monitor this situation very carefully over the next several months,” NRF Vice President and International Trade Counsel Erik Autor said. “This is a case where what happens in Washington can have as much effect on cargo as what happens on the docks. Port Tracker is going to be an essential tool for retailers working to keep their supply chains free of disruptions.”

In a $6.8 billion transaction, Dubai Ports World is slated to take over some terminal operations at the ports of New York/New Jersey, Miami, Houston, New Orleans, Philadelphia and Baltimore from the current operator, British-owned Peninsular and Oriental Steam Navigation Company. Critics claim the deal is a security risk because the company is owned by the government of Dubai, part of the United Arab Emirates. Of the ports involved, only New York/New Jersey is a major retail container port, and Dubai Ports World would take control of only the Port Newark Container Terminal, the smallest of the three terminals in New Jersey.

Despite news media and political attention focused on the Dubai issue, the March Port Tracker report found the nation’s major retail container ports in good condition, operating without congestion as the slow season for retail cargo comes to an end and volume begins to increase. Looking ahead toward the peak of the 2006 season this fall, the report sees challenges from increased growth in trade, but expects any congestion to be kept to a minimum through continued refinements to operations. All ports covered – Los Angeles/Long Beach, Oakland, Tacoma and Seattle on the West Coast, and New York/New Jersey, Hampton Roads, Charleston and Savannah on the East Coast – are currently rated “low” for congestion, the same as in February.

Nationwide, ports surveyed handled 1.23 million Twenty-foot Equivalent Units (TEUs) of container traffic during January, the most recent month for which numbers are available. The figure is up 2.1 percent from December and 8 percent from January 2005. Over the report’s six-month forecast period, February’s 1.1 million TEU, 1.4 percent from a year ago, was expected to be the lowest volume of the slow post-holiday winter season. Volume is beginning to climb again and should hit 1.4 million TEU in July, up 10.2 percent from July 2005. One TEU is a 20-foot cargo container or its equivalent.

Port Tracker, which is produced by the economic research, forecasting and analysis firm Global Insight for NRF, looks at inbound container volume, the availability of trucks and railroad cars to move cargo out of the ports, labor conditions and other factors that affect cargo movement and congestion. Subscription information is available at www.nrf.com/porttracker or by calling (202) 783-7971.