McLean's - American Shipper

McLEAN – A RETROSPECTIVE page 8APRIL 2006www.americanshipper.comMandatory AES stalled 28EC security under scrutiny 32Transpacific transformation 50Environmentally friendly heir 72

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Vol. 48, No. 4LOGISTICS 28EC security under scrutiny 32Calif. goods movement center stage 34Building a NAFTA house 40FORWARDING/NVOs 42CBP’s toughest sale? 42NSAs expected to take off in 2004 43Kuehne + Nagel’s earnings up 32% 43TRANSPORT/AIR 44Making government connections 442005 record year for U.S. air exports 44TRANSPORT/OCEAN 46Stock market casts wary eye over lines 46No Maersk, no problem 46Location key for Suez Canal 64Virginia counting on Suez 67Advance on the new Silk Road 69Environmentally friendly heir 72Sea Star confident in Puerto Rico trade 74TRANSPORT/INLAND 76Barges offer congestion release valve 76PORTS 78Big and little collaboration 88‘Give up the MRGO’ 90SERVICE ANNOUNCEMENTSAPL joins transatlantic leg of pendulum ...FEFC lines raise rates, bunker surcharge ...Zim details AMP service rotation change ...COSCO, Evergreen start China/U.S. loop... Zim adds Oakland to round-the-worldservice ... Hanjin to join new Asia/Mediterraneanservice ... “K” Line, MOL introduceNew Andes link ... Econocaribe startsNewark/Ecuador serviceDEPARTMENTSComments & Letters 2Shippers’ Case Law 92Corporate Appointments 93Service Announcements 94Editorial 96On the CoverApril 2006Port security: Fear vs. facts 78How did a well-publicized international mergerbetween two port operators go unnoticedfor almost three months until the 11th hour,only to be torched by a wildfire of oppositionin the United States over concerns that an Arabcompany owned by the government of Dubaiposed a threat to national security? And whywas it so easy to light the fuse of U.S. anxiety?McLean — A retrospective 8American entrepreneur Malcom McLean was the primecatalyst of containerization, which in only 50 yearshas revolutionized world trade as nothing before sincethe time steam engines were put on ships. AmericanShipper asked several of McLean’s associates what theyremember most vividly about him, and what he wouldthink of today’s post 9/11 trading world.Mandatory AES stalled 28When the U.S. Census Bureau’s Foreign Trade Divisionstated its reasons for an “indefinite” delay in issuinglong-awaited regulations for mandatory electronic filingof export information, American shippers and freightforwarders lost their cool. A few weeks before the ruleswere to be published, DHS and CBP told Census officialsit would not approve the regulations unless two significantchanges were made in the Automated Export System.Transpacific transformation 50The tide in the transpacific is shifting, with shippersseemingly holding all the marbles when it comesto negotiating freight rates in the trade this spring.Yet crumbling and congested infrastructure, volatile oilprices and continued growth of Chinese exportsis putting a damper on the industry. That’s good news,unless you’re a carrier, or unless you plan on continuingto ship past this year. There’s storms brewing, analysts say.Daily News UpdatesFeature Articles & Analysisamericanshipper.comYour subscription to American Shipper brings you bothAmerican Shipper MagazineAMERICAN SHIPPER: APRIL 2006 1

Burying the dog’s bone elsewhereYour editorial in the March issue, “Give the dog a bone”(page 96) was outstanding and spot-on.While “globalization” may be the driving force in commercetoday, the government should be remindedthat its sponsorship of global free tradeshould be, first and foremost, to the benefitof the people of the United States.Government reliance on multinationalcorporations and a free market economyto repair the infrastructure issues of theUnited States is a poor strategy. Americanmultinational corporations recognize thatshareholder value means performance of returns in any market,not just the market of the United States. They are going to gowhere their costs are lowest and their returns are highest.The people of the United States need to consider that tocorporations “market adjustment” might mean moving themiddle class purchasing power to another region of the planetwhere the economic variance produces better overall returns.Corporations will do so by not only outsourcing jobs, but indeed,outsourcing the economy to another region with higher returnon investment. Next, the tax base erodes and everyone takes aride on the downward spiral express.The infrastructure is not strategically advantaged. Corporationsmight grouse a little about this but ultimately will be justas apathetic about the issue as our government is. However, theirambivalence will have a different raison d’être. Corporationscan simply pack up and move their economic basket somewhereelse. Somewhere easier to do business. Governments, and thecitizens they ostensibly serve, can not.If our government does not implement effective infrastructuresolutions here, we should only expect the free market to inventeffective solutions of its own — somewhere else.David FisherAkron, Ohio‘Storm in a glass of water’I appreciate your solid coverage on Dubai Ports World’sacquisition of Peninsular and Oriental Steam Navigation Co(pages 78-87 and at www.americanshipper.com/dpworld/).Regretfully this was “a storm in a glassof water” but the damage has yet to be fullymeasured.The Arab world has reason to be upsetwith the United States. Some 85 percentof terminal facilities in the United Statesare foreign owned/controlled.OOCL with significant financing fromthe People’s Republic of China, owns facilities;APL/NOL owns many of their own facilities; and MaerskVol. 48 No. 4 April 2006American Shipper is published monthly. Published on the15th of each preceding month by Howard Publications,Inc., 300 W. Adams St., Suite 600, P.O. Box 4728,Jacksonville, Florida 32201. Periodical postage paidat Jacksonville, Florida, and additional mailing offices.Subscriptions $36 per year for 12 issues; $180 for airmail. Telephone (904) 355-2601.American Shipper (ISSN) 1074-8350)POSTMASTER: Send Change of Address Form 3579to American Shipper, P.O. Box 4728, Jacksonville,Florida 32201.Printed in U.S.A.Copyright © 2006 Howard Publications, Inc.To subscribe call1 (800) 874-6422or on the Web atwww.americanshipper.comPublisherEditorialHayes H. HowardJacksonville hhoward@shippers.comChristopher Gillis, EditorWashington cgillis@shippers.comGary G. Burrows, Managing EditorJacksonville gburrows@shippers.comRobert Mottley, Feature writerNew York rmottley@shippers.comEric Kulisch, Associate EditorWashington ekulisch@shippers.comJim Dow, Associate EditorMiamijdow@shippers.comEric Johnson, Associate EditorLong Beach ejohnson@shippers.comSimon Heaney, ReporterLondon london@shippers.comFrancis Phillips, Shipping ResearchLondon fphillips@shippers.comStephen Wynn, Shipping ResearchJacksonville swynn@shippers.comJason Braddock, Graphic DesignerJacksonville jbraddock@shippers.comAdvertising Ryan Kneipper, Advertising ManagerNew York rkneipper@shippers.comDaryl Pinto, Sales & Mktg. AssociateJacksonville dpinto@shippers.comNancy B. Barry, Adv. Prod. ManagerJacksonville nbarry@shippers.comCirculation Karyl DeSousa, Kerry Cowart,Kathy HouserJacksonville circulation@shippers.comJacksonville (800) 874-6422(904) 355-2601Fax: (904) 791-8836300 W. Adams St., Suite 600P.O. Box 4728Jacksonville, FL 32201Washington (202) 347-1678Fax: (202) 783-3919National Press Bldg., Rm. 961Washington, DC 20045New York (212) 422-2420Fax: (212) 422-004761 Broadway, Suite 1603New York, N.Y. 10006London +44 (20) 8970-2623Fax: +44 (20) 8970-2625Empire HouseEmpire Way, WembleyNorth London HA9 0EW, EnglandLong Beach (949) 412-4304Fax: (626) 796-82462215 E. 2nd St., No. 1Long Beach, CA 90803Miami (954) 443-374610300 Iris CourtPembroke Pines, FL 330262 AMERICAN SHIPPER: APRIL 2006

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certainly owns and controls its own terminals.Unfortunately, the developments are more a reflection ofa Congress running wild and authoring bills that make nosense.One should rather start to ask why it is that U.S.-based terminalsare not owned and managed by genuine U.S. companies?Just like, why is it that there are no more U.S.-owned shippingcompanies in the vital international container shipping industry?What is wrong with U.S. management?Bengt Henriksenpresident,Quality Logistics Inc.San Carlos, Calif.Wrong from the beginningThe astounding spiral of misinformation over Dubai PortsWorld that rose like a writhing snake to bite the Bush administrationwhere it was most vulnerable could and should havebeen beaten back at the beginning of the story. That did nothappen because the major media, both print and television,found that it served their editorial purposes to run with misrepresentedfacts.For example: The New York Times on Feb. 16 said flatly inan editorial that Dubai Ports World had acquired “the Britishcompany that operates the Port of New York,” a total falsehoodalso perpetuated in news stories until, a few days after anational feeding frenzy had begun in earnest, some correctivemitigation began to appear toward the end of the paper’s articleson the subject.An American Shipper reporter subsequently e-mailed TheTimes, noting that Dubai Ports World was slated to acquireonly a one-half share in the operation of the New York-NewJersey port’s third-largest terminal: “Dubai Ports World is in noposition to dictate matters of policy or security, and certainlycannot be said to operate the port of New York.”Andrew Rosenthal, deputy editorial page editor of The Times,replied in part: “You could argue that it would have been betterto say ‘operates a significant part.’ At most, that’s a minor slipYour magazine subscription includes...Your ownRegionalNEWSGo to:americanshipper.com4 AMERICAN SHIPPER: APRIL 2006worthy of a minor correction.” He added: “You don’t need todictate policy if you have a major role in carrying it out.”We beg to differ. That was no “minor slip.” Quite aside fromThe Times’ initial semantic distortion — which other mediaseized upon — renting space in a terminal doesn’t give onetenant the right to determine what vessels call in the port. It isespecially surprising that no one in the Port Authority of NewYork and New Jersey challenged The Times early in the game,before the multiheaded snake had risen from the pit.“We didn’t want to get into the politics of it,” one Port Authorityspokesman said — all the more ironic because soon itwas all politics. (Robert Mottley)A terrible thing to wasteA congressional watchdog agency found that the U.S. militaryfails to reuse costly active radio frequency identification(RFID) tags.According to the Government Accountability Office, theDefense Department has been using active RFID tags to trackshipments since the early 1990s. In January 2005, the militaryofficially started using so-called passive RFID tags.Army and Defense Logistics Agency officials estimatedthat rates of tag returns had been 10 percent before combatoperations started in Iraq, and 3 percent after. Only 16 percentof the military’s active RFID tags were reused on more thantwo occasions.Between 1997 and 2005, the Defense Department boughtabout 1.3 million active RFID tags, valued at more than $130million. The average price per tag is about $100, the GAOsaid.In a response to the GAO’s findings, Jack Bell, deputy undersecretaryof defense for logistics and material readiness, saidthe military will develop new operating procedures for reuseof active RFID tags by July 2006. (Chris Gillis)Shock and angerOn Oct. 17, 2005, the U.S. Court of Appeals for the SecondCircuit ruled that Korean law applied in a case in which cargointerests had sued Hyundai Mipo Dockyard, a Korean shipyard,for performing allegedly substandard welding that caused thecontainership MSC Carla to break up in a North Atlantic stormin 1997.Plaintiffs were very surprised that the court of appeals heldthat Korean law barred recovery against the shipyard due toexpired statutes of limitation — all the more so since the appellatepanel had not held any hearing on the subject of Koreanlaw, and because a lower court determined that the shipyard hadwaived its right to invoke Korean law.The appellate panel’s decision did not sit well with the cargointerests and the North of England P&I Association Ltd., thelatter being a protection and indemnity insurance club. Morethan $100 million was at stake in third-party claims filed byhundreds of American shippers and their cargo underwriters asa consequence of the cargoes that sank or were damaged aboardthe Carla. In addition, many of the admiralty law firms in theNew York area, which had invested nine years of time on thecase, lost millions of dollars in fees.After the October ruling, the losing side filed a thick briefof fresh petitions, essentially asking the appeals court for apanel rehearing on aspects of its decision. In a rebuke that left

the plaintiffs’ multiple lawyers stunned and angry, the SecondCircuit responded on Feb. 27 with a single word: “Denied.”That means all is lost, unless the cargo interests and the P&I club pursue one or more of the following options:• They can litigate in South Korea and hope for the best.• They can ask the U.S. Supreme Court to review the SecondCircuit’s decision.• They can sue Lloyd’s Register, a classification societythat drew up specifications for the alleged defective welding.The Carla cargo interest attorneys had, in fact, put plannedlitigation against Lloyd’s on hold until the appeals court hadruled.Cargo interests and the P&I club have 90 days to file forcertiorari with the Supreme Court. One attorney said in mid-March that “the needle was hovering 50-50” whether to appealor not. Litigation against Lloyd’s may be a likelier alternative.(Robert Mottley)Visions of a Miami port tunnelThe idea of a tunnel between the Port of Miami and theInterstate Highway system has been labeled everything fromvisionary to a the greatest potential boondoggle in the city’shistory. Perhaps that is why it has been under serious considerationfor a quarter-century, yet just beyond the grasp of thereal world.Although Florida Department of Transportation officialshave been taking a hard look at both the engineering and fiscalfeasibility of the project for the last several years, the concepttook a step toward reality in March when FDOT officials metwith prospective firms who would actually submit designsand bids. The state wants to have a list of genuinely qualifiedcandidates in place in April, with bids submitted this fall anda firm selected by December.That could mean an end to a situation where trucks have tonegotiate several blocks of downtown streets, which requirevery tight, 90-degree turns, between the port entrance and StateHighway 836, the heavily traveled highway that carries much ofthe traffic to warehouses located predominantly west of MiamiInternational Airport.State officials laid out broad guidelines. The tunnel wouldbe 3,900 feet long and would go under Biscayne Bay from theport to Interstate 395. It would have two lanes in each directionand would be 40 feet in diameter. Although no cost guidelineswere included, rough estimates put the project at around $1.5billion.Port director Charles Towsley told the Miami Herald afterthe session, “Picture the existing bridge (leading into the port)and invert it.”While the prelude to bidding is realistic, the project stillseems visionary. State officials said work would begin in sevenyears. (Jim Dow)Stepping down as Hueneme’s top bananaIt doesn’t get quite the same press coverage as its giantneighbors to the south, but the Port of Hueneme in SouthernCalifornia has steadily developed over the past decade to thepoint that it is the West Coast’s leading importer of bananasand the country’s leading port for citrus fruit, as well as a keygateway for cars.Most of this has happened on the watch of Bill Buenger, the6 AMERICAN SHIPPER: APRIL 2006Ventura County, Calif. port’s executive director since 1994. Butat the end of February, Buenger announced his retirement. Someare speculating that it was fatigue from dealing with a localcommunity that was pushing hard against port expansion.Yet the port’s expansion has — according to an economic studycited by the Ventura County Star — helped generate 3,800 jobsand $535 million for the Ventura County economy.The port board credits Buenger with much of that success— one board member told the newspaper that port tonnageand revenue have climbed 50 percent since he took over, allwhile competing with the nation’s two biggest ports just twohours south by car.It’s perhaps a sign of the times that the pushback from environmentalgroups against port expansion is driving qualitypeople out of the business. Most in the industry would probablysay that environmental and community groups that seek to blockport development just don’t understand the nuances of foreigntrade, nor how far the industry has come in its thinking aboutenvironmental issues.But it might also be fair to say that ports, for so long completelyoverlooked as a source of air pollution and traffic inurban areas, are generating more attention than they deserveto make up for lost time.Buenger’s departure comes as the first half of 2006 is shapingup as an interesting time for port pollution issues in SouthernCalifornia. In March, Evergreen Marine Group Chairman Kuo-Cheng Chang committed to a huge audience in Long Beach thathis company would only build environmentally-friendly ships(see related story, pages 72-73).In April, the Port of Los Angeles is holding a two-day conferenceon cold-ironing, where ships are powered using electricityrather than auxiliary diesel engines while docked.And days later, state air regulators will hold a conferenceon reducing emissions from diesel engines involved in portactivities. At the same time, more and more terminal operatorsare pilot testing alternative fuel vehicles on their facilities, allwithout a single governmental requirement to do so.A few more developments like this and perhaps peoplelike Buenger may just stick around for a bit longer. (EricJohnson)CorrectionsA story in the March issue about roll-on/roll-off cargo servicesto the Middle East (pages 68-70) incorrectly identified WalleniusWilhelmsen’s relationship with American Roll-on Roll Off Carrier(ARC). ARC is a U.S. registered company operated and managedfrom its Montvale, N.J. headquarters. ARC has a fleet of eightU.S-flag Pure Car and Truck Carriers. Wallenius Wilhelmsen doesnot operate vessels to the Middle East, but does charter space onARC vessels in order to transport commercial cargo to and fromthe region.A story on Mid-Ship Group in the December issue (page 62-63)should have said Robert Diamond is president and chief operatingofficer. Matthew I. DeLuca Jr. is chief executive officer andchairman of the Mid-Ship Group and founding partner. DeLucafounded Mid-Ship Marine in 1974.In February’s Shippers’ Case Law (page 92) Stewart Wade’sname was misspelled. He is vice president of marketing and communicationfor the American Bureau of Shipping.

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McLEANA retrospectiveBY ROBERT MOTTLEY8 AMERICAN SHIPPER: APRIL 2006(Photo courtesy of Capt. James McNamara collection, originally published in American Shipper May 1996)

Arecent telecast from Dubai Ports World showed panoramicviews of the sprawling terminal at Dubai’sJebel Ali Port, thrust suddenly into unwonted limelightbecause of a furor in the United States over Dubai Ports’purchase of a terminal management company with facilitiesin six American seaports.Dubai’s impressive skyline of apartment buildings and officestructures reared up behind the port. But more eye-grabbingwere thousands upon thousands of stacked containers in theforeground that, when seen end-on, looked like myriad tinyboxes holding Chinese fans.The news anchorpersons on camera, using the port as background,talked only about the slim but nonetheless hysteriaprovokingchance that one of those containers might hold aweapon of mass destruction bound for the United States.In doing so, they missed the real story: the massed containersthemselves, which have in only 50 years revolutionizedworld trade as nothing before them since the time that steamengines were put on ships.An American entrepreneur named Malcom McLean, who“Malcom McLean is oneof the few men whochanged the world.”Walter B. Wristondied at the age of 87 in thespring of 2001, was the primecatalyst in triggering the tradetsunami that containerizationbecame. But he was not the firstby any generous measure to think of putting cargo-carryingvehicles on ships.That does not diminish McLean’s iconic status in the transportationindustry, to the point that one determinant of shippingliteracy is to spell his first name correctly with a single “l.”American Shipper asked several of McLean’s associateswhat they remember most vividly about him, and what hewould think of today’s post-9/11 trading world. Much informationwas also drawn from a forthcoming book, The BoxThat Changed The World, by Arthur Donovan and JosephBonney.AMERICAN SHIPPER: APRIL 2006 9

Alexander and P.T. Barnum’slogistics edgeFirst, a little context.Alexander the Great resupplied his armies with ox cartsthat were put on ships. His troops, through all of Alexander’scampaigns, were rarely more than a day’s march from a portor navigable river.Much closer to the modern era, P.T. Barnum became oneof the first U.S. entrepreneurs to use what is known today asintermodalism for competitive advantage. In 1872, Barnum’scircus started moving its wagons on rail flatcars.By 1900, barges were transporting railcars across the GreatLakes, and acrossrivers — such asthe Hudson in NewYork — that sunderedtransportationroutes in metropolitanareas.Henry Flagler,a co-founder ofStandard Oil and abusiness magnate inFlorida, establishedhis “Overseas Railroad”from Miamito Key West in 1912.The “overseas” titlewas justified becauseFlagler usedbarges to carryfreight cars on fromKey West to Havana,Cuba.A later rail ferryventure, started by Dan Taylor, a native of Ocracoke, N.C., operatedbetween West Palm Beach, Fla., and Havana, Cuba.In 1929 Graham M. Brush, a World War I aviator, foundedSeatrain Lines in Hoboken, N.J. His company’s title exactlydescribed the services offered. Brush used ocean vessels to carry100 railcars on three cargo decks and a ship’s main deck.The freight cars were brought on board with their wheelsattached, since each ship had four sets of parallel rail tracksaffixed to the deck. Seatrain vessels could be unloaded andreloaded within 10 hours.Epiphany in Jersey CityMalcom McLean was born in Maxton, N.C., in 1914, thefourth of seven children. His father had been a farmerand mail carrier.In 1931, McLean decided not to follow several high schoolclassmates who went to sea because jobs were scarce ashore.Instead, he worked in a grocery store and then operated a servicestation in nearby Red Springs, N.C.To make ends meet, McLean used an old car and a borrowedtrailer to carry freight locally. Upon learning that the Works10 AMERICAN SHIPPER: APRIL 2006Progress Administration (WPA) was building a road and neededdirt hauled, McLean bought a used truck for $120 — $35 upfront, the rest paid in installments. After six months, he couldafford another truck.Despite an early flush of success, McLean’s business sufferedas the Depression bit harder and there was less cargo to carry.At his lowest point, McLean was back to one truck, which hedrove himself. His sister, Clara, who had been a secretary, quither job to manage McLean’s office. A younger brother, Jim,ran the service station McLean had leased.Just before Thanksgiving 1937, McLean — then 24 — drovea load of cotton bales to New Jersey. He spent all night on theroads to reach a pier in Jersey City, since the bales were goingthat morning aboard the Examelia, an American Export vesselbound for Istanbul.In Jersey City,McLean had to waitall day for dockworkersto unloadhis truck — timehe could ill affordto waste, since heneeded to drive backto North Carolinafor another load.Years later,McLean recalled:“I watched all thosepeople musclingeach bale and crateoff the trucks andinto slings thatwould lift theminto the hold of theship.“On board, everysling would haveto be unloaded bystevedores and its contents put into the proper place in the hold.What a waste of time and money! Suddenly, the thought occurredto me: wouldn’t it be great if my trailer could simply be liftedup and placed on the ship without its contents being touched?If you want to know, that’s when the seed was planted.”With their home pier less than mile away, in Hoboken, N.J.,Seatrain’s vessels were readily visible on the Hudson River.Taylor said, “anyone could look at a Seatrain ship and seethat the scale for carrying boxcar was feasible.“In Malcom’s mind, I think he probably saw truck trailers puton board instead of rail cars. That would have been a sensibleimage, nothing crazy about it.”Several events have been planned to commemorate the 50th anniversaryof the April 25, 1956 sailing of the Ideal X, Malcom McLean’s first ship tocarry containers.(Photo courtesy of Capt. James McNamara collection, originally published in American Shipper May 1996)‘The McLean Lane’McLean’s troubles eased as the Depression ebbed. Whensouthern textile mills resumed operations, he acquiredmore vehicles. When he incorporated McLean Trucking in1940, his company had 30 rigs and reported gross revenue ofmore than $230,000. In 10 years, it would have 162 trucks andgross more than $12 million a year.As his trucking operations expanded, McLean never aban-

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12 AMERICAN SHIPPER: APRIL 2006doned the idea thathad taken root inJersey City. Yet hecertainly knew thatothers were usingships to carry boxedcargo.For example, bythe end of WorldWar II, the U.S.Army TransportationCorps haddeveloped “the Conex”(for “containerexpress”), a reusablesteel container inseveral sizes — themedian being sevenfeet high and six feetwide. A commercialversion was calledthe Dravo Transportainer.Conex boxeswere used extensivelyin the KoreanWar. Upon arrivingat their destination,most of them servedas command postsor field housingfor troops. The U.S.military switched tostandard containersfor larger loads inthe 1970s.In 1945 AndrewJackson Higgins,another shippingentrepreneur, proposedusing 10- and20-foot long containerscarried on truck chassis, railcars, ships and barges.Higgins Industries, a New Orleans-based company that hadmade landing craft for Allied forces during World War II, wouldprovide such containers. After a run of bad business luck, Higginsdied in 1952.In 1953, the Alaska Steamship Co. started carrying containersbetween Seattle and Anchorage on Liberty ships and C-1freighters fitted with squared-off holds. The containers werecollapsible boxes stowed below deck and on deck.In 1955, the White Pass & Yukon Railway shipped 25-footcontainers between the Yukon Territory and Vancouver, BritishColumbia, on a vessel called the Clifford J. Rogers.By then, McLean’s own plans were well afoot. “In 1954,McLean held a seminar for his company’s employees to explainthe “sea-land” concept to them, and that was two years before theIdeal X sailed,” Paul F. Richardson told American Shipper.Richardson, who started working for McLean Trucking in1952 after graduating from college, became the company’s toprankedsalesman,and later presidentof Sea-Land ServiceInc., from 1969to 1976. He is now aprincipal with PaulF. Richardson AssociatesInc., basedin Holmdel, N.J.“We tend toforget today thatMcLean Truckingwas an astonishinglysuccessfuloperation,” he explained.In less thana decade, McLean’scompany had becomethe largestmotor freight carrieroperating in theSouth.”In 1950, McLeanordered 600 GeneralMotors dieseltractors with sleepercabins to be deliveredin two years— the largest orderGM had received atthat time.McLean’s driverswere singlemindedon keepingtheir schedules. Inthose years, longbefore the Interstatehighway system,drivers working forMcLean’s competitorsreferred to themiddle or passinglane on three-lane highways as “the McLean Lane.” Hiscompany’s trucks used it whenever possible as a driving lane,instead of one meant for passing other vehicles.McLean generously rewarded drivers with exemplary safetyrecords. He once offered a furnished house worth $25,000 asa prize for a trucker on his payroll with the best driving recordfor the next year.Upon learning that the eventual winner had gone 80,000miles without a scratch or dent on his rig, McLean canceledhis freight insurance, saving more money on premiums that hehad paid for prizes for his drivers.Workers at Bethlehem Shipyard hoist a McLean Trucking trailer on June 22,1955, experimenting with how to load and unload trailers aboard vessels.(Photo courtesy of Capt. James McNamara collection, originally published in American Shipper May 1996)A useful man in the streetBy 1952, McLean knew that the easy days of long-haul truckingwere over. States were imposing “highway use” taxesbased on weight and mileage. In particular Virginia, throughwhich McLean’s trucks had to cross on some of their busiest

outes carrying textiles and tobacco products north, stringentlyenforced weight limitations.Some of those who knew McLean well said Virginia’s restrictionsmay have been the irritant that convinced him to lookseaward.Meantime, McLean had asked the Southern Railroad, whichran between Washington, D.C., and New Orleans, to carry histrailers on rail flatcars — known as piggybacking.The railroad declined. McLean’s business would have beenwelcome, but the Southern’s executives weren’t about to riskthe wrath of other railroads, which viewed truckers as an enemyin the burgeoning fight for dominance in long-haul surfacetransportation.The railroads’ fear was that truckers would take most of thehigher-valued cargo, leaving railroads to haul coal and bulkcommodities of lower value.McLean didn’t share that view. “He only wanted to move histrailers at the least cost,” Richardson said.McLean’s solutionwas to start atrailer ship service,first by acquiringPan-AtlanticSteamship Corp.,then a subsidiary ofWaterman SteamshipCorp., andeventually Watermanitself.Because the InterstateCommerceCommission wouldnot allow McLeanto own two competingcompanies,McLean Truckingand Pan-Atlantic,that were in differentindustries,McLean divestedhimself of controlof his trucking unit.Malcom, Jim andClara McLean held75 percent of itsstock.On Jan. 21, 1954,McLean resignedas president ofMcLean Trucking. That company’s tightly held shares of stockwere registered to a new company, McLean Industries Corp.On the same day, McLean sold his shares for $6 million andbought Pan-Atlantic from Waterman. Three months later, hebought Waterman.Seven major railroads immediately and jointly protested thedeal, but the ICC eventually dismissed their complaint.In bringing off this coup, McLean had put together a financialstrategy with Walter B. Wriston, a New York banker whohad previously arranged loans for a Greek businessman namedAristotle Onassis.14 AMERICAN SHIPPER: APRIL 2006Wriston went on to lead Citibank, which became the world’slargest bank. In the foreword of his own biography, Wristonwould later write: “Malcom McLean is one of the few menwho changed the world.”In Mobile, Ala., not all members of Waterman’s board ofdirectors liked the idea of McLean’s takeover.Lacking a quorum of enough directors to approve the sale, oneof McLean’s lawyers ran out into the street and seized the firstpasserby wearing a coat and tie. Hauled into the boardroom, thestranger was instantly elected a Waterman director. He was toldhow to vote, and then hustled back to the street with $50 in hishand.Coastal focusMcLean first intended to use roll-on/roll-off vessels, insteadof ships for which containers would be lifted on and off, buthe soon realized that the wheels and undercarriage of truck trailerstook up valuablecargo space.After acquiringPan-Atlantic,McLean signeda contract withBrown Trailer Co.,based in Toledo,Ohio, for 22 reinforcedaluminumcontainers, 33-byeight-by-eightfeet,which were a standardcatalogue itemfor Brown Trailer.McLean paid about$2,800 for eachcontainer.Keith Tantlinger,vice president ofengineering atBrown Trailer, thendesigned and patentedan automaticspreader to moveMcLean’s 25-toncontainers betweena ship and a pier.Tantlinger’sspreader compriseda steel gridhaving the same dimensions as a container. A crane operatorcould lock the spreader to the container at its top corners. Oncethe container had been lowered on a vessel, the spreader couldbe unlocked by the operator.McLean’s plans at this time were focused on Pan-Atlantic, despitethe company’s name, providing coastwise service betweenU.S. ports, and between the U.S. mainland and Puerto Rico.Although McLean intended containerization originally tofunction in the context of Jones Act-coastwise trade, “he neverthought there was any boundary that prevented it from goingother places,” said R. Kenneth Johns, an Auburn UniversityThe deck of the converted T-2 tanker Ideal X is loaded with a mix of 32-footMcLean Trucking trailers and newly constructed 35-foot containers for a trialrun on Aug. 15, 1955. Eight months later, on April 26, 1956, the Ideal X wouldmake its historic inaugural voyage from Port Newark, N.J., to Houston.(Photo courtesy of Capt. James McNamara collection, originally published in American Shipper May 1996)

graduate whom McLean hired in 1957 as his company’s firstmanagement trainee.Johns, who was president of Sea-Land Service Inc. from1979 to 1986, is currently chairman of Hampshire ManagementGroup, based in Roselle Park, N.J.“In the early days, he certainly didn’t say, ‘let’s get thiscoastwise deal up and running so I can go to Europe.’ All thathappened eventually occurred step by step,” Johns said.At that time, McLean learned a lesson from Eric Rath, a Miami-basednaval architect and engineer, who had put togethera fleet of several LST landing craft that he had converted intotrailerships.In 1954, Rath’s company, Trailer Marine Transport, beganoperating its vessels between Jacksonville,Fla.; Miami; and San Juan, Puerto Rico.Instead of building up a trading routebetween those venues, Rath sought todevelop transatlantic operations, and wentbankrupt.Crowley Maritime Corp. later boughtRath’s company, replacing its LSTs withmulti-deck barges and making the businessprofitable. That routing continues in 2006as part of Crowley Liner Services.McLean knew that it wasn’t enough toprovide a container service to Puerto Rico. It was also necessaryto have sufficient goods coming back to the United States sothe ships would not return empty.To that end, McLean hired William Neuhauser away from WallStreet to lure major U.S. firms, such as Johnson & Johnson, toset up offshore manufacturing plants in Puerto Rico that wouldgenerate valuable return cargo.Prior to the 1950s, about all Puerto Rico could send north wassugar and cement. Neuhauser was a prime catalyst in changingthat situation, as more American companies saw the sense ofestablishing Puerto Rican operations.“Bill Neuhauser made the Puerto Rican service more profitablefor McLean,” said David Howard, founder of American Shipper.“He never received the credit he should have for doing that.”Neuhauser’s recruiting of U.S. companies was similar to thehistoric British, Dutch and Scandinavian traditions of setting uphuge trading companies that would generate cargoes for shipsen route to national colonies.Yet McLean departed from this venerable European approachby having no financial involvement in the U.S. firms that expandedto Puerto Rico — just a favorable opportunity to bidfor their plant-to-plant freight.East Coast, West Coast beginningsOn April 26, 1956 — a grim, rainy day — about 100Pan-Atlantic employees and McLean’s invited guests assembledat Shed 154 in Port Newark to watchTantlinger’s bizarre-appearing retractingspreader lift 58 reinforced half-truck-sizedcontainers onto the 524-foot-long Ideal X,a tanker with a cargo deck.The truck trailers, which had beenseparated from their wheels and undercarriages,were more generally called “trailers”instead of “containers” at that time. LaterMarvin Barloon that day, the Ideal X sailed for Houstontransportation economist and, indisputably, into history.Pan-Atlantic’s first ship filled with cellguides to hold containers, the Gateway City, went into regularservice in the fall of 1957.Even as the Gateway City departed, there was lingering nervousnessabout how well container cells would work at sea.One naval architect predicted that the flexing of the vessel’shull would crush the containers in their confined cell guides. Yetafter a voyage from Port Newark to Miami, the containers werefound to have moved no more than five-eights of an inch.In 1957, Marvin Barloon, a transportation economist, wrotean article for Harper’s magazine called “The Second TransportRevolution” that had wide influence through the transportationindustry. Barloon clearly spelled out economic variances betweenrailroads and truck lines. “In 1929, the intercity truck lines movedonly two ton-miles of freight for every 50 carried by the railroads.“A ship which wouldnormally require four orfive days to load is packedwith trailers and out to seain eight hours or less.”In 1954 Eric Rath, a Miami-based naval architect, began operating a fleet of LST landing craft that he convertedto trailerships. Trailer Marine Transport served between Jacksonville, Fla.; Miami; and San Juan, Puerto Rico.16 AMERICAN SHIPPER: APRIL 2006

In 1955, they carried over 19 to therailroads 50 … year by year, thetrucks gain,” Barloon wrote.“Business once lost to the highwaysis hard to get back,” he said.“As a standard rule of thumb,goods can be moved eight mileson the deep waters at the same costas one mile by rail. But, becauseof high costs in the seaports, fivemajor intercoastal carriers werespending half of their total incomein 1953 in merely loading and unloadingcargo,” Barloon wrote.By using the method of carryinghighway trailers on vessels, “a shipwhich would normally require fouror five days to load is packed withtrailers and out to sea in eight hoursor less. On the Atlantic Coast, thecost of holding and loading a shipin port may run as high as $270 anhour, and the trailer-carrying vesselbrings down the loading cost fromhalf of the total revenue to some 2or 3 percent,” he wrote.Meantime, on the U.S. WestCoast, Matson Navigation Co.was vexed by high cargo-handlingcosts. As a consequence, Foster L.Weldon, an operations research expert,established an integrated research division within Matson.One of its first projects was to analyze how containerizationmight lower such costs.In 1958, Matson’s board of directors authorized $4 millionto be spent on the first phase of easing the company into containerization.Unlike Pan-Atlantic, whose vessels carried theirown cranes, Matson decided to build shoreside gantry cranes.Matson also opted for 24-foot containers, instead of McLean33-foot and later 35-foot boxes.By 1961, 40 percent of Matson’s cargo between the WestCoast and Hawaii moved in containers. That would rise quicklyto 65 percent.Stanley Powell, who became president of Matson in 1962 afterheading its freight division, recalled how doubters persisted onthe company’s board of directors. “They said containers wasteda ship’s capacity ‘by fillng it with boxes instead of paying cargo.’They said ‘all those boxes will create traffic jams in Hawaii.’When one director told me that I was 10 years ahead of mytime, I told him we had a board of directors that was a 100 yearsbehind the times and wanted to stay there,” Powell said.What saved containerization — and it was as true for Pan-Atlantic on the East Coast as well as for Matson on the WestCoast — was that “shippers really saw the advantages of thenew system quicker than anybody else,” Powell said.“In two more years, we didn’t have enough containers for thewhole trade and we were overwhelmed by cargo,” which endedonce and for all any dissent on Matson’s board of directors.Grace Line was the first shipping line to try to extend containerizationto international markets. Unfortunately, a VenezuelanPan-Atlantic’s vessels were outfitted with onboardcranes to load and unload containers.venture misfired badly due to laborproblems in South America. AfterUnited States Lines, the rankingAmerican carrier on the EastCoast, spurned Grace Line’s offerof a joint transatlantic containerservice, Grace Line sold its firsttwo containerships to McLean.In 1960, Pan-Atlantic SteamshipCorp. changed its name toSea-Land Service Inc., a betterdescription of its operations.Recovering from their initialcaution, the board of directors ofU.S. Lines decided to timidly beginits venture into containerization.Ironically, both Sea-Land and U.S.Lines would subsequently engagein a 20-year rivalry to dominateU.S.-flag container shipping internationally.McLean would shapethe success of one company andthe ruin of the other.On March 18, 1966, a U.S. Linesfreighter called American Racersailed for Europe from New York.One of four ships designed withoversized main hatches to allowthe easy installation of below-deckcontainer cells, the vessel carried206 TEUs, 102 of them in the twomain hatches and the remainder on deck.U.S. Lines was the first carrier to enter the U.S./North Europemarket using ships with cells designed for containers. The companywas also the first carrier to adopt 40-foot containers, which soonbecame the international standard, along with 20-foot boxes.Vision and discipline“Good people lift you up,bad people lift you out.”Malcom McLeanSea-Land, from 1960 until 1969, was a company that reflectedMcLean’s vision and his sister Clara’s practicality.“McLean was very much part of the company on a workinglevel,” said Charles R. Cushing, whom McLean hired in 1961as Sea-Land’s mechanicalengineer.After six months,Cushing became thecompany’s naval architect.Today, Cushingis president of C.R.Cushing & Co. of New York, a firm of naval architects, marineengineers and transportation consultants.“Shortly after I started working at Sea-Land, McLean cameby and introduced himself — which he always did with newemployees,” Cushing recalled.“Anyone could talk with him about problems and ideas. Hewanted to hear from people at the floor-plate level,” he said.“Malcom used to come to Boston — my territory was the SouthShore of Boston — and he asked me to drive him to ProvidenceAMERICAN SHIPPER: APRIL 2006 17

for a series of business meetings,” recalled Richardson.“Sitting next to you in the car, he was the easiest guy in theworld to talk to. If you worked for him, Malcom would talkyour ear off about anything and everything business-related,”Richardson said.“He took an exactly opposite tack — very reclusive — whenit came to the media. Malcom would say, ‘when you talk to reporters,you get misquoted and nothing good comes from it.’ Hehad a lifetime aversion to the press,” Richardson explained.“Good people lift you up, bad peoplelift you out,” Johns remembers McLeansaying on a number of occasions.“He had a vision of doing somethingthat hadn’t been done before. His vision of,and commitment to, containerization wasas clear as a bell to him,” Johns said.“He was personally compelling in aquiet way. He wasn’t one of those guyswho work you over until you say, ‘O.K.,I surrender — you’ve got it right.’“That wasn’t Malcom’s way. He justwent through his ideas — and was open todiscussing them — until you were confidenthe knew which fork in the road to take.That’s a very different, and more abiding,kind of persuasion,” Johns said.“He was a mentor for many people,including me,” Johns added.“Malcom used certain people in thecompany as sounding boards,” Cushingsaid. “He was a fountain of new ideas. Hewould call you at any hour of the day or nightto bounce new thoughts off of you.“He wanted people who would challengehim. And if you did — maybe reallyknocked down one of his ideas — he’dlisten politely and then argue civilly withyou. He wouldn’t accept what you saidthen, but if it turned out you were right,he’d come back in a week and say asmuch,” Cushing explained. “If you werewrong, he never held that against you.He had no pride of authorship, or ego as you sometimes findit in business.”“Miss Clara,” as Sea-Land’s people called her, was thecompany enforcer.“She was an enormously influential person,” Johns said.“When Miss Clara said something, you moved right smartly.You didn’t ask why, or whether she was correct or not, you didit — pronto.”“Malcom wasn’t a big one for running company routines,and she was the complete opposite,” Cushing said. “Clara wasan orderly, effective administrator. He relied on her to fill thatrole for him. She was his ‘right hand man’ in many respects,as well as being his touch with reality.”“Clara was the conscience of the company,” Richardson said.“She was responsible for setting personnel policy.”For example, she insisted “on good grooming — haircuts andsuch — no coffee at your desk, clearing your workspace at theend of each day. Employees had 15 minutes a day for personal18 AMERICAN SHIPPER: APRIL 2006“He had a vision of doingsomething that hadn’t beendone before. His visionof, and commitment to,containerization was asclear as a bell to him.”matters,” he noted.“She would abhor today’s notion of dress-down ‘casual days’ ina business context, believing that anything ‘casual’ would lead toa lack of concentration and efficiency,” Richardson chuckled.When, on occasion, McLean wanted to move at a faster pacethan Clara thought wise, she reined even him in. Now 94, shelives in retirement near North Carolina’s noted Pinehurst golfcourse, about 100 miles from Winston Salem. “Miss Clara”became very wealthy in her own right after a lifetime of prudentinvestments.McLean also relied on two brothers. Jim,who took over Waterman when McLeandivested himself, “was a very efficientexecutive in his own right,” Johns said.Another brother, Bill McLean, “ran abusiness Malcom owned in Tampa calledGulf Florida Terminals. I worked for Billyfor a while — he was a very solid guy,”Johns said.One unsung member of McLean’s familysupport group was his first wife, Margaret.“She was a wonderful lady with more classthan you can imagine. She never raisedher voice or expressed opinions aboutMalcom’s business in public, but she was arock-solid person,” Johns said. “MargaretMcLean doesn’t get enough credit today.I was around them enough to know whatshe meant to him.”Malcom and Margaret had three children,Nancy, Trisha and Malcom Jr. AfterMargaret’s death, McLean remarried. Hiswidow, Irena, survives him.There was never any question of who wasSea-Land’s chief catalyst. “Malcom wasclearly the guy who prepared the Kool-Aidand also was the straw that stirred the drinkeveryone willingly took,” Johns said.“We were all young, and we workedround-the clock until we got done whathad to be done,” Cushing said.“We had to believe that containerizationwould work,” Johns recalled. “Otherwise, we’d been skinnedwhen we made sales pitches.”“And did it ever,” Johns said succinctly.R Kenneth Johnschairman,HampshireManagement GroupWages of hubrisThe near-idyllic morale at Sea-Land ended abruptly in 1969,when McLean sold the company to R.J. Reynolds.In the $530-million deal, McLean received $160 million personallyand remained as president of Sea-Land under a five-yearcontract that paid him $100,000 a year. His own explanationfor the sale was to allow Sea-Land to grow more quickly at lessrisk. Not everyone found that rationale to be plausible.“I really strongly disagreed with his selling Sea-Land to R.J.Reynolds. I told him so, because we had that kind of relationship.He wasn’t offended by my saying it,” Johns explained.“That sale still turns my liver over when I think about it. Tothis day, I’m not sure of why he did it. I still don’t understand

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it,” Johns said.“Malcom actually thought he could shape Reynolds into thecompany he wanted it to be. But the 11 percent of Reynoldsstock that he had acquired by the sale wasn’t enough to dothat,” Richardson said.After a time, McLean lost interest in R.J. Reynolds and pursuedother interests. “I am a builder, and they are runners (meaningthey managedor ran operations),”McLean once referredto his fellowRJR directors. “Youcan’t put a builder inwith a bunch of runners.You just throwthem out of kilter.”The sale to Reynolds“changed Sea-Land’s direction. Wewill never know howfar the company could have gone as it was under McLean,” Johnssaid. “For many years, Reynolds was a great parent company.It was just that we all missed Malcom.“We worked just as hard for Reynolds, but we were competingwith the ‘smokes’ business. The taste of the Kool-Aid hadchanged,” Johns said.Ron Katims, Sea-Land chief engineer with responsibility forthe carrier’s equipment ashore, recalled: “I used to buy all thecranes for the company. I always kept about two cranes aheadof the program.“After 1969, I kept doing that, until Reynolds told me thatthey would fire me if I didn’t stop. I knew then it was going tobe tough for me to work in that culture, because, to me, planningahead was what you were supposed to do.” Katims wenton to become president of Navieras de Puerto Rico.McLean invested subsequently in projects as varied as electronicmicroscopes, helium isotopes, lasers, and especially closeto his heart, First Colony Farm, a 400,000-acre, research-orientedhog haven in North Carolina. He would have been far happierif he had not returned to ocean shipping.But, in 1978, McLean bought United States Lines, whichproved to be a star-crossed acquisition. The people he inheritedin that company and those he brought into U.S. Lines were differentfrom those at Sea-Land. More significantly, Clara andJim were not there to provide their daily counsel.In December 1982, McLean made a rare speech at the U.S.Merchant Marine Academy at Kings Point, N.Y., asserting thatthe low rates brought on by containerization had benefited theindustry. “You haven’t hurt the shipper. You’ve helped him inevery way under the sun,” he told other carrier executives in hisaudience.Asked how the growth of intermodalism would affect oceancarriers, McLean replied, “if you can’t count, it will get worse.If you count, it will get better.”Those words didn’t bring much subsequent comfort at U.S.Lines, which was about to start a bold program of vessel expansion.McLean had ordered a dozen 4,482-TEU vessels known asEconships from the Daewoo Shipyard in South Korea. Theywere almost 50 percent larger than the next-largest vessels of20 AMERICAN SHIPPER: APRIL 2006“I am a builder, and they(R.J. Reynolds) are runners.You can’t put a builderin with a bunch of runners.You just throw themout of kilter.”Malcom McLeanthat era, the 3,000-TEU ships that Hapag-Lloyd and OverseasContainer Line operated in a consortium. Daewood deliveredthe Econships between 1984 and 1986.The mammoth vessels were meant to circle the globe every 84days on a west-to-east circuit, with service speeds of 18 knots— slower than the 22 knots of other container vessels.The same year of McLean’s Kings Point speech, Sir RonaldSwayne, chairman of Britain’s Overseas Container Line (OCL),tried to talk McLean out of his bold plan. “A number of us havedone our sums on this and looked at it very closely. We thinkit is absolutely crazy. I very much hope the whole project doesnot come off,” Swayne told him.When McLean planned his around-the-world service, amajority of analysts predicted that crude oil prices would risefrom $30 per barrel to $50 per barrel.By 1985, crude oil prices had dropped to $10 a barrel. Thiscrippled U.S. Lines in two ways. Lower fuel prices undercut theadvantages of the slower but fuel-saving Econships, and helpedcompetitors who owned less efficient vessels.The fall in oil prices also reduced shipments of goods tothe Middle East,which meant theEconships sailedempty through asignificant portionof their around-theworldrouting.Another blowcame from a rapidsoftening of freightrates on numeroustrading routes.In the secondquarter of 1985,U.S. Lines posted a$10.9 million profit.The next five quarterswere disastrous,with losses of $15.3“Sitting next to youin the car, he was theeasiest guy in the worldto talk to. If you workedfor him, Malcom wouldtalk your ear off aboutanything and everythingbusiness-related.”Paul F. Richardsonprincipal,Paul F. RichardsonAssociates Inc.million, $43.6 million,$71.1 million,$62.5 million, and$77.4 million.U.S. Lines filedfor bankruptcy protectionNov. 24,1986. The dozenEconships were laidup, and eventuallysold to Sea-Land foran average of $13.4million each. Theyproved to be thebackbone of Sea-Land’s fleet for thenext 10 years.Although he put the best public face on it, McLean waspersonally and financially devastated by the debacle with U.S.Lines. He had been a very wealthy man, and remained onedespite the hundreds of millions he lost. But worse still was

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the knowledge that he had failed becausehe had overstretched himself.In later life, McLean would say — referringto U.S. Lines — “I counted myself toomany” — meaning ‘I had the big head — Iwas egotistical.’ That was an ironical admissionin light of his Kings Point speech.“McLean was a genius,” said one sourcewho knew him well. “Having said that,my description of a genius is this: you andI might come with one good idea in thecourse of a discussion. In the time you andI had been talking, Malcom would havehad 10 ideas.“Now, only one of those 10 ideas mightentail genius, but he’d still be ahead of youand me, who had come up with only onemerely good idea.“Someone had to tell him that some of hisideas wouldn’t work. That’s why he bouncedconcepts off of people. When he didn’t dothat, he’d get himself in trouble.”The last yearsIn 1991, McLean founded Trailer Bridge,based in Jacksonville, a company that todaycontinues to operate tug-barge combinationsthat carry 53-foot trailers betweenthe U.S. mainland and Puerto Rico.Trailer Bridge’s name — as was true of“Sea-Land” — bears McLean’s practicalstamp: a plain-English semantic descriptionof an explicit type of service.In those years, McLean relied heavily on John D. McCown,a younger manager who became his confidant. Today, McCownis chairman and chief executive officer of Trailer Bridge.“I had a wonderfully close business relationship with Malcomover the last 15 years of his life,” McCown told AmericanShipper. “He was an exemplary mentor.”When larger equipment sizes becamethe rule in the domestic truckload sectorin the late 1980s, McLean believed thatPuerto Rico could also benefit froma freight system built around largersizes.“A common thread that ran throughall of Malcom’s innovations was theuse of different and better hard assets,”McCown said.“He had no interest in competing withthe same underlying assets. He always focused on developingand using assets that would give a consistent and tangible costedge,” McCown explained.That’s why Trailer Bridge’s freight system has been builtaround tug-barge combinations and 53-foot equipment. “It’sthe most cost-efficient system out there,” McCown said.“Today, there’s a mismatch between how freight moves domesticallyand how it moves overseas. That mismatch, whichtranslates into extraordinary lost economic potential, has to22 AMERICAN SHIPPER: APRIL 2006“He was very muchaware of the impactcontainerization hadon the world’s economy.That pleased him — buthe was so modest about itthat he never mentioned it.”McCowndo with equipment size,” he explained.“I think that Malcom saw Trailer Bridge’suse of 53-foot trailers as the true promiseof containerization in the Puerto Ricantrade.“Several companies around today haveMalcom’s stamp on their heritage, butthere’s none that comes close to TrailerBridge as being the legacy of which hewould be proudest,” McCown said.McLean’s later insights weren’t confinedto the Puerto Rican trade. Whendouble-hulled tankers were mandated afterthe Oil Pollution Act of 1990, McLeanobserved that it might be possible to buy,for a lower price, very large crude carriersthat had single hulls. Those vesselscould then be converted to mega-containerships.“He anticipated by 15 years the trendwe see today,” McCown said.During the mid to late 1990s, McLeanknew that John Snow — current U.S.Treasury Secretary, and then chairman,president and CEO of CSX Corp. whichhad bought Sea-Land from R.J. Reynolds— had repeatedly told Wall Street analyststhat Sea-Land was available to anyonemaking CSX Corp. a suitable offer.McLean expected Snow to sell Sea-Land. “He was not really surprised whenMaersk bought it,” McCown said. “Malcomsaid that consolidation in the industrymade sense, and Maersk was making a far-sighted move.”When Maersk bought Sea-Land, for a few years it painted itsblue-hulled ships with the name “Maersk Sealand,” althoughlosing the hyphen diluted McLean’s original meaning.Maersk recently changed its name to Maersk Line, endingany continued use of “Sealand.”Through the 1990s until his death in 2001, McLean lived ina residential apartment that he owned in the Pierre Hotel onFifth Avenue in New York.As the years passed, old friends called with regularity at thePierre apartment. “Malcom was very mellow in some ways whenI visited him,” Cushing said. “He was very much aware of theimpact containerization had on the world’s economy.“That pleased him — but he was so modest about it that henever mentioned it. He would acknowledge it if you forced iton him, but he wouldn’t bring it up.“I made sure he knew what he meant to me. He was as mucha hero as a mentor. Without him, I don’t know what I wouldhave become,” Cushing said.“There was a stage in McLean’s later life when he regrettedextremely what happened with U.S. Lines, but that regret wasn’ta constant theme in his conversation,” Johns recalled. “I didn’thear him talk a whole lot about it.”In one conversation that McLean had with Richardson, hesaid, “Paul, people always ask me if it was a big decision forme to drop McLean Trucking and go with Pan-Atlantic. WhenI say, ‘no,’ they look at me in kind of a funny way.Charles R. Cushingpresident,C.R. Cushing & Co.

Evergreen Group Chairman Dr Y. F. Chang says that shipowners should use thelatest technology as soon as it is available to minimize the impact of containershipping operations on marine life and port communities. In this spirit, Evergreenwill soon take delivery of a fleet of Evergreen S-Type “Greenships”.Surpassing world environmental standardsThe Evergreen S-Type Greenships design from Mitsubishi HeavyIndustries’ Kobe Shipyard incorporates features that meet or surpassthe strictest global environmental standards. It has received Lloyd’sRegister environmental protection (LR EP) notation and equivalent ESnotation with the American Bureau of Shipping (ABS), makingEvergreen a global leader in natural resource and environmentalmanagement.International quality and environmental standardsDouble-skin hull design leads the industryEvergreen took the lead to prevent maritime accidents and oil spillswith the Greenships design as early as 2003, seven years prior to theenforcement of SOLAS and MARPOL conventions on maritimepollution and safety requiring shipsworldwide to have double-skinned hulldesign by 2010. Container ships arenot bound by these rules,thus demonstrating Evergreen’scommitment to sustainabledevelopment, protection of themaritime environment and corporatesocial responsibility.S-Type Greenships employs the latestdouble-skin hull designNext-generation design protects the oceansThe oil tanks on the S-Type Greenships are situated in the spacesbetween cargo holds and above thetanktop to minimize the likelihood of fuelspills in the event of an accident. Oilspills can severely damage ocean andcoastal environments and thispreventative approach by Evergreen isboth pro-active and responsible.Tin-free anti-corrosive paint helps keep the ocean cleanTo protect and sustain the oceans, Evergreen is committed to a newtin-free anti-corrosive coating on the newS-Type ships as well as all of its othervessels. Research has shown that thiscoating has high anti-corrosive propertiesand is better for the environment.Excessive tin in ocean environments cancause serious harm to marine life.Internal fuel tank design meets strictenvironmental standardsAdvanced ship design saves energy,while tin-free anti-corrosive coatingsare safer for the environmentGreen technology and policies fulfill environmentalcomplianceTo honor environmental commitments, Evergreen S-Type Greenshipsuse the latest low-sulphur fuel systems, advanced oil-waterseparators, environmentally friendly Freon, large high-temperatureincinerators and dock power systems to protect the purity of theoceans and the air quality around ports and the people who live there.1. Increased capacity bilge separator and bilge tank.8. Equipped with waste and excess food storage chambers. 6. Electric deck machinery replaces electro-hydraulic machinery.2. Equipped with grey water holding tank.3. Equipped with cargo hold bilge holding tank.7. Airspace stern tube sealing system replaces oil seal system.4. Internal oil tank design provides double protection for fuel tanks.5. Superior hull shape and propeller design reduces drag and improves energy efficiency.

“What worries me,” McLean told Richardson, “is that I neverreally thought about it.”McLean’s funeral, on May 30, 2001, was attended by mournersfrom all segments of the shipping industry who filled every seatin the Fifth Avenue Presbyterian Church in New York.Cushing, giving one of the eulogies, described McLean as a“dignified, very correctly dressed, polite and proper person. Butwho can forget Malcom at the card table? Aside from owningPinehurst (in North Carolina) and a number of other fine golfcourses, Malcom himself loved to golf. He also loved to huntand fish and ride and run the dogs. He never lost touch with theland. Malcom also had a good sense of humor, somewhat wry, butalways there.”Geoff Parker,who marriedMcLean’s daughter,Nancy, toldAmerican Shipperrecently thatMcLean “wasn’tjust my father-inlaw,for whom Ialso worked. Hewas a great friend.He always had timefor family, and thenwent on to makethat time memorable.”If he were aroundtoday, McLean, asa matter of personalpreferencewould reluctantlyattend events heldin his honor (seebox).“It wasn’t hisstyle to be fetedlike that. The very few times he went to such dinners, you’dlikely find him sketching a new idea on the back of a program,”Parker said.Johns concurred. “Wherever Malcom was, he could whip anenvelope and a yellow pencil out of his pocket, usually to do aset of numbers that would turn your head around.”McLean and the world today24 AMERICAN SHIPPER: APRIL 2006“Freight is a cost addedto the price of goods.If the price is too high,the freight doesn’t move.”Malcom McLeanReferring to containerization, economist Peter F. Druckersaid: “there was not much new technology involved in theidea of moving a truck body off its wheels and onto a cargovessel … but this humdrum innovation roughly quadruped theproductivity of the oceangoing freighter.“Without it, the tremendous expansion of world trade inthe last 40 years — the fastest growth in any major economicactivity ever recorded — could not possibly have taken place,”he concluded.“McLean sped up the entire transportation chain and reducedits cost, so that people throughout the entire world are now ableto bring their handiwork to the global marketplace,” Cushingexplained. “The result has been a steady and identifiableincrease in the standard of living in the developing countriesand elsewhere.”Critics of containerization say that because a pair of Nikeshoes, for example, can be brought into the United States for 7cents, the jobs of American shoemakers have been irretrievablyoutsourced abroad.“That is the most stupid argument I’ve ever heard. Why blamecontainerization for that? Only a small-brained person wouldsay such a thing,” Johns said. “If you’re going to live in theworld — in China, the U.S., Germany, wherever — you haveto accept that it’s a competitive world. Usually, containerizationis just 10 percent of the total cost of being competitive inmanufacturing. Why jump on the small end of the deal? Youneed to go beat up on the 90 percent that’s really responsiblefor any outsourcing.“Jobs leave the U.S. because of how we choose to live asa nation, and how we have chosen not to compete in manyindustries,” Johns said.“Some people say that containerization is a commodity. That’snot so. It’s an essential industry, not a commodity,” he said.“I grow weary of hearing guys who’ve been in the industryfor a week and a half say ‘it’s a commodity business — likecans, you know.’ That’s bull. Containerization is a very dynamicbusiness — and unless you know what you’re doing, you cangoof it up pretty badly,” Johns said.Asked how McLean would have reacted to the post Sept. 11,2001 world, “he would say that ‘you cannot strangle or constrictcontainerization — it has to flow,’ ” Johns explained.Parker said in an interview that if McLean were alive today,“he would see upgraded security as being a good thing as longas it didn’t shut down traffic. He would see that augmentedsecurity means safer containers, which he always wanted. Buthe wouldn’t want trade cut off to a particular country or port.“McLean always said ‘we’re nothing but a wheelbarrow.You have to take care of customers.’ He would be pleasedwith today’s information technology if it benefited service,”Parker said.“McLean was a very patriotic person, and 9/11 would haveaffected him deeply. If he were with us in 2006, he’d be spendinga good part of his time coming up with methods and conceptsthat would address the problem of security with containers,”Cushing said.“There are so few innovators around, especially in the fieldof homeland security. We need his thinking today,” he added.When McLean felt the need, he went to Washington, D.C.— not to lobby as the term is conventionally understood — butto meet officials and politicians directly, face to face.“He went down and did it,” Parker recalled.McLean’s reputation was such that all doors opened to him,from the White House to any senatorial office.Richardson said McLean felt that any dilemma, whetherfederal or in the private sector, was solvable. “He always said,‘there are no complicated problems. There are simple problemsthat people complicate.’ ”Another core belief, according to Parker, was that McLean“saw no sense to building capital and then sitting on it,” Parkersaid. “Capital was meant to invest, to create jobs, to be usedfor something.”“We seem to be slipping backwards with vessel operators

who think this is only a shippingindustry,” said one ocean carrierexecutive. “McLean would getthose people’s feet back on theground by saying, as he oftendid, ‘that we’re talking abouttransportation systems, notjust ships.’“He would be giving as muchattention to terminals and inlanddistribution systems as to vesselinnovations,” the carrier executivesaid.McLean also was prescient inseeing that public port authoritieswould become so politicizedthey could not run efficientterminal operations.For that reason today, terminalsin U.S. ports must be leasedout to operators that are mostlyforeign companies with influenceon, or direct links to, theirown national governments.On balance, “containerizationis one piece of the shippingequation, which must continueto evolve for optimum supplychain utilization,” said RayVenturino, a former marketingexecutive for P&O Nedlloydand currently a marketing communicationsconsultant.“Containerization was revolutionary,but its upkeep is nowin our hands,” Venturino toldAmerican Shipper. “As consumers,we can thank containerization for our favorite importedbeer at the local watering hole, trendy garments on racks, fruitin season from a foreign country at our local grocery store andnew cars in the showrooms.“The fact is that the safe transportation of containers works,and works quite well. There’s also no doubt that we must havetighter reigns on the system,” Venturino said.SummaryFinally, what of McLean himself?“I remember most his courage. He would make his plans,and then he’d go out and do what he wanted. He took risks, butthey weren’t foolish ones,” Johns said.Once in Central Park, McLean walked his dog past a manranting about the 400 richest Americans — Forbes’ most recentCelebrating 50 yearsof containerizationSeveral events have been planned in March and April tocommemorate the 50th anniversary of the sailing, on April25, 1956, of the Ideal X, Malcom McLean’s first ship tocarry containers.• The History of Containerization Foundation, a nonprofitcharitable organization, will hold a gala celebrationbeginning at 7:30 p.m., April 27 at the Smithsonian InstitutionNational Museum of Natural History, ConstitutionAvenue at Tenth Street, NW, in Washington, D.C.The Containerization & Intermodal Institute, has been assistingthe History of Containerization Foundation with thisevent. For more information, e-mail info@hocfoundation.net.• Containerisation International, the British logisticsand supply chain magazine, will hold an awards dinner inNew York, 7 p.m. March 23, specifically celebrating the50th anniversary of containerization.The event will be held in the Celeste Bartos forum of theNew York Public Library, Fifth Avenue and 42nd Street. Formore information, e-mail www.ci-awards.com.• Three new books on containerization will be publishedthis spring: The Box That Changed the World, by ArthurDonovan and Joseph Bonney (Commonwealth BusinessMedia), The Box, by Marc Levinson (Princeton UniversityPress), and Box Boats, by Brian J. Cudahy (FordhamUniversity Press).• Looking ahead, many of McLean’s friends in the industryare working with the U.S. Merchant Marine Academyat Kings Point to have part of a building be set aside asboth a museum for containerization and a repository forMcLean memorabilia.annual reckoning had just comeout. “I bet they’ve never enjoyeda day in their business life, andthat their money brings themno happiness,” the man told anypasserby who would listen.McLean, who was one of theForbes 400, confided later to afriend that he had walked out ofthe park knowing with certaintythat he, at least, was content withhis career and its rewards.Perhaps the wisest ofMcLean’s maxims is the onethat will ring true 100 years fromnow: “Freight is a cost addedto the price of goods,” McLeansaid. “If the price is too high,the freight doesn’t move.” Heoften said that shipper loyaltywas worth only 2 cents per 100pounds of cargo — meaning thata loyal customer would still shiftto a competing carrier to save 2cents in ratesIf he were around in 2006,McLean would ruefully acknowledgethat the huge investmentmade in containerizationhas enabled corporate beancounters— a generally roboticbreed — to take overmost shipping lines that wereformerly closely held and familyowned.In McLean’s day, it was customaryfor steamship ownersand executives to spend personal time and effort actually helpingto generate trade along their routes.Today, their counterparts spend less time creating trade andmore time waiting for trade to happen.Of all the stories told about McLean, there are two that showjust how human this icon was.One day, when McLean was about to file his company’sfinancial statements with the old ICC — this was just afterMcLean Trucking became the first large company to use dieseltrucks that saved fuel costs — he said, “I sure hope people aren’tpaying attention to how much better I’m doing.”Another time, Tantlinger — who patented the containerspreader — arrived at a shipyard in Baltimore to find McLean,his brother, Jim, and two other men jumping up and down onthe roof of a prototype 33-foot container to test its strength.One suspects Malcom McLean enjoyed that.Daily News Updatesamericanshipper.comYour subscription to American Shipper brings you bothFeature Articles & AnalysisAmerican Shipper MagazineAMERICAN SHIPPER: APRIL 2006 25

The World is Flat, according to Thomas L. Friedman. Somewould differ. In fact, the concluding chapters of his best-sellingbook deals with what he terms “the unflat world.” His final chapterbears the ominous chapter number 13 and a warning:“The flattening of the world, as I have tried to demonstratein this book, has presented us with new opportunities, newchallenges, new partners but also, alas, new dangers,particularly as Americans.”Throughout his book, Friedman uses the term “supply chain,”omitting any detail except for one illustration. Dell Computerprovided him a minute-by-minute account of what happenedbetween the time he dialed Dell’s 800 number April 2, 2004 andplaced an order for the customized Inspiron 600m notebook onwhich he wrote most of his book, and the time it was deliveredto him by UPS and signed for at his home in Bethesda, Md., at6:41 p.m. April 19, 2004.It’s one of the best “supply chain” stories I’ve ever read, andreveals what a magnificent system Michael Dell’s organizationuses to assemble parts from all over the world (but mostly Asia)and deliver a customized laptop computer to an American residencein 17 days at a near rock-bottom, competitive price.It’s the only place in the book Friedman describes in detaila supply chain for goods. Most of his book is about chains ofinformation, creativity, knowledge and collaboration throughthe Internet. The reason, I believe, is that global supply chainsfor trade in physical goods are accepted as a given in today’seconomy, and very few people really understand the details orwant to be bothered. Like ripe blackberries on a thorny vinein the forest, eat, and enjoy. The berries are for real; so are thethorns.The thorns were described in a rare public speech whichMalcom McLean gave at the U. S. Maritime Resource Centerat Kings Point on Nov. 9, 1982.At the time, McLean was looked upon as the infallible geniusbehind the capital-intensive, $54-billion worldwide containershipping industry which had sprung up since sailing of the tankerIdeal X from Newark to Houston on April 26, 1956 with 58trailers carried on racks built above deck. “Certainly, I’m proudto be the father of anything that generates $54 billion capitalinvestment in 20 years. That’s a pretty big apple,” he said.And the apple was continuing to grow. McLean had stakedpart of the fortune he accommulated from McLean Truckingand Sea-Land Service on United States Lines, and in November1982 was looking forward to delivery of 12 4,482-TEUEconships to be deployed in a Round-the-World service 1226 AMERICAN SHIPPER: APRIL 2006Pandora’s Worldto 18 months later. But he had no illusions about the risks hefaced, titling his address:The Story of Pandora’s BoxAs innovative in speechmaking as he was in shipping, McLeangot right to the point, asking the steamship managers present,“What happened to our money?”He provided answers, using a cartoon book prepared just forthe occasion. The images were projected on a large screen setup for the Kings Point meeting.The opening cartoon in McLean’s booklet showed a veryhappy ship with a very large container resting on deck, reachingfrom bow to stern.The ship was thinking, “Gee whiz! Am I gonna make lots ofmoney! Yep! It’s gonna be smooth sailin’ from now on! I’ve got a fullpayload and a box full of revenue! Nothin’ can stop me now.”The story progressed through a series of cartoons whereoutside interests over which the shipowner had no controltook large bites out of Pandora’s box until the last panel whenthe ship, sad and shedding teardrops like rain on the calm sea,laments, “There’s not much money left for me! I’d better becareful before I pick up another Pandora’s box!”McLean’s cartoon story was not a complaint, but a comment onthe fact, as he saw it, that many carriers had so little knowledgeor control over total costs. Unless they are completely aware andcount their costs accurately, many are inclined to give serviceaway too cheaply and, eventually, go bankrupt, he said:“If you can’t count, it will get worse;if you can count, it will get better.”As the industry watched in dismay, United States Line didnot count the numbers correctly and went bankrupt a few yearslater.McLean lost a pile of money, but never lost hope. In theyears before his death, he launched another shipping venture,Trailer Bridge, linking mid-America to Puerto Rico via Jacksonville,Fla., by truck and barge in a domestic business wherehe did not have to compete with all of Friedman’s world — justAmericans like himself.Pandora’s WorldWhere McLean failed, the Japanese discovered a way tomanage Pandora’s box, enabling the creation of global supplychains that are so efficient Friedman never bothered to explainin detail except in assembly and delivery of his Dell laptop.At the time McLean launched the container shipping industry,more than 20 American-flag steamship lines were operating

over a very round world. From any U. S. port to either Europeof Asia, shippers usually had a choice between five carriers:two conference (cartel) steamship lines, of which one would beAmerican and one foreign flag; two independent or non-conferencelines, usually foreign flag, charging about 15 percent lessthan the cartels; and one upstart working special niches andstruggling to get a piece of the trade.Japan’s post-World War II industries immediately recognizedthe potential of container shipping as the best way to deliver goodsthroughout the U.S. market, and six Japanese steamship linesbegan building fleets of containerships in Japanese shipyardsto serve ports on the U.S. West and East coasts. The Japanesecarriers had to compete among themselves for cargo.It did not take long for “Japan Inc.” to discover a betterway. With support of their government, the Japanese deviseda system of space charters by which the various Japanese linesactually transported each other’s boxes. Mitsui containers couldbe carried on “K” Line, N.Y.K. Line, Y-S Line, O.S.K. Line orJapan Line ships, and vice versa..Once a year on March 3l, the lines settled accounts on the spacethey had chartered from each other. Those that overperformed charteredmore space the next year while those that underperformedchartered less space. Service was differentiated on the basis ofquality of service ashore on either end of the voyage. The shipsbecame pure carriers like railroads, highways, pipelines.Meanwhile, here in the United States, an entirely new set ofbusinesses known as non-vessel operating common carriersevolved around freight consolidators who consolidated less-thancontainerloadcargo for shipment to/from Puerto Rico, Hawaiiand Alaska as well as within the continguous 48 states.Customhouse brokers and forwarders picked up on the ideaand incorporated subsidiary or affiliated firms for the internationaltrade. They were able to consolidate LCL freight at muchlower cost than steamship lines paying high wages negotiatedwith longshore labor unions. Over time, brokers, forwarders andNVOs, officially known as ocean transportation intermediaries(OTI), came to control most of the world’s cargo businessother than plant-to-plant shipments by very large multinationalindustries. Even they have downsized their logistics staffs, leavingmost detail work to OTIs.During the past 20 years, the Japanese space charter andAmerican NVO ideas evolved into the highly efficient globalsystem that made Friedman’s flat world possible even thoughhe seemed never to give it a second thought until — perhaps— the Dubai World Ports episode, which had nothing to do withsecurity but a great deal to do with protectionism and fear.EpilogueFriedman may someday write an epilogue to his book inwhich, as he puts it, the “triple convergence” of an uncertaineconomy, global supply chains, and Islamic radicalism openedPandora’s World and set back our civilization 100 years.Let’s hope not.You don’t have to go to the ends of the earth to improve your apparel supply chain.GulfofMexicoCaribbean SeaSource in Central America or the Caribbean,and Crowley’s Speed to Market will save youtime and money.Why go with Crowley’s Speed to Market? We servemultiple ports throughout the region and the U.S.We offer the fastest transit times, plus 9 weekly sailingsbetween Central America and the U.S Gulf and EastCoasts – so no one gets you there and back quickeror more often. Our distribution centers provide a widerange of warehousing services. And since we’re oneof the few shippers fully validated for the C-TPATsecurity program, your cargo will receive extra-quickclearance.Take your supply chain operation to a new level ofefficiency with Crowley’s Speed to Market. For moreinformation, call 1-800-CROWLEYor visit www.crowley.com.© Crowley Maritime Corporation, 2006CROWLEY is a registered trademark of Crowley Maritime CorporationSpeed to Market is a service mark of Crowley Maritime CorporationAMERICAN SHIPPER: APRIL 2006 27ASECROWLEY10_JLB.indd 1 3/10/06 10:37:59 AM

Mandatory AESSTALLEDDHS, CBP want “11th hour”changes to Census rulemaking.BY CHRIS GILLISWhen the U.S. Census Bureau’s Foreign TradeDivision stated its reasons for an “indefinite”delay in issuing its long-awaited regulations formandatory electronic filing of export information, Americanshippers and freight forwarders lost their cool.In late February, a few weeks before the rules were dueto be published, the Department of Homeland Security andCustoms and Border Protection told Census officials that it28 AMERICAN SHIPPER: APRIL 2006would not approve the regulations unlesstwo significant changes were made in theAutomated Export System (AES).First, DHS and CBP want Census toeither eliminate post-departure filing inAES, so-called Option 4, or substantiallyincrease the requirements for accepting newcompanies in the program. DHS and CBPalso do not want existing post-departurefilers simply grandfathered into the mandatoryprogram.Second, DHS asked Census to make a“National Interest Determination” (NID)to allow sharing of confidential export informationwith foreign governments. CBPwants Census to give it a “blanket” NID to

permit sharing of confidential export informationwith other federal agencies.Census officials briefed industry representativesof the Trade Support Network atManhattan Beach, Calif., Feb. 27-28, aboutthe turn of events.Jon Kent, Washington representative forthe National Customs Brokers and ForwardersAssociation of America, who was presentat the meeting, couldn’t believe what he washearing and spoke out.“The entire association is up in arms overthis,” Kent said in a telephone interviewafter the TSN meeting. He explained howthe NCBFAA and other trade groups foughthard to preserve post-departure filing in themandatory AES filing rules, and how theindustry is generally uneasy about turningover sensitive commercial information toforeign governments.Many forwarders have already spent timeand money preparing for the mandatory AESfiling rules. “We’re very concerned aboutCustoms holding this hostage,” Kent said.Many shippers are concerned that onceexport information is passed to foreigngovernments what safeguards are in placeto prevent it from getting into the hands ofnational companies.“We understand the need to share informationin the supply chain for security andtrade facilitation,” said Peter Gatti, executivevice president of the National IndustrialTransportationLeague in Arlington,Va. “But what if it Peter Friedmannfalls into the hands Washington counsel,of competitors? That Pacific Coast Councilcould result in an unfairadvantage to U.S. & Freight Forwardersof Customs BrokersAssociation,companies.”Agriculture Ocean“The question isTransportationwhy would the U.S.Coalitiongovernment, whichis already trying tofight a horrendousimbalance of trade,impose new barriersto exports?” saidPeter Friedmann,Washington counselto numerous tradegroups, including thePacific Coast Councilof Customs Brokersand Freight ForwardersAssociation, andthe Agriculture OceanTransportation Coalition.“If DHS hasits way, it will decimatemuch of whatis already a very fragile low-margin exportbusiness.”Friedmann added: “Draconian new barriersto exports, such as restrictive AESregulations, aggressive penalties, eliminationof Option 4, and sharing of proprietarycustomer and pricing information with foreigncountries is misguided in the extreme.That they should be imposed by our owngovernment is absolutely unacceptable.”“The question is why wouldthe U.S. government, whichis already trying to fighta horrendous imbalanceof trade, impose newbarriers to export? If DHShas its way, it will decimatemuch of what alreadyis a very fragile low-marginexport business.”Post Departure. Census began developingAES 10 years ago as a way toeliminate filings of paper shipper’s exportdeclarations. The agency found that 50percent of the paper declarations containederrors. In addition, Census needed a moreefficient way to compile the country’s tradestatistics.Since the mid-1990s, AES has continuedto evolve, adjusting to regulatory nuisancesand meeting the data processing efficienciesrequired by today’s commercial sector. In1999, Census, CBP and the Advisory Committeeon Commercial Operations (COAC)came up with four filing options. Before that,the only options were: Option 1, all paperexport declarations prior to departure; orOption 2, all exportdata in AES prior todeparture.The new Option3 required certainexporters or their forwardersto file 14data elements priorto departure, withfull information tobe filed five dayslater. Option 4 allowedgovernmentapprovedexportersto file all their exportdata 10 calendar daysafter export. Forwarderscould file exportdata under Option 4for approved shippersif they have a power ofattorney. Another bigstep by the agency in1999 was the unveilingof its free Internetlink to the system,AESDirect.Also that year,Congress passed theConsolidated Appropriations Act, requiringCensus to develop regulations for themandatory AES reporting of all shipmentsregulated under the U.S. Munitions List andCommerce Control List. Census publishedthe final rule in July 2003. This rule eliminatedOption 3 filing, causing little stir in theexport industry because very few shippersand forwarders used it.After the Sept. 11, 2001 terrorist attacksAMERICAN SHIPPER: APRIL 2006 29

LOGISTICSin the United States, the Bush administrationand Congress called for all export informationto be filed electronically in AES. In2002, Congress passed the Foreign RelationsAuthorization Act, which mandated thisactivity. The 2002 Trade Act also reauthorizedCBP to requestelectronic submissionof export declarationspre-departure.Jon KentHowever, during Washingtonthe proposed rulemakingfor manda-National Customsrepresentative,Brokers andtory AES, exportersForwardersand forwarders vehementlyopposed theof AmericaAssociationelimination of Option4 filing. After carefulconsideration, Censusdecided to maintainOption 4 in its proposedrule.About 2,300 exporterswere allowedto maintain their Option4 filing status onAES before Censusplaced a moratorium on program applicationsin August 2003. Census had plannedto reopen enrollment in Option 4 after themandatory AES rules become effective.This time, however, forwarders would notbe allowed to apply for post-departure filingprivileges on behalf of their export clients.Exporters must apply to Census.In response to CBP’s demand to eliminateOption 4, Census officials emphasized thatpost-departure filing requirements in thefinal rule are in line with the response tocomments CBP provided in its 2002 TradeAct regulations issued in December 2005.Census officials also said any significantchanges in the AES post-departure filingprogram would likely require the release ofa Federal Register notice seeking commentsfrom the industry.CBP did not respond to a request for aninterview, but the agency has repeated itsinsistence on pre-departure AES filing. “Noone can file late (post departure) on importsso we can’t allow late (post departure) filingfor exports,” said CBP official TomFitzpatrick at the Commerce Department’sRegulations and Procedures Technical AdvisoryCommittee meeting on March 7.Invasion Of Privacy. The Americanshipping industry is no stranger to assaultson business confidentiality by federalregulators.In 2003, CBP dropped a proposed rulemakingthat would have allowed non-vessel-operatingcommon carriers to requestconfidentiality of certain import manifest30 AMERICAN SHIPPER: APRIL 2006“The entire associationis up in arms over this ...We’re very concernedabout Customs holdingthis hostage.”details on behalf of their customers. Confidentialityconcerns were raised by theNVOs and some shipper groups when CBPdeveloped its regulations for vessel andNVOs to file their manifests 24 hours priorto loading on ships overseas.Reporting servicesgained access tomanifest informationin 1984 when Customslost in court toPIERS, a Journalof Commerce/CommonwealthBusinessMedia-owned reportingservice, and had toamend its regulationsunder the 1930 TariffAct. Today, reportingservices sell this informationto industrycustomers.The current manifestreporting regulationsallow animporter or its attorneyto request confidentialityrelative to the importer’s nameand address, and the name and address ofits shipper, to remain confidential by filing arequest with CBP every two years. However,many importers are either unaware of thisoption, or don’t want to be bothered with theadministrative burdenof maintaining theconfidential status.During the U.S.-China bilateralmaritime agreement Peter Gattinegotiations several executive viceyears ago, China’spresident,National IndustrialMinistry of Communicationsinsisted onTransportationLeaguereceiving details ofservice contracts. U.S.shippers and carriersdidn’t trust that theChinese governmentwould keep the informationfrom gettinginto the hands of stateownedenterprises.They also pointed outthat while service contractdetails are filed tothe U.S. government,the Federal MaritimeCommission shields this information frompublic exposure. The Chinese governmentpromised similar confidentiality.Over the years, industry groups havelobbied the Office of the U.S. Trade Representativeto resist efforts by other countriesto include routine sharing of proprietary“We understand the needto share informationin the supply chainfor security and tradefacilitation. But whatif it falls into the handsof competitors?”information as part of global trade agreementsnegotiated through the World TradeOrganization.More recently, the Bush administrationhas voiced support for sharing U.S. tradedetails with foreign governments and withinthe federal government as a tool in theglobal war on terrorism. “We are committedto an information sharing environment,”said Homeland Security Secretary MichaelChertoff to the Data Privacy and IntegrityAdvisory Committee in early March.Under a barrage of industry criticism, thecustoms-to-customs cooperation conceptwas tested by DHS and CBP in early 2004.Then Commerce Secretary Donald Evanssigned a request from DHS and CBP topass export data controlled by Census tohelp Mexican authorities identify cargothat has been improperly declared to avoidhigher duties.CBP became one of the lead architects ofthe World Customs Organization’s Frameworkof Standards to Secure and FacilitateGlobal Trade, which was approved by theBrussels-based organization in June 2005.The WCO rules are largely modeledon the U.S. strategy of trying to detect aterrorist weapon in a container before itarrives at a U.S. port, and on the ContainerSecurity Initiative, the pre-notification ofshipments, and the Customs-Trade PartnershipAgainst Terrorism. The framework ofstandards comprisestwo “pillars,” onecovers customs-tocustomscooperationand another customsto-businesscooperation.Census is deeplydisturbed by DHSand CBP’s currentendeavor to releaseconfidential exportdata to foreign governmentsand otherfederal agencies. Theconfidentiality of exportdata is protectedunder Title 13 of theUnited States Code.Census officialsbelieve this change tothe regulations would“undermine publicconfidence” in itspledge to safeguard information providedto it by businesses and individuals.Shipper and forwarder groups hope theCommerce Department does not buckleunder pressure from DHS. “The commercesecretary should stand up to this,” Kentsaid.■

LOGISTICSEC security under scrutinyFreight stakeholders welcome proposals,but are cautious about application.The European Commission’s plans fora harmonized legislation to protectthe continent’s land supply chain fromterrorist attacks recently came under scrutinyfrom a number of interest groups.Measures in the EC’s Proposal for a Regulationon Supply Chain Security, publishedFeb. 27 include:• Establish a mandatory system requiringmember states to create a security(“secure operator”) quality label whichcan be awarded to operators in the supplychain meeting European minimum securitylevels, thus allowing mutual recognition ofthe label on the internal market.• Introduce within the mandatory provisionsfor the member states a voluntaryscheme under which operators in the supplychain increase their security performancein exchange for incentives.• Make operators in the supply chainresponsible for their security performancein European freight transport.• Allow “secure operators” to benefitwhere security controls are carried out, andto distinguish themselves positively fromother competitors in the area of security,giving them a commercial and competitiveadvantage.• Allow regular updating and upgradingof security requirements, including recognizedinternational requirements and standards,through the committee procedure.“Highly prescriptive new security measuresfor all operators would lead to a breakdownof the supply chain. Yet an increasingnumber of companies are establishing theirown security management standards, notonly to protect their own operations andbrand, but also as a tool for selecting theirpartners in the supply chain,” the EC said.“It is therefore impossible in practice toestablish, in a single all-embracing operation,security rules and measures for the landtransport supply chain comparable to thosein air and maritime transport. Instead it ismore realistic to establish a framework ofminimum security requirements which cangradually evolve in line with technologicalprogress and risk developments to ensuresatisfactory security levels in an operationalenvironment.”32 AMERICAN SHIPPER: APRIL 2006BY SIMON HEANEYShipper, logistics and port groups generallywelcomed the proposal, but voicedconcerns about its application.The European Shippers’ Council said:“ESC has during the consultation processcalled for a voluntary ‘known cargo’ securityapproach, emphasizing that not only theshipper, but also the transport operator hasresponsibility for making and maintainingthe cargo’s ‘known’ status. The commissionproposal for a ‘security quality label’ is inline with these suggestions.”“The EC’s proposals for such a regime underthe security quality label ‘secure operator’appears to be in line with FTA’s suggestions,”said the United Kingdom’s Freight TransportAssociation, which represents British shippersand logistics companies.“ESPO welcomes the long awaited proposal,”said Brussels-based port lobby groupEuropean Sea Port Organization.However, all three interest groups voicedsome concerns.“There is no escaping to enhanced securityfor all the parties in the supply chain and forthe fact that security will add a further linein the accounts of companies involved ininternational trade,” said Nicolette van derJagt, secretary general of the ESC. “The trickwill be to ensure thatthe costs are minimizedand do not impedetrade or the overalleconomic viability ofconducting internationalbusiness.“We are also concernedthat a largenumbers of companiesvan Der Jagtand their contracted hauliers, freight forwardersand agents would apply for a specialsecurity status without very obvious andimmediate cost benefits.“A further major obstacle will be the liabilityof the different parties in the chainand their individual limits of liability: ifthis is not addressed and clarified it willbe a substantial deterrent to companiesvolunteering to participate in such a regime,”van der Jagt said.“There is a general acceptance, rightlyor wrongly, that security measures mustinevitably increase in the area of transportand freight; measures which could lead toa more restrictive operating environment.The EC proposal allows industry to decidewhether to adapt to the new security environmentor risk the potential consequences,such as delay and greater probability ofunannounced checks,” said Andrew Traill,the FTA’s head of rail freight, maritime andair cargo policy.“The key benefit cited by the proposalsfor becoming a ‘secure operator’ is thatthe transport and the cargo would receive a‘fast-track.’ But FTA believes further, moreimmediate and quantifiable benefits shouldbe given to those within the security scheme,because nobody yet knows how much ofa burden will be placed on non ‘secureoperators’ and, for many, compliance willnot come cheaply,” Traill said.“The benefits must outweigh the costs.Yet the proposals are somewhat light on thispoint and benefits, it seems, will be up tothe individual member states to determine,which could have the potential to create unfaircommercial advantages for those whosegovernments are more industry-friendly andsupportive,” he said.“The worse-case scenario, and somethingFTA has been trying to prevent for manyyears, is that security measures becomemandatory, and have no relationship with riskassessment or a company’s ability to bear thecosts of enhanced supply chain security. Thecommission makes it quite clear that failureof the market to accept the voluntary schemecould result in more stringent measures. Butthe commission and member states mustaccept a responsibility to help businessescomply, and to ensure security does not disadvantageEU companies compared to theiroverseas competitors,” Traill said.“Ports could benefit from the regulationas they become confident that cargo enteringtheir perimeter from a chain of secure operatorshas been adequately secured all along thechain. However, for successful implementationof the secure operator scheme, suchawarded operators need to be given tangiblepractical advantages,” ESPO said.“Ports should provide preferential treatment,e.g. by authorizing to use fast-tracktreatment. ESPO members are, however, notyet convinced about how to implement sucha fast-track treatment in port operations.ESPO will closely examine the proposal andthe impacts on ports and discuss the need tomake possible amendments to the proposedcommission text,” ESPO said.The full version of the EC’s proposalis available at: http://europa.eu.int/comm/dgs/energy_transport/security/intermodal/index_en.htm.The need for land supply chain reforms was

LOGISTICSfirst identified in 2003 when the EC set out totighten security in the maritime industry byamending Regulation 2454/93, also knownas the Community Customs Code.Changes to Regulation 2454/93 includea proposal to collect and prescreen advanceshipping data and an Authorized EconomicOperator (AEO) program, by which carrierswould receive “secure” traders statusby achieving security and safety standardscompliance to benefit from simplifiedcustoms procedures.The Washington-based World ShippingCouncil, which represents about 30 internationalocean carriers, is not convinced thatocean carriers will see any benefits fromthe AEO program.“Considering both that ocean carriers ininternational commerce are already requiredunder mandatory international conventions tohave ISPS Code certificates, as well as InternationalSafety Management certificates, andthat ‘the granting of any facilitation’ will bebenefits conferred on the shipper/importer,not the carrier, it is not clear why oceancarriers would need to obtain AEO status,except when their shipper customers requestthat they do so as a condition of doing business,”said the WSC in comments sent to theEC in March.“It is not clear to us why the currentcommunity legal situation for the releaseof goods — which is a matter involvingthe obligations of an importer — shouldnecessarily limit the application optionsfor other ‘economic operators,’ includingocean carriers, regarding the granting ofAEO — Security and Safety status.“Ocean carriers are not the owners of thegoods and are not the parties responsiblefor seeking the release of the goods. Proceduresfor the release of goods may haverelevance for the filing of applications forAEO — simplified customs proceduresstatus, but would intuitively seem to be ofno relevance for a carrier’s application forthe AEO — security and safety status.“Thus, we encourage the commission toreconsider this issue, including whether adistinction can and should be made betweenimporters seeking AEO status and other typesof ‘economic operators,’ ” the WSC said.The WSC had fewer issues with the “24-hour rule” amendment, although it did ask fora long implementation period. “The councilsupports a 24-hour rule strategy for containerizedocean commerce … We believe theinterest of European commerce can be servedby such a regime,” the WSC said.“At the outset, the council believes stronglythat it is not realistic to introduce a community-wideadvance cargo risk assessmentsystem until such time as all of the customsadministrations of administering port memberstates have become automated and haveelectronic data filing and sharing capabilities.It will also be necessary for member states toseek to have comparable and consistent riskscreening and assessment capabilities.“Our member carriers have found fromexperience that the kinds of changes envisionedin this draft regulation can requiresignificant administrative, operational, andeducation efforts to be implemented successfully.In order to comply with a European24-hour rule regime, it is likely that the carriers’administrative office functions wouldhave to be transferred from European officesto offices at the foreign load port.“That can require information systemchanges, business process changes, personnelchanges and training, and marketing/educationefforts. In short, these regulations willhave a significant impact on carriers andtheir customers and how they conduct theirbusiness, and will require adequate time afterthe regulations are finalized for the industryto make the operational changes necessaryto comply.“Consequently, we would respectfullyencourage that the final regulation providesfor a sufficiently long implementation periodafter the regulation takes effect and before enforcementis commenced,” the WSC said. ■Point Your Cargo Ships ona More Strategic Course.Some aim straight. We aim high. High standards. High speed. At Port Everglades yourtrucks reach landside with fast in, fast out interstate and turnpike access. There’s no stop andgo traffic. It’s mostly go. You’ll choose from several independent terminal operators to keepproductivity advancing. And nine port-owned gantry cranes–with an uptime average ofnearly 100%–ensure you’re not facing downtime for hours or days. That’s how you cut costsand move forward at full speed.Less waves. More savings.For more details about Florida’s shortest, straightest and deepestport, contact Carlos Buqueras or Manuel Almira at 1.800.421.01881850 Eller Drive Ft. Lauderdale, Florida 33316www.broward.org/portStep aboard the futureU.S. Caribbean Latin America Europe Far EastAMERICAN SHIPPER: APRIL 2006 33

LOGISTICSCalifornia Gov. Arnold Schwarzenegger’s Strategic Growth Plan wouldinclude $18.9 billion for projects specifically designed to enhance freightmovement in the state, and $2 billion for port projects.Goods movement centerstage in Golden StateMassive bond measures, container fees the scuttlebuttin California as legislative season approaches.You take a state with a charismaticRepublican governor, a fiercelyDemocratic legislature, a decayinginfrastructure network, an explosion ofinternational trade growth, and then make itan election year, and you’ve got an interestingsituation, to say the least.That’s what awaits California this legislativecycle, which should concern shippersaround the nation since close to 50 percent ofall containerized cargo arrives at the state’smajor ports. Not only that, California istypically a bellwether for freight movementissues that ultimately end up affecting otherparts of the country.This year should be especially noteworthybecause California’s celebrity governor,Arnold Schwarzenegger, is pushing asambitious a plan as could be imagined forthe state.In December, he announced his StrategicGrowth Plan, a gargantuan $222-billionpackage of bond money, public funds andprivate investment that he said would allowthe state’s roads, schools and jails to catchup on years of neglect in a decade.34 AMERICAN SHIPPER: APRIL 2006BY ERIC JOHNSONIncluded in that $222-billion packageis $107 billion for transportation projects,$18.9 billion for projects specifically designedto enhance freight movement in thestate, and $2 billion for port projects.What makes the situation potentiallyvolatile is not just that California’s legislatureand governor rarely see eye to eye (orthat the state is the nation’s primary freightgateway), it’s the fact that California’sinland infrastructure is particularly illequippedto handle all the trade comingits way.“I look at it from the point of view thatthe state hasn’t invested in transportationinfrastructure, so we’re playing catch-up,”said Jack Kyser, chief economist at the LosAngeles Economic Development Corp.The first three months of any calendar yearare the time when state legislators positionthemselves as proponents of this and that,before debate begins on the scores of billsintroduced for the year’s session.In 2006, the key words are goods movement,and much of that has to do withSchwarzenegger’s plan to overhaul the state’screaking highway network. In late 2004 heset up a goods movement task force to tacklethe major problems and identify key projectsto help expedite freight flow.His goal is to reduce congestion in thestate’s transportation system by 20 percentin the next decade, a considerable task consideringthe population is expected to swellby 11 percent during that time.“We will invest in our ports and makethem more efficient. Right now trade is amajor job creator in California,” he said ina February speech to business leaders inLos Angeles. “But if we don’t improve ourports, those jobs will disappear as we losebusiness to other states and nations. Ourinvestment will mean more trains loadingand unloading goods right at the ports, andtrucks on separate toll lanes in the port areas,which will help our businesses get theirgoods to and from our ports more quicklyand handle more trade.”He also said the infrastructure investmentwill provide a good return on investmentfor California’s trade-dependenteconomy.“Every dollar spent on construction inthis state generates an additional $1.40 ineconomic activity,” he said. “For every $1billion in transportation investment, Californiagenerates $750 million in labor incomeand takes in an additional $64 million in taxrevenues. For every $1 billion invested inroad building, we add nearly 19,000 jobsfor working families.”The governor’s goal was to put the bondmeasure on the June ballot, letting statevoters decide if they wanted to authorizesale of the first set of what could become$68 billion worth of bonds over the nextdecade. But the bond measure has alreadyrun into a roadblock, with state Democratsproviding friction.Bond Holdup. A major source of frictionfor the industry is state Sen. Alan Lowenthal,whose district includes the Port of LongBeach, the nation’s second-busiest port.Lowenthal has tracked goods movementissues and the environmental problemsattached to them, for longer than mostpoliticians in California.In fact, it was his threatened state billthat eventually led the industry to adoptnight truck gates and a daytime user fee,commonly called PierPass, at the ports ofLong Beach and Los Angeles.Lowenthal said the bond measure, whilewell-intentioned, is far from perfect rightnow.“We’re not getting these bonds on the Juneballot,” he said. “There are just too manyunanswered questions. For the bond money,the governor wants a highly centralized

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LOGISTICS36 AMERICAN SHIPPER: APRIL 2006California bills du jourGoods movement is squarely in thesights of California politicians this year,with a container fee bill, diesel pollutionreduction bills and a port trucker collectivebargaining bill set against the backdropof Gov. Arnold Schwarzenegger’scall for mammoth spending to overhaulthe state’s transportation infrastructure.American Shipper takes a peek at fiveof the more interesting bills that awaitthe industry this legislative cycle inCalifornia, the nation’s primary gatewayfor containerized trade.Assembly Bill 2492. This legislation,introduced by Assemblyman JohnBenoit, would give California’s governorpower to override some environmentalreview of transportation projects deemedcritical to the state’s needs. Republicans inthe state, including Schwarzenegger, arekeen on streamlining the project reviewprocess to get infrastructure built morequickly, but this bill could be defeatedbecause Benoit, a Republican, mightnot get the backing of the Democraticlegislature.AB 1101. Introduced by AssemblywomanJenny Oropeza, whose district includesLong Beach, this so-called “dieselmagnet” bill would require defined areasthat produce abnormal amounts of dieselair pollution to be more heavily regulatedby local air quality agencies. It shiftscontrol of the sources of diesel pollution,in some cases, from state to local control,something the California Chamber ofCommerce decried when the bill wasdebated in 2005. In particular, the portsof Long Beach, Los Angeles and Oaklandcould be heavily impacted by such a bill,which was defeated in the 2005 sessionon the Assembly floor. Oropeza has sinceamended the bill to take out distributioncenters and oil tanker facilities, appeasingmechanism for determining how the fundsare split up amongst the various projects.The goods movement task force, when theyfinally make recommendations, will takethem to the secretary of the (state Business,Transportation and Housing Agency), meaningall goods movement projects would bedecided in a centralized manner.“We’re not going to let that happen. Notthe Republicans and not the Democrats. Ithink the list of projects is good, don’t get mewrong. But I’m more into letting the localregion decide how that money is spent.”In March, the California Assembly approvedonly a $4.1-billion borrowing planto shore up the state’s levees and $19 billionmore for school construction. On March 15,the state Senate declined to act on eithermeasure, leaving the bond measure to waituntil November.Lowenthal, who chairs the state Senatetransportation committee, said goods movementis just as much of a priority for thelegislature as it is for Schwarzenegger.“The legislature is focused on shifting asmuch as possible to rail, like grade separationsin the Inland Empire,” Lowenthal said.“But that doesn’t seem to be the highesttruck and petroleum lobbies that foughtto derail the bill.Senate Bill 760. The infamouscontainer fee bill, introduced by LongBeach state Sen. Alan Lowenthal, wouldtack on a $30 fee on each TEU of cargomoving through the state’s ports. The feewould be used to pay for transportationinfrastructure, security enhancementsand port environmental mitigation. Buttrade advocates say the bill violates theU.S. Constitution because it is essentiallya cargo tax, while shippers say extracosts in California might drive them touse other ports. Lowenthal’s SB 1601,which would require ports to negotiatebest available control technologies forair emissions into any new or amendedlease with terminal operators, is alsoworth watching.SB 1213. State Sen. Joe Dunn introducedthis bill on behalf of the Teamsters,as it would allow independent truckowner-operators in the port to collectivelybargain on rates, something federal truckingderegulation has prohibited for morethan two decades. A similar bill, SB 848,was passed by the legislature but vetoedby Schwarzenegger last year, with theCalifornia Trucking Association comingout in opposition to the bill. While someare calling for ocean carriers to pay portdrayage truckers higher load rates, the billwould essentially change the way truckersinteract with the trucking companies fromwhom they lease their vehicles.SB 1494. Similar to Benoit’s bill,this bill by state Sen. Tom McClintockwould allow the state’s transportationcommission to designate key infrastructureprojects as exempt from CaliforniaEnvironmental Quality Act review.To view the bills in their entirety, go towww.leginfo.ca.gov/bilinfo.html.priority of the goods movement task force.They’re more interested in toll roads.”Other politicians have also proposedmassive bond measures to pay for infrastructure.State Sen. Don Perata has proposed a$10.8-billion bond measure for the 2006ballot purely for infrastructure expenditure.Schwarzenegger’s more aggressive planincludes money for schools and jails, amongother things.In many ways, shippers will most be affectedby whatever happens to the privateinvestment piece of the Schwarzeneggerplan puzzle. And that will likely center on thedebate over container fees versus user fees.Shipper and carrier advocates, realizingthat it will take some private investment tooverhaul the state’s road and rail networks,are pushing for toll roads. They argue thatconcepts like commercial truck-only tollroads assess fees commensurate with privateusage of roads.Legislated containers fees, on the otherhand, are typically decided at random — inCalifornia’s case, Lowenthal will likely pusha $30-per-TEU fee bill, charging every boxthat passes through California ports.“I personally want an ongoing containerfee,” Lowenthal said. “You have all thismatching money for your bonds.”But any container fee bill Lowenthalpushes through the legislature will undoubtedlyface intense opposition from industryadvocates, who say container fees are onerous,unconstitutional and unreliable.“Container fees are a non-starter for us,”said John McLaurin, president of the PacificMerchant Shipping Association. “We don’tthink it’s lawful or doable.”PMSA isn’t the only group that comprehensivelyopposes container fees. The WaterfrontCoalition, a Washington, D.C. lobbyinggroup that represents major importers likeNike and Target, has long denounced them asunconstitutional for violating the commerceclause of the U.S. Constitution.In any case, it’s likely any successfulcontainer fee legislation would be tied upin court challenges for years. But that maynot stop Lowenthal from pressing aheadwith his bill, SB 760.“In my experience with the trade industry,they’re not homogenous,” Lowenthal said.“Some will be O.K. with it if the money’sput in a lock box. Some are willing to paytheir fair share. They’re just concerned thatit’s done nationwide and they don’t want topay for everyone else’s ills.”And he said the concept of the container feemay have to change in order for trade advocates,and the governor, to get behind it.“No one is embracing the container fee,but it’s in the air,” he said. “We may have to

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LOGISTICSchange the name to ‘user fee’ to make it moreamenable to everyone,” Lowenthal said.Cautious Support. As for the governor’splan, McLaurin said PMSA is supportiveso far.“Any additional funding for infrastructureis good,” he said.In a Feb. 6 letter to Schwarzenegger,PMSA said it would be in favor of toll roaduser fees in key freight corridors to helpfinance projects.“As an industry, we know that the lack ofstate and federal investments in our transportationinfrastructure will ultimately limitinternational trade, reduce job opportunitiesin the logistics industry, and hurt California’sglobal economic competitiveness,” wrotePMSA Vice President Mike Jacob.The letter also said PMSA opposed anycontainer fees, as well as environmentalmitigation plans developed solely by thestate’s Air Resources Board, which regulatesCalifornia air quality.Yet not all business advocates denouncecontainer fees.“You have a lot of people out there sayingcontainer fees aren’t fair, but if you’reimporting, you’re putting a burden oninfrastructure,” LAEDC’s Kyser said. “Allparties have to participate and if everyoneis paying a container fee, everyone is on alevel playing field.”Kyser said he doesn’t buy the argumentthat container fees would push cargo toports in other states, because other WestCoast ports are already running into capacityconstraints of their own, and new ports inMexico and Canada are years from comingto fruition.And he’s not convinced toll roads — eventoll roads dedicated for commercial trucktraffic — would be successful.“Southern California’s history with tollroads isn’t great,” he said. “They seem logical,but they just don’t work out.”However, if the private sector, namely shippers,end up paying in to the infrastructureoverhaul, Kyser said it won’t come soon.“The private sector might eventuallybe willing to pay (user fees), especially inindustries where speed to market is a realadvantage,” Kyser said. “But there’s notenough support to get private truck tolllanes off the ground right now.”In all, LAEDC supports Schwarzenegger’splan — particularly the amount setaside for goods movement.“That seems like it would be a good number,”Kyser said. “Unfortunately, people inthe legislature are nitpicking. (Delaying avote on the bond measure) gives people moretime to nitpick. This is a political year, withthe governor running for re-election.”38 AMERICAN SHIPPER: APRIL 2006Kyser said Southern California roadsare still too congested for freight to moveefficiently, costing shippers and carriersvaluable time and resources.“PierPass has had a small positive effecton the 710, but rail is strained for capacity,”he said. “The state’s economy has performedwell given the restrictions the legislature hasput on it. Funding infrastructure would, inessence, pay for itself.”More Container Fee Backlash. Backto the “No on container fees” side, theForeign Trade Association of Southern Californiasaid container fees are short-sightedand don’t show a deep understanding of theissues facing the long supply chain.Jack Kyserchief economist,Los AngelesEconomicDevelopment Corp.“I look at it from the pointof view that the state hasn’tinvested in transportationinfrastructure, so we’replaying catch-up.”“In an attempt to provide a quick andseemingly simple solution to such problems,politicians have proposed initiating fees onevery container that is processed throughthese ports,” Southern California FTA ChairNancy Hiromoto wrote in an editorial. “It isoften tempting to look at taxes as a meansto solve a problem, but in this case, betweenthe existing daytime pickup surcharge atour ports (PierPass) and this proposed tax,the impact will be the greatest on smallcompanies, which are least able to pass suchcosts on to their customers.”Hiromoto, director of import/export andfacilities management for Citizen WatchCo., added that any container fee bill couldhave serious unintended consequences.“While we commend the intent of billssuch as California Senate Bill 760, whichaim to tackle the traffic and air quality problemsthat challenge the ports, we feel theydo not address the true heart of the problem,and merely serve as bandages which willultimately create unintended and unwantedside-effects,” Hiromoto wrote.The Southern California FTA said thecontainer fee is problematic for threereasons:• By assessing a fee on a per-TEU basis,the state would essentially be taxing cargo,which is prohibited by the Commerce Clauseof the U.S. Constitution.• A fee would force shippers to divertcargo to ports that didn’t charge a containerfee, driving away vital trade business.• California has a history of using taxrevenue for purposes other than what it wasoriginally intended.But on the governor’s plan, the FTA saidinfrastructure is long overdue and any planto rectify that is a positive step.“The Foreign Trade Association of SouthernCalifornia is supportive of the conceptof Gov. Schwarzenegger’s Strategic GrowthPlan,” Hiromoto said in an interview withAmerican Shipper. “The activity at our localports has outgrown our aging infrastructure,and there is a dire need to rebuild. Inparticular, we welcome any improvementspossible to the current congestion on theI-710 freeway system.”Hiromoto was less clear on how FTAmembers envision private investment towardthe infrastructure improvements.“Exactly how this project will be financedremains to be seen, but we look forwardto a bond measure being presented for astatewide vote sometime this year,” shesaid. “With transportation being a key issuein trade today, the international businesscommunity would be open to discussionwith government officials as to how thetrade community may help foster suchlegislation.”Meanwhile, Lowenthal said Californiashould be developing transportation technologiesthat it can market elsewhere.“We’re not the only congested corridorin the world,” Lowenthal said. “We can sellthis to other parts of the world.”“The future, for me personally, is goodstransportation with zero emissions,” hecontinued. “My vision is 120 miles aroundthe port all cleaned up, moving efficientlyand with zero emissions.”And no matter what form the governor’sgrowth plan takes eventually, Lowenthaltakes solace in the fact that the issues hehas long tracked are now getting statewideand national attention.“The governor is starting to get it,” Lowenthalsaid. “All of sudden, goods movementis such a high priority in the state. When Isaid I wanted 2001 emissions levels fromthe ports by 2008, I was a Communist. NowCalifornia EPA wants it by 2010.“I just want accountability, given ourtechnology and our growth. We have to beable to be accountable.”■

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LOGISTICSBuilding a NAFTA houseU.S. eases Mexican concrete trade, but tensionsremain on Canadian lumber imports.Housing construction in the UnitedStates remains a robust industry,but severe shortages in buildingmaterials, especially in the hurricaneravagedGulf Coast states, threatens themomentum.To ease supply shortfalls, U.S. builderswant more access to construction materialsmanufactured in Mexico and Canada.They’re demanding Washington lawmakersand Bush administration officials take actionto end trade squabbles over Mexican cementand Canadian softwood lumber.The Bush administration responded onMarch 6 by entering into an agreement withMexico to increase imports of gray portlandcement, effectively ending a 16-year tradedispute between the two countries.“The agreement contains provisions thatwill help increase access to the Mexicanmarket for U.S. cement producers, and it alsoensures that our Gulf Coast communitieswill have the resources necessary to rebuild,”said U.S. Commerce Secretary Carlos M.Gutierrez in a statement.The agreement settles all litigation regardingoutstanding claims for duties beforeU.S. and international courts, and dividesbetween the parties the deposits of estimatedantidumping duties.The agreement also sets a limit of 3 millionmetric tons on imports of Mexican cementto enter the United States at an antidumpingduty rate of $3 per metric ton, comparedto a previous $26 per ton duty. If a disasteroccurs, it allows the president to seek anadditional 200,000 metric tons at the sameduty rate. If the terms of the agreement areadhered to over the next three years, theagreement will end and the antidumpingorder revoked.In 1989, the Southern Tier Cement Committeefiled a petition with the CommerceDepartment, which resulted in an antidumpingduty investigation. The departmentfound that Mexican producers sold cementat less than fair value in the U.S. market. OnAug. 30, 1990, an antidumping duty orderon imports of gray portland cement fromMexico took effect.In 2004, members of Congress, tradegroups and cement consumers called on40 AMERICAN SHIPPER: APRIL 2006BY CHRIS GILLISthe Commerce Department to reduce oreliminate the antidumping duties so thatcement could be imported from Mexico ata more reasonable cost. These efforts wererenewed after Hurricanes Katrina and Ritastruck the Gulf Coast late last year.General cement shortages also continueto hinder the country’s builders at large.“The mild, dry weather this January meantthat more cement was used than usual,making shortages even more likely than lastyear, when 32 states reported shortages byAugust,” said Stephen E. Sandherr, chiefexecutive office of the Associated GeneralContractors of America, in a statement.“Increased ready access to more Mexicancement in some of those states will helpcontractors to keep working instead of havingto lay off employees.”Even with the increased flow of Mexicancement, U.S. builders may still come upshort. According to a recent market analysisby the Portland Cement Association, it’sexpected that builders will increase theirconsumption of cement by at least 10 milliontons over 2005 levels.“The potential increase in Mexicanimports of one million metric tons willimprove supply conditions, but itself willnot be enough to result in an eliminationof concerns regarding future tight marketconditions,” the association said.“The news regarding the Canadiansoftwood lumber debacle is likewalking up an endless sand dune.You take three steps up while slidingback two — with the top neverquite in sight.”Michael Jonespresident,Jones & JonesThe association noted that U.S. cementmakers plan to invest almost $3 billion intheir operations through 2009, which shouldincrease kiln capacity by 14.66 millionmetric tons, a 15.5 percent increase overthe existing capacity.Despite improved prospects for cementsupplies, the trade spate between the UnitedStates and Canada over softwood lumberimports continues to cause headaches forU.S. builders.“The news regarding the Canadian softwoodlumber debacle is like walking up anendless sand dune,” said Michael Jones,president of Jones & Jones, a customs brokerthat specializes in handling Canadian lumberimport clearances. “You take three steps upwhile sliding back two — with the top neverquite in sight.”The Bush administration hopes that talkswith Canada’s newly elected governmentwill help resolve the decades-old tradedispute over Canadian softwood lumber.Deputy U.S. Trade Representative SusanSchwab informed members of the SenateCommerce Committee’s Trade, Tourismand Economic Development Subcommitteein testimony Feb. 14 that the administrationhas approached David Emerson,Canada’s new trade minister, about startingnegotiations as soon as possible to settlethe dispute.“The administration remains committedto a negotiated solution that will end thisdispute, and we look forward to workingwith our Canadian counterparts in order todo so,” she said.The current dispute was sparked after the1996 Softwood Lumber Agreement expiredin 2001, and the U.S. government respondedby imposing antidumping and countervailingduties on softwood lumber importsfrom Canada. Subsequently, the Canadiangovernment and lumber industry have filed

about two-dozen cases challenging the dutiesunder the North American Free TradeAgreement, World Trade Organization, andU.S. Court of International Trade.“Throughout the dispute, we repeatedlyhave stressed to our Canadian counterpartsthat, given the long history of this disagreement,there is little reason to believe thatthe current round of cases will resolve thematter once and for all, regardless of how theprocess plays out,” Schwab said. “Withouta negotiated solution, chances are high thatthe dispute will continue.”U.S. lumber industry representativeson both sides of the debate voiced desireto resolve the Canadian softwood lumberdispute through successful negotiationsbetween the two countries.“It is a tragedy that this long festeringtrade dispute has not been resolved,” testifiedSteve Swanson, chairman of Oregon-basedsawmill operator The Swanson Group anda representative of the Coalition for FairLumber Imports, before the Senate subcommittee.“This issue would disappear the daythat Canada made reasonable, transparentand enforceable commitments to end theirunfair trade practices and allow open andcompetitive markets for timber and logs.Canada simply refuses to do so because itis addicted to subsidies and has been unable“Given the long historyof this disagreement, thereis little reason to believethat the current roundof cases will resolvethe matter once andfor all, regardless of howthe process plays out.”Susan SchwabDeputy U.S. TradeRepresentativeto break the habit.”The coalition noted that Douglas firlumber costs $439 per thousand board feetin the United States compared to $113 perthousand board feet in Canada. “Thereis only one explanation — because theCanadian provincial government is settingprices at an artificially low level to subsidizelumber production and employment,”Swanson said.Last year, however, a NAFTA settlementpanel directed the U.S. International TradeLOGISTICSCommission to reverse a finding that unfairimports of Canadian lumber threatenU.S. industry. The coalition responded byquestioning the constitutionality of theNAFTA settlement system, also known asChapter 19, by filing a complaint with theU.S. Court of Appeals for the District ofColumbia Circuit on Sept. 13.Builder groups called the court filing abig mistake which, if allowed to proceed,could further erode U.S. trade relations withCanada at a time when lumber prices arealready inching higher.The National Association of HomeBuilders said U.S. import duties on Canadiansoftwood lumber already add about$1,000 to the cost of a home built in theUnited States.“This duty acts as a tax on Americanhome buyers and home owners seeking tomake improvements to their homes, hurtshousing affordability, and prevents manyfamilies from qualifying for a mortgage,”Barry Rutenberg, president of Gainesville,Fla.-based Rutenberg Homes, told Senatelawmakers on Feb. 14.“The simple and critical fact is that theU.S. home building industry cannot meetthe need for new homes and improvementsto existing homes without lumber importsfrom Canada,” Rutenberg said. ■United States Flag Breakbulk Project Service toEastern Mediterranean, Red Sea, East African,Middle Eastern, Pakistan and Indian destinationsLASH CARGOROLL ON/ROLL OFF CARGONew York 212-747-8550 Fax: 212-747-8588 New Orleans 504-586-0500 Fax: 504-525-7792Complete LASH scheduling information on-line www.waterman-steamship.comToll Free: 1-888-972-5274 Email: waterman@intship.comPRINCIPAL SUBSIDIARIES OF INTERNATIONAL SHIPHOLDING CORPORATIONAMERICAN SHIPPER: APRIL 2006 41

Toughest sale?Customs brokers are perennially challenged to pushfor the understanding that, while Customs and BorderProtection is an enforcement agency, it is also charged withkeeping the flow of international commerce moving.The brokers’ cause is not helped when members ofCongress start calling for inspections of 100 percent ofall imports. That nightmare scenario is unlikely to occur,but just the thought must make the trade nervous.CBP, meanwhile, gets stung regularly by the tiredcharge that only about 5 percent of incoming containersare inspected. The statistic is often quoted on televisionnews programs, and the clear misperception is that 95percent of the containers whiz through ports of entry— with federal officials just hoping against the logicalodds there are no security problems.CBP has mounted several efforts since Sept. 11, 2001to explain how that is not the reality. The most recentand most thorough was released shortly after the furorover Dubai Ports World’s efforts to acquire P&O Portserupted. With federal, state, and local elected officialsoften leading the protests, the stakes are high and theprospect of damaging legislation real.What CBP is trying to do is explain how existing portsecurity actually works, and to debunk some of the mythsswirling around reports of the DP World deal. The pointsare worth noting for brokers who might have to make acase before their own elected officials.Who is whoExplaining its own role first, CBP noted it starts theprocess by taking on the task of working to prevent terroristsor weapons from coming into the country beforethey would arrive at borders or ports.The agency noted that it uses a risk-based analysisto assess and screen 100 percent of all cargo before itarrives. Using the information provided on all inboundshipments, along with intelligence information, it passesup “safe” cargo, such as the highly repetitive imports thatmake up the vast majority of all cargo. A container fullof beer from Germany, originating at the usual locationand being handled by the normal exporters and sent tothe usual importers at the same locations, does not needto be stripped down for a full physical inspection.Customs does, however, inspect 100 percent of thecargo that meets high-risk criteria.CBP also noted that the U.S. Coast Guard is responsiblefor assessing security at all ports, regularly inspectingfacilities using the standards established by the MaritimeTransportation Security Act and the Ports and WaterwaysSecurity Act. All ports are required to implement securityplans, which are monitored by the Coast Guard with assistancefrom local law enforcement agencies.Terminal operator limitationsTerminal operators are responsible for their ownimmediate area. But state or local port authorities areresponsible for security oversight of all physical infrastructure,including wharfs, docks, piers, transit sheds,loading equipment and warehouses. Ports also typicallyprovide additional security services beyond the federaland local authorities.The explanation further notes that no terminal operatorcontrols any U.S. ports. The reality is that they manage specificterminals. Using the existing P&O Ports agreementsas an example, CBP explained that at some ports P&O is42 AMERICAN SHIPPER: APRIL 2006a terminal operator and at others it is a stevedore.“Stevedores provide labor services, such as loading andunloading cargo,” the CBP explained. “Unlike a terminaloperator, a stevedore does not have the ability to controlthe gates for entry and exit of cargo.”P&O Ports, CBP programsGetting into the specifics of what P&O Ports has doneto enhance security — and noting that DP World hasagreed to remain active in the same programs — CBPspecified that P&O participates in the Customs-TradePartnership Against Terrorism (C-TPAT), the ContainerSecurity Initiative (CSI), and the Business Alliance forSecure Commerce, as well as the Megaport InitiativeMemorandum of Understanding with the U.S. EnergyDepartment.CBP is further making the case that many port securitycritics do not understand the layered, multipoint nature ofsecurity strategies. It is clearly not a case where any onepart of the supply chain, such as a port terminal, couldchoose to bypass the larger security process.Citing its specialized programs, CBP said its policy ofscreening 100 percent of all imports starts overseas. The24-hour rule imposed after 9/11 requires anyone sendingcargo to the United States to provide required manifestinformation at least 24 hours before a shipment is loadedonto a vessel in a foreign port. CBP has the authority toprevent a high-risk shipment from being loaded in theforeign port.CSI allows CBP to work with customs authorities inother countries to examine high-risk cargo at foreignseaports, CBP noted. There are 42 ports participatingnow, and that number is expected to increase to 50 bythe end of this year.CSI has four core elements:• Establishing criteria for identifying high-riskcontainers.• Pre-screening those containers before they arriveat U.S. ports.• Using technology to quickly pre-screen high-riskcontainers.• Developing “smart” and secure containers.C-TPAT, meanwhile, involves the direct participationof shippers, with some 5,800 companies participating andmore than 4,000 still awaiting approval. The companiesthat already participate in C-TPAT account for the bulkof all trade, and the government is working to furtherexpand C-TPAT to provide greater visibility into thesupply chain.Finally, once cargo has arrived in the United States,there are many ways to check cargo here. CBP is usingtechnology that includes large-scale X-ray, gamma ray andradiation detectors. CBP operates more than 680 radiationportal monitors at ports of entry, including 181 radiationmonitors at seaports. There are more than 170 large-scale,non-intrusive inspection devices in place to examine cargo.CBP has issued 12,400 hand-held radiation devices.The president’s proposed fiscal year 2007 budgetrequests $157 million for next-generation detectionequipment at ports of entry. Beyond the high tech, thereare over 600 canine detection teams capable of locatinganything from stowaways to weapons to narcotics.So CBP continues to make the case that there are nothuge volumes of cargo essentially moving uncheckedinto the country. For their own good, customs brokerswill need to help make that case, as well.

NSAs expected to take off in 2007NVOs getting used to concept of confidential contracting.HOUSTONNon-vessel-operating common carriershave been slow to enter confidential servicearrangements with their shipper customers,but a federal regulator and industry analystsanticipate these arrangements will gainmomentum by 2007.Out of 3,398 NVOs operating in U.S.international trades, only 351 have registeredwith the U.S. Federal Maritime Commissionto become NVO service arrangement(NSA) filers. Of that group, only 53 NVOshave actually filed NSAs with the commission.As of Feb. 14, the FMC received222 original NSAs and 144 amendments tothose contracts.“Three NVOCCs are responsible foralmost half of those contracts,” said FMCCommissioner Harold J. Creel Jr. at therecent International Transportation ManagementConference in Houston.Ocean carriers have been filing confidentialservice contracts with the FMC sincethe implementation of the 1998 Ocean ShippingReform Act. Last year, ocean carriersfiled 46,809 original service contracts and236,921 service contract amendments.From July 2003 to March 2004, a handfulof large NVOs, the National IndustrialTransportation League and TransportationIntermediary Association filed petitionsasking the FMC to use its section 16 exemptionauthority in OSRA to allow NVOs toenter confidential service contracts similarto ocean carriers. The commission adoptedthe NSA rule, effective Jan. 19, 2005.Creel attributed the slow take off of NSAswithin the NVO industry to the “newness ofthe concept” and pending litigation in thecourt of appeals that questioned the FMC’sauthority to grant NVOs the privilege toenter NSAs.“Another possibility is that NVOCCsare waiting until they complete their negotiationswith ocean carriers for servicecontracts for the 2006 season,” Creel added.“These arrangements will generally becomeeffective on May 1.“Until those contracts are locked in, someNVOCCs may not know what terms theycan negotiate with their shipper customers,”he said. “I expect that next year at this timethe number of NSAs will have increasedsignificantly.”Creel believes “large integrators will gohead-to-head with vessel operators for highvaluecommodities in certain trades.” Hecited the recent report by IBM ConsultingServices that affirms this.“I don’t believe (integrators) came to theFMC seeking to offer NSAs if they weren’tgoing to use them,” Creel said.Industry experts generally agreed withCreel that NSAs will begin to take off bySCHINDELLEGI, SwitzerlandSwiss forwarding and logistics groupKuehne + Nagel International AG reportednet earnings of CHF315 million ($239 million)in 2005, up 32.3 percent from CHF238million in 2004.Kuehne + Nagel’s turnover was CHF14.05billion ($10.7 billion), up 21.5 percent over11.56 billion CHF in 2004. The company’soperational result for 2005 increased 19.1percent to CHF454 million ($345 million)from CHF381 million in 2004.Kuehne & Nagel’s main division, seafreight forwarding, saw revenue increase 23percent to CHF7.5 billion ($5.7 billion) fromCHF6.1 billion thanks to a 19.4 percent volumeincrease. Air freight volumes improved9.4 percent boosting revenue 16 percent toCHF3.01 billion ($2.3 billion). Rail and roadlogistics revenue grew 32 percent to CHF2.1billion ($1.6 billion). Contract logisticsrevenue rose 14 percent to CHF1.3 billion($988 million). K + N’s insurance brokerunit subsidiary Nacora, posted revenue ofCHF106 million ($81 million), up 16 percentcompared to CHF106 million in 2004.“In 2005, Kuehne + Nagel maintained thefirst half’s pace of expansion through theend of the year. We improved performanceand profitability while strengthening ourglobal market position,” said Klaus Herms,Kuehne + Nagel’s chief executive officer.“In addition, through strategic investmentswe continued to lay foundations for furthersustainable growth.”In October, Kuehne + Nagel agreed tobuy ACR Logistics (formerly Hays Logistics)for 440 million euros ($525 million).Other recent takeovers include Scituate,Mass.-based forwarder Aces Ltd. and Danishforwarder Ziegler & Co.“Given our strong presence in all key marketsworldwide, we are well positioned tocontinue benefiting from globalization andgrowing trade flows,” said Klaus-MichaelKuehne, executive chairman of the board ofdirectors at Kuehne + Nagel. “The KuehneFORWARDING / NVOs2007 as a means for large NVOs in particularto conduct business with shippers.“We see NVOs behaving in a whole differentway,” said Garry Mansell, managingdirector of U.K.-based Freight Traders, andformer chairman of the European Shippers’Council. “The market place is shifting to asystem that is much more free.”The big question is “can the NVO uncommoditizeitself ” to be able to enter NSAs,said Tom Craig, president of consulting firmLTD Management. Shippers aren’t going towant just the rate. They’re going to want theservice that goes along with it.” ■Kuehne + Nagel’s earnings up 32% in 2005+ Nagel Group’s considerable businesspotential and proven logistics capabilitieswill receive additional momentum from themerger with European contract logisticscompany ACR. We are confident that wecan significantly strengthen and expandour market position again in 2006.” ■AMERICAN SHIPPER: APRIL 2006 43

Express firms make government connectionsBig integrators UPS and FedEx are taking internationalcustoms issues head-on.The government of El Salvador has signed a cooperationagreement with UPS aimed at simplifying the CentralAmerica country’s customs procedures.Meanwhile, FedEx Express and the Australian TradeCommission have signed a two-year agreement to expandtrade between Australia and the United States.Last October, PROESA, the El Salvador government’sdepartment dedicated to promoting investment in thecountry, visited UPS’s offices in Miami, proposing toestablish a customs clearance system in El Salvador basedon UPS’s global operations.Under the new system, courier companies will now beable to withdraw their merchandise from Customs at theEl Salvador International Airport within 48 hours of thegoods arriving. The agreement also considers that shipmentswhose value Free On Board (FOB) are lower than$200 can be removed from Customs with the presentationof the corresponding air bill and invoice; however, a spotcheck of the merchandise can be requested for verificationpurposes. If the value FOB is more than $200 but less than$3,000, the removal of the goods will be authorized withthe presentation of the Merchandise Declaration. Thisdocument can be created by the operator of the expressdelivery or courier.The prices that are charged for customs procedures willbe representative. The authorization timetable is valid forone year and renewable with prior authorization from theCustoms Department.“The signing of this agreement is of great importancefor El Salvador. It’s a valuable element that will contributeto expedite customs procedures and will generate newsources of investment in the country,” said Ana Vilma deEscobar, president of PROESA.“At UPS, we are very proud to be part of this agreementthat will streamline and facilitate commerce to improve ElSalvador’s competitiveness,” said Stephen Flowers, presidentof UPS Americas. “We are committed to our presencein the country and we hope to maintain a close cooperationwith the business community and the government institutionsthat have made this agreement possible.”In Australia, FedEx’s agreement calls for it to promoteto its customers the benefits of the Australia Trade Commission’sexport assistance network, which is spread across50 countries, including 18 U.S. cities. The agreement alsosupports joint activities between FedEx and the commission,including Web site links, joint export promotion, salesforce training, and direct marketing campaigns.“Our alliance fits within the FedEx internationalgrowth strategy, which includes strengthening Australia-U.S. export volume,” said Michael Ducker, executivevice president of international for FedEx Express, in astatement.FedEx and the Australian Trade Commission want tobuild on the U.S.-Australia Free Trade Agreement, whichbecame effective in January 2005.FedEx developed a similar alliance in 2004 with theU.S. Commerce Department’s Commercial Services topromote U.S. small business exports through marketingand educational programs.Colography: 2005 record year for U.S. air exportsAtlanta-based cargo market consultancy company TheColography Group Inc. forecast that 2005 U.S. air export44 AMERICAN SHIPPER: APRIL 2006shipments and revenue figures will reach record levels.Colography reported that after the first three quartersof 2005, nearly 68 million shipments moved in U.S. airexport service. The consultancy anticipates full yearexport shipments to exceed 90 million, surpassing the88.7 million shipment record set in 2000.Air export revenue for the first nine months of 2005was about $6.9 billion, Colography said. The companypredicts that the full year export revenue will go past the$9 billion barrier for the first time, breaking the $8.5billion record set in 2004.Colography said that during the first nine months of2005, there were 1.85 billion U.S. domestic air shipmentswith a value of about $30 billion. Domestic shipments andrevenue for the full year 2005 are projected to beat 2004results, but fall short of the records set in 2000.“The effects of a weak U.S. dollar, a resilient U.S.economy and a rebounding global marketplace willmake 2005 a strong and, in the case of U.S. air exports,a record-setting year for air cargo,” said Ted Scherck,Colography’s president. “Though we do not yet have finalresults for the fourth quarter of 2005, there is no reasonto believe it should be any weaker than the quarters thatpreceded it.”“The fourth quarter is historically the strongest periodof the year because of the accelerated activity surroundingthe peak holiday season,” Colography said.Some key findings in the third quarter 2005 editionof Colography’s “U.S. Domestic and Export Air Trafficand Yield Analysis By Competitor and Market Segment”report include:• On the U.S. air export side, the six main competitors— FedEx, UPS, U.S. Postal Service, DHL, EGL Inc. andBAX Global — controlled 77.3 percent of the shipmentmarket during the third quarter of 2005.• The “all other competitors” category — comprisedmostly of airlines and freight forwarders — saw theirshipment share decline to 22.7 percent as of the end of2005’s third quarter from 24.8 percent in the first quarterof 2004.• On the domestic front in 2005, quarterly revenueand tonnage gained on a sequential basis. However, shipmentvolumes declined by more than 10 million from thesecond to the third quarter, driven by continued diversionof lightweight, short-haul air traffic to the ground.• DHL Express reported sequential gains in domesticair shipment share from 10.2 percent in the first quarterto 11.4 percent in the third quarter.• USPS held the largest domestic shipment sharethrough the first nine months. However, its share of themarket declined with each quarter, from 37.9 percent inthe first quarter to 36.1 percent in the third quarter. FedExExpress’ share declined 0.5 percent over that period, whileDHL’s and UPS’s shares increased.Colography will publish the fourth quarter and full-year2005 results in early April.Boeing predicts $770 billion Asia-Pacific investmentBoeing forecast that Asia-Pacific airlines would providethe largest market outside North America for newairplanes over the next 20 years.Worldwide, Boeing anticipates airline’s investing $2.1trillion for about 25,700 aircraft in two decades, with Asia-Pacific operators purchasing about 7,200 new airplanesworth $770 billion, nearly tripling the region’s fleet toabout 8,600 airplanes by 2026.

Stock market casts wary eye over carriersCarriers, time to reach for the antacids. But shippers,hold off on the streamers and balloons.Sure, it’s almost unanimous that freight rates aregoing to take a nosedive this year — particularly inthe Asia/Europe trade lanes, where a glut of post-Panamaxships are oversupplying the market in terms ofcontainer slots.But transportation costs are high, too, and shipperscan fall back on that (if it’s any comfort) when it comestime to negotiate rates.One analyst, however, said the year will be especiallylean for carriers, some of whom have enjoyed recordprofits the last few years.Raymond Maguire, managing director of transportresearch for UBS Investment Bank, told the Trans-PacificMaritime conference in Long Beach earlier this monththat the stock market is taking a cautious approach tothe viability of ocean carriers.“We saw a sharp falloff of rates in quarter four of 2005despite volume growth of 20 percent,” he said. “We’reforecasting transpacific rates to fall 15 percent. We’reexpecting 15 percent supply growth in ’06 and ’07,with 9.6 percent demand growth in ’06 and 9.4 growthin ’07. So you’re looking at (5 percent) oversupply.For every 1 percent of oversupply, figure a 3 percentdrop in rates.”That, of course, doesn’t reflect what’s happening onthe unit cost side of the carrier’s operating equation.“Paradoxically (demand) growth could be bad becauseunit costs go up” as rates go down, he said.Rate drops could reach 75 percent on some lanes,he said.“That may seem overly aggressive, but the stockmarket will risk excess scenarios,” he said. “If theindustry gets a return above 10 percent, (the market)gives it a premium rating. If it’s below 10 percent, itgets a discount rating.”Most carriers operate on a much thinner margin than10 percent, with heavy investment on expensive assetsrequired to stay competitive in the current market.“It may seem like sacrilege for a liner carrier to goout and buy a $100 million ship and it’s valued at $80million by the stock market, but remember, an investorcan invest in anything,” Maguire said. “They don’t haveto invest in transportation. They can invest in Chileantelecom. And that’s why we see a 30 percent decreasein valuation compared to actual fleet assets.”And carriers should take little comfort in sectors thatmost are bounding into — the logistics and terminaloperations arenas.“Integrated supply chain solutions are good for customers,because it provides better service,” Maguiresaid.But it’s not necessarily a guaranteed profit centerfor carriers.“Logistics industry operates on a 3 percent to 5 percentmargin, so a 1 percent to 2 percent downturn in carrierprofits wipes out the profits gained from logistics,”Maguire said. “That’s how the stock market looks at it.Liner profitability is all-encompassing.”Maguire said that a company like Tesco, the U.K. retailinggiant, has been able to grow its market share from20 percent in 1995 to 30 percent in 2005 by squeezingsuppliers and passing the savings on to customers.“In the shipping context, where are you going to46 AMERICAN SHIPPER: APRIL 2006squeeze?” he said. “Shipyards? Fuel? Major retailerslike Wal-Mart and Nike?”And even major players like Maersk Line, with morethan 20 percent of the market, aren’t eyed by investorsas sure things.Maguire gave the example of automaker consolidationin the last decade. He said the top 10 automakers had 20percent of the market in 1995, compared to 95 percentin 2005, yet they’ve had no major gains in profitabilityon the whole.“Does consolidation mean more pricing power?” Maguiresaid. “The stock market has yet to be convinced.The industry has to get away from an obsession withmarket share.”A liner carrier representative at the conference, however,said that carriers aren’t entirely consumed withmarket share but that it can’t be ignored.“Certainly the CEOs of the TSA would rather concentrateon margin, but market share is still a driver ofthis industry,” said Albert A. Pierce, executive directorof the Transpacific Stabilization Agreement. “Part ofthe problem with consolidation is that everyone thinksone plus one equals two. In my experience, that’s neverhappened and unfortunately, that does put pressure onrates.”In any case, carriers who had perhaps hoped to bedarlings of the stock exchanges with billion-dollar profitsand sizable tangible assets might be disappointed to discoverthat they appear to be no more prized in investors’eyes than a fast moving consumer goods company.No Maersk, no problemBack in 2004, when Maersk Line was called MaerskSealand, when it had yet to acquire rival carrier P&ONedlloyd, and when its market share was decidedlysmaller than it is today, the Danish ocean carrier decidedto drop out of the TSA.The company said it couldn’t respond quickly enoughto customer needs as a member of an association thattook months to reach consensus on rates and changedits recommendations only once a year.Now that Maersk, the world’s biggest carrier bysome margin, has a roughly 20 percent market shareand was named best carrier in the transpacific in asurvey by ICG Commerce, you might think that theTSA would be crawling on its knees to bring Maerskback in the fold.Not so, according to Albert A. Pierce, executivedirector.He said his voluntary coalition of ocean carriers,now 11 members strong, are doing just fine despite theabsence of Maersk Line.“I don’t comment when a member leaves the TSA, orjoins the TSA, but with their increased capacity, we’dlove to have them back,” Pierce told attendees at theTrans-Pacific Maritime conference.“TSA still controls 60 percent of the tonnage inthe market, and in any other industry, that would be acontrolling interest. They still need us, whether they’remembers or not and we’d like to have them in.”Whether that’s bravado or not, there’s no doubt thatbringing the clout of Maersk into the TSA would givethe association more leverage, especially with all thepressures facing the industry today.Yet it seems like Maersk isn’t likely to join the TSAanytime soon.

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The tide in the transpacific is shifting, withshippers seemingly holding all the marbleswhen it comes to negotiating freight ratesin the transpacific trade lanes this spring. Yet crumblingand congested infrastructure, volatile oil prices and continuedgrowth of Chinese exports is putting a damper on theindustry.So it’s in this climate that more than 1,100 in the shippingindustry gathered in Long Beach in earlyMarch to get the skinny on transpacifictrade — and they found out that freightrates are likely to drop, while congestionand infrastructure problems shouldn’tsurface in 2006.So pretty good news for everyone, right?Well, good news unless you’re a carrier, orunless you plan on continuing to ship pastthis year. That’s because most analysts atthe conference predicted a congestion crisiswill be upon the West Coast before thedecade is over, and not even nifty freightrates this year and next can be too soothingin light of that.The conference, held by the Journal ofCommerce, highlighted the key issues that50 AMERICAN SHIPPER: APRIL 2006face Asia/U.S. West Coast trade in upcomingyears:• Growing disparity between Chineseand U.S. port and inland infrastructuredevelopment.• Carrier overcapacity and its rate implicationsfor carriers.• The dwindling supply of affordable landnear ports to build distribution facilities.Congestion“The thing that strikes you first about Chinais the size of their port expansion,” saidDoug Tilden, president and chief executiveofficer of Marine Terminals Corp. “We viewAsian/West Coast trade as a pipeline, andwe view our terminals as being at the otherend ofthe pipelinewith China. When Isee a doubling or tripling ofChinese port capacity, while we’renot expanding port capacity at all, thatleads me to believe there will be problems.The issue of port congestion is not if, butwhen it’s going to happen. How close arewe to the edge?”Tilden said that in order to handle containerthroughput growth in U.S. ports, whichreached 38 million TEUs in 2005, a port thesize of New York-New Jersey would have tobe added each year in terms of capacity.“Previous port congestion has been eventdriven,”Tilden said, mentioning rail mergerissues in the late 1990s, labor negotiationsthat shut down the West Coast ports in 2002,and growth forecast problems that crippledSouthern California in 2004.“In my opinion, the day of the event-drivenport congestion is over. Port congestion ismuch more likely to be systemic and sustainedin the future,” he said.Tilden said diverting out of SouthernCalifornia has long passed as a way for even

short-term relief.“PierPass has brought in extra capacity,but there’s limited potential for more diversionsfrom L.A. and Long Beach, exceptfor Oakland, which has capacity,” he said.“And frankly, other options like alternativegateways won’t be online for ’06. All thegreenfield sites in the U.S. and Mexico, ifthey were all available in the next three years,would barely be able to handle the growththe next three years.”For Tilden, the unknowns of 2006 are:• The volume curve of trade with Asia.• The impact of U.S. Customs regulationson shippers, carriers and terminals.• Rail capacity.• The effect of more 8,000-TEU ships.• The impact of all-water services tothe East Coast.That’s a lot of mystery.As a terminal operator, he said one answeron the waterfront lies in better efficiency. Hesaid the world standard for non-transshipmentports is 10,000 to 15,000 TEUs per acre peryear. In West Coast ports, that average is5,000, while in East Coast ports, its 2,000.“I am a strong advocate of appointmentsystems,” Tilden said. “It does amazingthings to your facility when you know whenevery truck is going to be processed.”Tilden also said it’s important for carriersand terminals to work to space ship callsthroughout the week, because most vesselsarriving from Asia tend to arrive in SouthernCalifornia Thursday through Sunday.“Then that bubble of ships moves up thecoast to Oakland,” he said.Spacing out arrivals would allow rail tobetter utilize its capacity, instead of shovingcargo down the pipeline in fits and starts.“At the end of the day, this is a publicpolicy issue, and one that has most tractionwith beneficial cargo owners,” he said.One of the leading figures in the push fora national transportation policy, APL CEORon Widdows, said congestion is being feltif not seen.“All the greenfield sitesin the U.S. and Mexico,if they were all availablein the next three years,would barely be ableto handle the growththe next three years.”Doug Tildenpresident and chiefexecutive officer,Marine Terminals Corp.“Somehow, the downstream effects ofeverything we’re talking about haven’t madetheir way to the consumer,” Widdows said.“That’s coming. Just because there aren’tships backed up in L.A. and Long Beach,people get the sense that there isn’t congestion,but the truth is there are delays.”Like Tilden, he said productivity is a concern.“Hong Kong, Singapore and Taiwanare all at about 610,000 to 700,000 TEUsper berth, per year,” Widdows said. “L.A.and Long Beach are at 350,000, and that’snot just the ILWU.”Jon DeCesare, CEO of WCL Consulting,said he’s expecting no major problems in2006 and the first half of 2007, allowinginfrastructure to somewhat catch up withdemand. But in 2008, as the economy rebounds,port problems will come, followedby what DeCesare dubbed a congestion tidalwave arriving in 2009 or 2010.One of the components of that tidal wavecould surely be a lack of port truckers. Theindustry has long known that drivers andtrucking companies bear the burden of beingon the bottom rung of the ladder.Clark Brown, president of Bridge TerminalTransport, a Charlotte, N.C.-baseddrayage firm, said the industry now knowsthat increased pay is the only way to ensurea suitable supply of truckers.“The two things to solve the truckershortage are better pay and better quality ofAMERICAN SHIPPER: APRIL 2006 51

TRANSPORT / OCEANlife,” Brown said. “There’s been no changein the income structure for drivers in morethan a decade. It will take rate increases tokeep pay suitable enough to keep drivers inthe business.”The trucking industry, like most transportationbusinesses, operates on a thin margin.But Brown said rate increases impact theoverall supply chain much less than stagnantrates hurt truckers in an environmentof elevated costs.“A 10 percent increase on truck rates ishuge for truckers making $100 a load, butinsignificant for the supply chain. Compensationis the thing that first gets them in thedoor. The industry needs to do this becausethese guys aren’t going to increase in numbersunless we take care of them.”Things putting pressure on the truckingindustry are:• More volume, but no extended truckgates hours outside of Southern California.• An aging driver population.• Reduction on free time in terminalsand rail ramps.• Fuel volatility.Fuel, in particular, cost the truckingindustry an extra $21.8 billion in 2005, outof a total of $85 billion spent.“If fuel could just get to a level and staythere, we could figure out what to do andmove beyond it as a business,” Brown said.“It’s costing truckers $15,000 more a yearfor diesel costs.”InfrastructureWhen there are problems on the roads,rail inevitably comes up.In a speech at the conference, BNSFRailway President and CEO Matthew Rosesaid that a moderate amount of tax breaksfrom the federal government would enablerailroads to better keep infrastructure developmenteven with trade growth.Rose said railroads are investing heavilyin capital, but need a public sector incentiveto build important intermodal facilities.“Ensuring capacity in the rail networkwould take $2 billion to $4 billion, comparedto the $80 billion to $90 billion for highways,”he said. “Two billion in a $16-trillioneconomy is a rounding error.”Rose said railroads need to work better withports to provide more on-dock rail and morestaging areas to build long-haul trains, as wellas better forecasting of cargo volumes.In the meantime, Rose said the nation’srailroads have invested about 50 percentmore in physical infrastructure the past twoyears than they did the previous four years— about $9 to $10 billion in 2005 with asimilar amount planned for this year.“BNSF spends about $1.5 billion just tokeep physical assets in the same shape as52 AMERICAN SHIPPER: APRIL 2006the previous year,” he said.BNSF will spend $800 million over 2005and 2006 on expansion projects, includingdouble-tracking its line from Chicago toLos Angeles.“After 2006, we’ll be down to about 60miles of single track between L.A. andChicago, and after that, we’ll start tripletracking,”Rose said.“Somehow, the downstreameffects of everything we’retalking about haven’t madetheir way to the consumer.That’s coming.”Ron Widdowschief executive officer,APLRoughly half of the units BNSF movesare intermodal, a sector of the companythat will surely gain even more attentionin future years.“We are setting up our railroad to handlemore and more of this business,” he said.“Volume has outpaced what we thought wasgoing to happen, but it’s a great problemto have.”Rose said BNSF projected 5 percentgrowth in 2004, but grew 10 percent (leadingto issues that contributed to congestionin Long Beach and Los Angeles), and had5 percent growth in 2005 after projecting3 percent.While Rose called for government inducementsto build infrastructure, he explicitlyurged the government to allow trade to beconducted.“There would be nothing more disruptiveright now than to have a change in regulatorypolicy of this industry,” he said.On mergers, he said he didn’t expect tosee any major rail mergers this year, but thateveryone should be aware of the advantagesof them in any case.“We’re a business based on density,and when you can flow traffic throughone system instead of two, you have morecapacity,” he said.But Tom O’Connor, vice president ofWashington, D.C. economic consultant firmSnavely King Majoros O’Connor & Lee,said the industry should always be on thelookout for rail mergers. He said mergershave been dormant since 2000, replacedlargely by strategic alliances.O’Connor also said the rail industry asa whole is not too enamored with intermodalbusiness, primarily because it’s not theprofit driver that the hauling of coal andchemicals is.Thus, railroads aren’t investing as heavilyin intermodal as one might imagine given thegrowth of that segment of the industry.“If intermodal doesn’t look like a goodbusiness investment, then the capital investmenton intermodal won’t be made,”O’Connor said. “It’s only been profitablesince double-stacking came about, and it’sstill not as profitable as other business segments.Intermodal revenue exceeds coalrevenue, but it’s nowhere near as profitable,and chemical carloads are the most profitable.”Shipper Contribution. But the privatesector is willing to invest in road and railprojects that reap tangible supply chain results,said Christopher Koch, president andCEO of the World Shipping Council.“There is ample private investment available,if it’s allowed to be spent on projects thatcan earn a return,” he said. “A lot of people saygovernment should just have a tax, collect alot of money and then decide what to do withit,” Koch said. “That’s where you get largeshippers and carriers pushing back.”Koch said user fees (such as commercialvehicle toll roads, or use of freight paths likethe Alameda Corridor in Southern California)are potentially viable, and that radiofrequency identification (RFID) technologywill make such fees easier to collect, but thatthe fee has to be protected so as not to bespent on other uses, and has to be collectedequally from all users.“There’s very little redundant capacity inour system,” Koch said. “We’re all operatingas lean as we possibly can, and that’sbecause the government and the industrydon’t reward redundancy.”Koch also called for change in the thinking

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TRANSPORT / OCEANof relying solely on the federal governmentfor transportation funding.“Not only are the states the principaldecision makers and the true ‘owners’ ofthe public transportation infrastructure, thestates are increasing their spending aboveand beyond what the federal government isallocating to them,” Koch said.“This is due in large part to recognition bythe states that federal funding falls far shortof the money needed to adequately improvethe transportation system in their state. TheAlameda Corridor took 19 years from thedrawing board to the first train. This isn’tgoing to happen overnight. We’ve got toget CEOs to explain to Congress how biga problem it is to have two weeks of extrainventory in the supply chain.”For shipper John Isbell, another key voicein the national freight policy movement, theWest Coast-Asia trade lane that he relies onas director of corporate logistics for Nikeconcerns him.“The strategies adopted may buy anothermoderate year of congestion,” Isbell said.“There are a lot of plans, but no strategy atthe national or state level, and that’s scary.Congress clearly doesn’t understand the nuancesof how the supply chain operates.”“Supply chains have been honed to be morejust-in-time oriented, but that will change ascongestion mounts,” he continued.Isbell said that shippers need to communicatetheir plans better with transportationand logistics partners, which will help ensurebetter forecasting and better infrastructureplanning.Speaking about the margin betweenforecast growth and real growth, whichmany blamed for the port congestion crisisin Southern California in 2004, Isbell said:“We have failed to communicate. We can’tlisten to Drewry or others. They have to listento us because we know our own industrybetter than anyone else.”China Issues. Meanwhile, the UnitedStates’ key trading partner across the Pacifichas other problems with which to contend.China’s port and infrastructure growth continueswith abandon even though the otherside of the equation isn’t keeping pace.“If we’re not careful, we could run into theproblem of surplus supply” of terminal capacity,said Kenneth Tse, general manager ofYantian International Container Terminals.Tse said projections show that China’sterminals could be only 51 percent utilizedby 2009, with 27 million TEUs of capacitybeing added in terminals in Yantian andYangshang.However, logistics costs in China are justas big a concern for Tse. He said logisticscosts account for about 20 percent of total54 AMERICAN SHIPPER: APRIL 2006product costs in China, compared to about 6percent in North America and Europe.“Inland transportation costs in China canbe prohibitive,” he said.But, the Chinese government is spending$273 billion on a highway network toconnect major cities and towns of 200,000people or more. The network will have sevenspokes out of Beijing, plus nine north/southroutes and 18 east/west routes.“Ensuring capacityin the rail network wouldtake $2 billion to $4 billion,compared to $80 billionto $90 billion for highways.Two billion in a $16 trillioneconomy is a roundingerror.”Matthew Rosepresident and chiefexecutive officer,BNSF Railway“By the time it’s finished in 2026, it willrival the U.S. in terms of total expresswaymileage,” Tse said.China is also building 10,563 miles ofrail and 18 intermodal terminals betweenthis year and 2010.“Intermodalism is going to come (despitethe fact that major ports in Shanghai havelimited rail access),” Tse said. “Hubs will bebuilt in the next five years and the ministryof rail is talking seriously about opening upto foreign investment and management.”Tse said trade activity has been confinedprimarily to coastal regions in China becausenavigating through the country requiresknowledge of different cultures, languagesand customs as one moves through the interior.Despite the country’s trade revolution,not all areas operate consistently well.“From factory to the port still takes fourdays,” Tse said. “That’s still a lot of inventorycost. The importer cannot predict transit timeout of China. And warehousing and storagetends to be antiquated. We’re very goodat building (infrastructure), but in termsof softer issues, we have to work on thesethings. Our challenge is overcoming a costlyand fragmented logistics industry.”‘White Hot Market.’ Logistics costs arecreeping up in North America too, as the costof transportation increases. Another factor isthe booming port property market, with landnear major ports on Asian trade routes sellingand renting at premium rates.“The real estate market has a keen interest(in the ports and transpacific trade),” saidBlaine Kelley, vice president of CB RichardEllis’ industrial tenant representation group.“The industry is an indicator, and there isgreat pressure on rental rates, which is greatif you own real estate. The capital markets,which are made up of insurance companiesand pension funds, have a huge appetite forindustrial space around ports.”Kelley called the market for property inor near ports “white hot,” saying $8 billionwas spent on port real estate in 2005— nearly equivalent to BNSF’s spend onrail infrastructure.“Just think what injecting $8 billion intothe industry means,” he said.And to say port property is in demandwould be to vastly underestimate the situation,according to Kelley’s figures.He said the national vacancy rate for industrialspace nationwide is about 10 percent,a number that’s about an equilibrium for themarket. Yet the vacancy rate for industrialspace in Long Beach is 2 percent, and notmuch better in Savannah, Norfolk, Seattle,Houston and New Jersey, which range between4 percent and 7 percent vacant.“These are the tightest markets in NorthAmerica,” Kelley said.The cost for space also bears out howtight the market is. In Southern California,industrial space near ports goes for about$6 a square foot, and it’s even higher inNew York at $7.50. But in Atlanta, wheredistribution centers are being built in droves,it’s only $2.50 a square foot.“Ports lack real (distribution) infrastructure,”said George Powers, presidentof third party logistics provider AmericanPort Services, which was acquired last year

TRANSPORT / OCEANby trucking company Schneider National.“Most new development has been in highgrowthpopulation centers.”Powers said companies like his find oldport facilities ill-equipped to handle currentport activities, with short truck aprons andlow ceilings.“So we have to create cross-dock and bigbox facilities,” Powers said.APS sometimes builds greenfield distributioncenters on speculation, safe in theknowledge that they’ll find a customer tofill the DC.“Lots of cities don’t want high-volumedistribution centers,” Powers said. “TheyBuilding DCs — Wal-Mart styleWal-Mart Stores may be knownamong consumers for its largeretail outlets, but the companyhas built a similar reputation within the realestate industry for building super-sizeddistribution centers.The company recently opened a 4-million-squarefoot facility in Baytown, Texas,just outside of Houston, and later this yearplans to open a twobuildingdistributioncenter operation nearChicago at Joliet,Ill., with a combinedspace of 3.4 millionsquare feet.“Developments ofthis size are prettymuch still unheardFordof,” said James C. Ford, vice president ofland and rail development for Oak Brook,Ill.-based real estate developer CenterPointProperties. “However, all of the majorretailers are starting to look at this as animportant option.”CenterPoint helped Wal-Mart with developmentof its Joliet distributioncenter. The company workswith other large retailers thathave similar aspirations. “Weare seeing more build-to-suitsin the 1-million-square-foot orlarger range,” Ford said.Big box retailers are buildinglarge distribution centers closeto population centers such asChicago, Dallas, New York-New Jersey, and Los Angeles-Long Beach. Ford said there hasalso been more of this activityin so-called “alternative” portcities, such as Houston; Mobile,Ala.; and Savannah, Ga.Colby R. Tanner, a real estatemanager for Wal-Mart, spendsmany days out of the year drivingBig box retailer finds availableland more difficult to come by.BY CHRIS GILLISthe countryside surrounding populationcenters, which the retailer refers to internallyas “centroids,” in search of potentialproperties. “We’ll look at 100 to 200 sites forone DC,” Tanner said in a presentation at theInternational Transportation ManagementConference in Houston late February.Tanner said the company tries to locatedistribution centers as close to the centroidsas possible. Four to five perspectivesites are generally picked to present to thecompany board for a final decision.Wal-Mart ensures that all its distributioncenter properties have sufficient access totruck and rail infrastructure. For example,Wal-Mart was attracted to the Joliet sitenot only for its proximity to the Chicagomarket but for the close contact that its distributioncenter would have to the Midwestregion’s intermodal rail hub. Containersloaded with imports can be rapidly railedto Chicago after discharge from vesselsin U.S. West Coast ports.More often, Ford said companies interestedin building warehouses want to firstknow the transportation and supply chainWal-Mart’s new 4-million-square-foot distribution centerin Baytown, Texas.connections of the property before the costof it. “They’re focused on the true benefitof the real estate,” Ford said.Wal-Mart also conducts extensive interviewswith other companies in the areato learn about the available labor force. “Itwould be easy to build a warehouse (likeBaytown) in the Mojave Desert, but if youdon’t have the labor force it’s no good,”Tanner said.The new Baytown facility is located12 miles outside of Houston. The facility,which offers the equivalent of 90 footballfields under two roofs, has the capacity tohandle 100,000 ocean freight containers ayear. Tanner said about 1,000 trucks willtravel daily from the Baytown facility toWal-Mart’s regional distribution centers.Wal-Mart has about 80 distribution centersscattered throughout the United States,ranging from the mega-hubs at Baytown andJoliet to smaller regional and food handlingfacilities. The company plans to open morewarehouses to support its store expansion.This year alone Wal-Mart will open another300 stores throughout the country.However, space to build distributioncenters has become more difficult to find.“We’re running out of spots,” Tanner said.Companies like Wal-Mart are runninginto environmental restrictions and risingreal estate costs. To build a warehouse of1 million square feet or more runs about$25 per square foot today.“I believe that in five to seven yearsthings may slow down,” Ford said. “Buteventually the suppliers to thelarge retailers will be lookingto build these massive facilities.”Wal-Mart has already startedprograms to improve the handlingof merchandise throughexisting distribution channels.One of these programs, whichthe company started last year,requires segmenting its distributionbetween slow and fastmoving goods to better managefreight flows to store shelves.(For more details, read theDecember American Shipper,pages 12-16).Wal-Mart is also developingan international model for overseaswarehouse placement.56 AMERICAN SHIPPER: APRIL 2006

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TRANSPORT / OCEANdon’t want trucks, containers and what theyconsider low-cost jobs. We need to changethat mindset if we’re going to have thesefacilities because they ought to be near portareas.”Powers said it’s for the retailer to decidehow to balance the cost of cheap land and hightransportation costs to ports, or vice versa.“It depends on the customer,” he said.“For 8,000 to 10,000 containers, it mightmake sense to go far away. If you’re draying35,000 containers a year, then the drayagecosts are probably too prohibitive.”RatesMeanwhile, several analysts at the conferencesaid the freight rate declines expectedby the industry for some time are finallycoming to fruition.Paul Svindland, director of transportationand logistics for ICG Commerce, said thatin a survey of shippers (many of whom havealready locked in contracts with carriers),rates have fallen 6 to 12 percent.It’s what many analysts predict will bethe norm when rate negotiations begin inMay.Mark Page, a research director withDrewry Shipping Consultants, said he’sforecasting an 8.75 percent reduction intranspacific rates, primarily stoked byovercapacity due to an influx of new vesselscoming online this year and next.“The management of capacity is verybig this year,” he said. “We’re predicting a12 percent increase in transpacific capacity— even though the order book has morecapacity coming online — because of thelarge number of vessels moving in and outof the trade. But if that cascading doesn’thappen, that 12 percent can become considerablyhigher, and we’re talking aboutmoving around more than 200 ships, eventhough the net gain is only 34.”And shippers shouldn’t expect scrappingto be a factor, either. Most carriers say theirnew ships were needed due to a lack ofcapacity in the first place.“You can almost write scrapping off,” Pagesaid. “The old ships likely to go are small, notlikely to affect even 1 percent of capacity.To justify keeping rates up, Page saidcarriers have shifted the argument a bit.“The argument used to be that capacitywas tight, and now the argument is thatcosts are going up,” he said. “It’s alwaysthe market that decides.”Carriers have likely been preparing for2006 for awhile — knowing that excesscapacity would soften rates — and are nowtrying to limit the damage, he said. And that’sperhaps why service and transit times arebeing emphasized over rates.“Most shippers will take an advert58 AMERICAN SHIPPER: APRIL 2006“There’s very littleredundant capacityin our system. We’re alloperating as lean as wepossibly can, and that’sbecause the governmentand the industry don’treward redundancy.”Christopher Kochpresident and chiefexecutive officer,World Shipping Councilsaying ‘fastest transit time’ at face value.But it’s natural that carriers are promotingthemselves because it’s so difficult to differentiate,”Page said.In his presentation, Page said the averagevessel size of ships in transpacific serviceswould grow to 4,625 TEUs by the end of2006, up from 4,301 at the end of 2005and 4,018 in mid-2004. Eight carriers inthe trade will have expanded their fleets bymore than 15 percent by the end of 2006,with only Hanjin, APL and NYK expandingless than 5 percent.After growth in eastbound transpacifictrade of 15.6 percent in 2004 and 11.6percent in 2005, Drewry is forecastinggrowth of 8 percent in 2006 and 6.6 percentin 2007. Westbound trade, after growing ahealthy 10.4 percent in 2005, will dip to aforecast 5.3 percent growth in 2006 and 5.7percent in 2007.He said peak season utilization in 2005,despite healthy growth in trade volume,was the weakest since 2001, topping out atabout 85 percent.That extra capacity is hitting rates already— from December to February, ratesbetween China and the West Coast havedropped 4.1 percent, and 4.8 percent forall China routes.Aside from a potential oversupply invessel slots, a new entrant in the market(Matson’s backhaul service from Shanghaito Long Beach) and major mergers seem toalso be driving rates down.And more gloom for carriers comes in theform of round trip unit income, which Drewryprojects will drop 9.1 percent in 2006, to about$3,700. And so the halcyon days of 2002-2005, when carrier profit growth averaged18.5 percent, appear to be over, with profitsexpected to level off in 2006.As an example, he said a carrier with 34new ships and five new strings, carryingan additional 1 million TEUs eastboundcould see something like a $2.4 billion risein operating costs.As one of Page’s presentation slides read:“If carriers earned a 15 percent margin in2005, then this could reduce to just 5-6percent in 2006 as aggregate operatingprofit from the route might decline from$3.8 billion to $1.4 billion.”Albert A. Pierce, executive director ofthe Transpacific Stabilization Agreement,said carriers in the transpacific trade willtry to recoup massive operating cost increasesthrough a series of surcharges inrate negotiations.Specifically, TSA will seek a $150-per-FEU surcharge on West Coast shipments,$350 per FEU for intermodal and mini-landbridgemoves, $400 per FEU for all-watershipments to the East Coast via the Suez orPanama canals, and $400 per FEU for peakseason, from June 15 through Nov. 30.But Svindland said he doesn’t expect tosee shippers paying a peak season surchargethat steep.“I think a $125 peak-season surchargeon a weighted average basis, is likely, butyou’re not going to see hundreds of dollars,”he said.Meanwhile, Tilden of Marine TerminalsCorp. said larger vessels, not just the numberof new builds, is affecting rates.“I’m concerned about the macroeconomicsof 8,000-TEU ships,” Tilden said. “We’realready seeing European rates depressed.And you hear talk about shifting even more8,000-TEU vessels to the transpacific tocompensate for rate losses in the Atlantic.I’m afraid that will just put more pressureon rates.”More Trade Forecasts. As for tradegrowth, Mike Andrews, chief economist at

TRANSPORT / OCEAN“The two things to solvethe trucker shortageare better pay and betterquality of life ... It will takerate increases to keep paysuitable enough to keepdrivers in the business”Clark Brownpresident,Bridge TerminalTransportpercent of toys and 75 percent of furnitureimported into the United States is fromChina, primarily because those productswere already being manufactured in Chinabefore it became a member of the WorldTrade Organization in 2001.The lifting of textile quotas from Chinaled to a more than 100 percent growth insuch exports from China to the United States,which ultimately hurt other developing nationsthat produce textiles — even low-costmarkets like Bangladesh, Maguire said.“How much more outsourcing can majorretailers do?” he said.World growth, excluding China, is “anemic,”he continued.“China-centricity is not a win-win situationbecause it hurts other exporters,” he said.PIERS, said the U.S. economy will strengthenin the first half of this year before a gradual decelerationin the second half and into 2007.“We expect the dollar to resume itsdecline and lose value against the Chineseyuan,” Andrews said. “U.S. trade will growmoderately but remain robust, with exportsexpanding faster than the past year.”But domestically, the consumer spendingthat’s fueled huge import growth from Asiawill slow down, leading to a downward slidein the growth of transpacific trade.Remember, however, that it’s stillgrowth.Andrews is forecasting 8.6 percent growthin containerized imports in 2006 and 9.5percent growth in exports.Still, the U.S. purchasing power of householdsshows signs of leveling off, led by aslowing housing market.“In mortgage applications, which are agood indicator of how the housing market isdoing, we’re seeing a signal of a slowdownin housing demand,” Andrews said. “Withhousing sales down, equity extraction willalso slow, leading to less household spending.But wage growth and joblessness ratesshow positive signs in terms of consumerspending. Household income growth willremain quite steady, especially as energycosts have come under control.”Andrews said China’s economy will onceagain grow sizably — 9 percent forecast for2006 and 2007 — while India will also growa significant 7 percent in 2006.Raymond Maguire, managing director oftransport research for UBS Investment Bank,said that China as a manufacturing outsourcehub may be nearing maturity for certain segments,like footwear, toys and furniture. Andhe cautioned that an over-reliance on Chinacould ultimately be detrimental to the U.S.and European economies because it’s harmingother producing nations.He said 85 percent of footwear, 9060 AMERICAN SHIPPER: APRIL 2006Freight rate trends reverseU.S. importers will get carriers to lowerrates in this year’s service contracts.Increased competition among carriersdue to the arrival of substantial newcontainership capacity and a slowingof cargo growth will result in a cyclicalreduction of import freight rates.This looks like a foregone conclusionwhen looking at market dynamics and theprevious history of freight developments.When the market was strong in 2003-2005, ocean carriers were able to raisefreight rates and enjoy record profits. Inparticular, between the low market point of2002 and the high point of the peak seasonof 2005, transpacific eastbound freightrates had increased nearly 30 percent onaverage. Over the same period, westboundtransatlantic rates had soared 40 percent. Butthe proverbial pendulum is now swinging inthe other direction, leading to the return oflower rates, at least for U.S. imports.Factors. Most market analysts, includingDrewry Shipping Consultants, believe thatship capacity in the main east/west tradeswill grow several percentage points fasterthan forecast demand during 2006. Therefore,supply and demand changes will drivefreight rates lower — no surprise here.Drewry forecasts that eastbound transpacificshipload factors will fall to 85percent in the third quarter and 79 percentin the fourth quarter this year, instead of92 percent and 82 percent for the sameBY PHILIP DAMASquarters last year, respectively.But more complex, partly subjectivefactors also influence rates, notably earlysignals of market weakness (before contractnegotiations start), shippers’ perceptionsof the direction of the market, and somechanges in underlying carrier costs.Transpacific shippers know that contractdecisions must be made by consideringseveral forward-looking factors, includingsupply and demand, several months beforethe start of the peak season.Consider the following factors, and theirlikely impact on freight rates:• Spot market. For low-cost transpacificcarriers, the Hong Kong-to-LongBeach spot NVO freight rate has alreadytumbled 13 percent to $1,600 per 40-footcontainer in the year to late February, accordingto the latest pricing data from theDrewry Container Shipper Insight, a newquarterly business intelligence report.Admittedly, this rate slide occurred in theslack season and only in the NVO segmentof the market. But the fact that such a keypricing benchmark in the transpacific tradehas seen double-digit rate decreases willinfluence the negotiations for transpacificservice contracts starting from May 1 betweencarriers and direct shippers.In the China-to-U.S. West Coast trade,import freight rates were down about 11percent to 12 percent year-on-year in Feb-

The National Industrial Transportation League (NITL), in close cooperation with American Shippermagazine and The Cameron Group, invites you to attend the first in a series of teleconferencesthat will explore important issues facing shippers and carriers in this ever-changing industry.Ocean Freight Contractingin a Changing World:Negotiations & Management TrendsOcean Service Contract Speakers:John Isbell Director Corporate Delivery Logistics, Nike, Inc.Bob Sappio Senior Vice President, Trans-Pacific Trade, American President Lines Ltd.NVOCC Service Arrangement Speakers:Thomas H Keene President, BDP Transport, LLC.Tom Craig President, LTD Supply ChainToday, more than 90% of all U.S. international commerce travelsby water. Most of those shipments move under confidential servicecontracts. Knowing and understanding how to successfully developand execute such instruments are necessary for a solid bottom line.On Thursday, April 20, 2-4:30 p.m. EDT, you are invited to join ourtelephone conference to discuss “Ocean Freight Contracting in a ChangingWorld: Negotiations and Management Trends.” Our program comprisestwo panels, “Exploring Confidential Ocean Freight Service Contracts” and“NVOCCs Service Arrangements.”We will cover what you need to know when it comes to ocean freightcontracting, as well as the new rule that allows NVOCCs to enter confidentialservice contracts with their customers and how that affects shippers. At theend of the two panels, we will open the forum for an extensive questionand answer period.Be sure to join us for this critical program to know and better understandthe “ins and outs” of an effective contract. Even if you’re a seasoned professional,your skills and techniques will be assured a complete tuneup.For registration and more detailed information on April’s teleconference,please visit http://www.nitl.org/OceanContractingSeminar2006.April 20, 20062-4:30 p.m. EDTFor more information on sponsorship opportunities, please contact Ryan Kneipper at American Shipper: rkneipper@shippers.com.

TRANSPORT / OCEANAll-in freight rates, U.S.container import trades(January cost per box, including terminal handlingcharges at origin and destination ports)To U.S. East Coast To U.S. West CoastFrom 20-foot 40-foot 20-foot 40-footUnited Kingdom $2,030 $2,820 $3,150 $4,100North Continental Europe (Atlantic France/ $2,320 $3,170 $3,220 $4,330Germany range)Western Mediterranean (Med Spain/Italy range) $2,200 $2,850 $3,090 $4,090South China (Yantian) $3,710 $4,850 $2,350 $3,090Hong Kong $3,400 $4,470 $2,100 $2,790Brazil $2,770 $3,380 $3,770 $4,700Source: Drewry Container Shipper Insight (www.drewry.co.uk/csi).ruary, averaging contract and spot prices,according to Drewry’s information. Moresurprisingly, eastbound China rates havealso started to fall in the more capacityconstrainedAsia/U.S. East Coast all-watertrade.• Perception of the supply outlook.There is now a common perception in theindustry that carriers will have too manyslots to fill. The aggregate industry capacitynumbers also back this up, as several majorcarriers are adding more than 20 percentof ship capacity to their fleet this year. Theaverage capacity increase across the carrierindustry this year will be about 15 percent.The distribution of additional capacity bytrade route is hard to predict, but the overalltrend is clear.• Carrier competition. Matson’s reentryin the transpacific trade in Februaryand enhanced competition among othercarriers bidding to secure the cargo volumespreviously controlled by P&O Nedlloyd alsocome into play.There is little doubt, therefore, thatport-to-port import freight rates will fallin the transpacific and other U.S. importtrade routes.Complicating Factors. This year, carrier/shipperrate negotiations will have toaddress complicating factors beyond baseocean rates.First, there is the issue of high fuel costs,both on the maritime side and for inland railor trucking transportation.Drewry believes that shippers will putpressure on carriers to negotiate bunkersurcharges applied by ocean carriers toport-to-port base ocean rates. When themarket was strong, carriers refused to evennegotiate such fuel surcharges, but the markethas shifted. Despite the higher bunkersurcharges, Drewry forecasts that all-infreight rates in service contracts for Asiato-NorthAmerica shipments will decline10 percent overall this year.62 AMERICAN SHIPPER: APRIL 2006For intermodal or door rates, inlandfuel surcharges, such as those imposedby railroads, have become a divisive issuebetween shippers and carriers. Thisboils down to the question: Who shouldbear the risk of the volatility of inland fuelcosts? The ocean carrier is the contractualcustomer of the railroad, but it seeks to passon the inland fuel surcharge to the shipper,as the end-user. The shipper wants stabletransportation costs per unit and resistsany new volatile surcharge. The situationis similar for port drayage and other truckingoperations. Paradoxically, it looks as ifinland transportation costs will continue torise while ocean import rates fall.But shippers are expected to continue toroute a higher proportion of their easternU.S.-bound cargoes via East Coast ports.This means that many will avoid much ofthe rise in intermodal costs (West Coastmini-landbridge costs) and still benefit fromlower port-to-port rates, at least for cargoesbound for the eastern United States.Another complicating factor is that carriershave argued that capacity restrictions onthe inland side will moderate effective system-widecapacity growth in internationalshipping. While the rail capacity issues doraise serious medium-term questions, asreported already in American Shipper, itremains to be seen whether this argumentwill alter the perception that there are toomany slots on containerships chasing toolittle traffic.Shippers are continuing to experienceincreases in their overall logistics costs fortheir domestic operations, for local distributionand for the North American transportationpart of international freight movements.It would appear that international oceantransportation is the only mode where shippers’freight costs are now decreasing.Rate Levels. The table provides sometypical freight rates in import trade routes tothe United States as of January. Additionalfreight rate tables from the Drewry ContainerShipper Insight quarter 1 report canbe downloaded at www.drewry.co.uk//csi.It is interesting to note that all-in freightrates in January for the inbound trade fromAsia to the U.S. East Coast were more than$1,200 higher per 40-foot container than tothe U.S. West Coast, according to Drewry’soriginal data. This wide differential reflectsthe popularity of all-water transpacific EastCoast services. Drewry understands thatsome shippers are getting Asia-to-U.S. EastCoast rates as low as $3,400 per 40-foot box,which compares with Drewry’s representativeHong Kong-to-U.S. East Coast rate of$4,470 per box. (The Drewry freight ratescome from forwarders, who include someremuneration for their services, and can behigher than the rates secured by major directshippers from carriers.)Freight rates from Europe to the U.S.East Coast were, as expected, very high inJanuary, at about $2,800-3,200 per 40-footcontainer. The transatlantic import markethas experienced tight capacity that allowedcarriers to raise westbound rates.Where does this leave U.S. export containerfreight rates?Exports are a very different story fromimports when it comes to freight rates. In thetransatlantic trade, export container freightrates in January were low — the oppositeof import rates. In the transpacific, freightrates from the U.S. West Coast to SouthChina and Hong Kong hovered at about$1,000-1,100 per 40-foot box in January,also a fraction of import rates.Because westbound transpacific freightrates are already priced by carriers usingmarginal pricing rather than full-cost pricing,it looks unlikely that they will see anydecreases. Major westbound-moving commodities,like wastepaper, are also unableto bear higher freight rates. In effect, theestablished pattern now is that freight ratesin the U.S. import trades are subsidizing thecomparatively lower export rates, becauseof the huge imbalance between importsand exports.This rate advantage, together with theweak dollar policy of the Bush administration,must have helped the recent revivalof U.S. containerized exports. Now, lowerimport freight rates could also help reducethe freight expense and the landed cost ofimported goods.Philip Damas isresearch director atDrewry Shipping Consultantsin London.He can be reachedat damas@drewry.co.uk, or at +44 207538 0191.

HRMA International Trade SymposiumMay 4–5, 2006 Norfolk Marriott WatersideStart looking East! A wave of change for shippers andmaritime professionals is now upon us.The Hampton Roads Maritime Association andAmerican Shipper invite you to attend one of this year’smost important and informative conferences.Morning Keynote Speaker:• Frank Baragona, president, CMA-CGM (America) Inc.HRMA’s third annual conference offers two full days ofevents, including speakers and panels from some of themost respected shipper and maritime industry organizationsin the country.Terminal to Distribution Center – What do Shippers Want?• Christopher Gillis, editor, American Shipper Magazine (Panel Moderator)• Ray Burgett, director of international logistics and transportation, Pier 1 Imports• Michael McClellan, vice president, automotive and intermodal marketing, Norfolk Southern Corporation• Steve Rubin, vice president, liner operations, “K” Line America, Inc.• Clark Brown, president, Bridge Terminal Transport, Inc.• Chris Easter, vice president of global operations, American Port ServicesTrans-Atlantic Realignment and its Impact on Shippers• James Newsome III, senior vice president, Hapag Lloyd (America) Inc. (Panel Moderator)• Andrew Abbott, president and CEO, Atlantic Container Line• Thomas Capozzi, senior managing director of marketing services, Virginia Port Authority• Stefan Weber, director ocean freight, route management Europe, Kuehne + Nagel, Inc.Emerging India-South Asian Market• Bill Ralph, senior advisor, R.K. Johns & Associates (Panel Head)• Mike Hoyt, vice president of transportation, Target• Peter Keller, executive vice president/COO, N.Y.K. Line, N.A.• Tommy Stramer, president, Zim North AmericaLunch Keynote Speaker:• Jack Gross, vice president and general manager, international, Schnieder National, Inc.86th Annual Banquet Keynote Speaker:• J. Russell Bruner, president and CEO, Maersk, Inc.PLATINUMSPONSORHotel information: Norfolk Marriott Waterside, 235 East Main Street, Norfolk, VA 23510 USA. Tel:(800) 874-0264. Don’t delay. Reserve your room by April 3 to receive the conference discount.Mention the HRMA conference when reserving your room to receive the discount.For more information on the conference, discussion and panel topics, and other activities,visit: www.PortofHamptonRoads.com/symposium/GOLDSPONSOR

TRANSPORT / OCEANLocation key for Suez CanalOffers success for all-water routes connectingSouth China, South East Asia to U.S. markets.Who can forget the scene inLawrence of Arabia when PeterO’Toole, as T.E. Lawrence, andthe Bedouin youth he has brought out ofthe desert, suddenly hear a ship’s whistle?Climbing to the top of a sand dune, they areamazed at the closeness of a freighter goingpast them in the Suez Canal.About 8 percent of the world’s sea tradepasses through this vital link between theMediterranean and the Red Sea. In 2003,17,224 ships transited the canal.For ocean carriers, the Suez Canal’sproximity to South China and South EastAsia make it a competitive conduit forcargo moving to the United States, whilethe Panama Canal has an edge for cargoesfrom more northerly ports in Asia.For example, an all-water service by ChinaShipping Container Lines from Asia via theBY SIMON HEANEY AND ROBERT MOTTLEYSuezCanalSuez Canal to Canada and the U.S. East Coastoffers a transit time of about 28 days fromHong Kong to Halifax, Nova Scotia.As more shippers ask carriers for allwaterroutes from Asia through the canal,adjacent terminals have increased in value.Last December, COSCO Pacific Ltd. agreedto purchase a 20 percent equity interest inthe Suez Canal Container Terminal (SCCT)from the Egyptian International ContainerTerminal, a subsidiary of A.P. Moller-Maersk, for an undisclosed amount.The Suez Canal Container Terminaloperates the Port Said East Port in Egypt,which has been operational since the fallof 2004.The 600,000-square-meter Port Said EastPort has four deepwater berths with a quaylength of 3,937 feet, and can accommodatevessels with a draft of 54.1 feet. From October2004 to October 2005, SCCT handled550,000 TEUs.In March 2005, Hong Kong-based megaportoperator Hutchison Port Holdingsentered into agreements with a consortiumled by the Alexandria Port Authority for theconstruction, operation and managementof two terminals at the ports of Alexandriaand El Dekheila, Egypt. On those sites, twogeneral cargo terminals are being convertedto container handling operations. They willcompete with the neighboring Suez CanalContainer Terminal.Smooth Sailing. A straight ribbon ofblue extending through the mottled desert,Table 1Far East/U.S. East Coast transits via Suez and Panama Feb. 2006(Services weekly unless noted*)Service name and carriers Avg. Northern Asia/USEC Days Eastern Asia/USEC Days South East Asia/USEC DaysTEUSVia Suez CanalGrand Alliance — AEX 5,200 — — — — Singapore/New York 24China Shipping — AMAX 4,200 — — Chiwan/New York 34 Port Kelang/New York 30Indotrans — Main Service* 1,800 — — — — Jakarta/Camden, N.J. 43Norasia/China Shipping/Zim/Gold Star — RTW 2,900 — — Chiwan/New York 53 Port Kelang/New York 48Via Panama CanalNew World Alliance — APX 4,300 Tokyo/Miami 19 Hong Kong/Miami 26 — —Maersk Line/Safmarine — TP7 4,600 Kwangyang/Miami 19 Yantian/Miami 22 — —Maersk Line/Safmarine — TP12 n/a Kaohsiung/Savannah 19 — — — —COSCO/“K” Line/YML/Hanjin/UASC — AWE-1 4,200 Busan/New York 20 Hong Kong/New York 23 — —Maersk Line/Safmarine — TP3 4,400 Yokohama/New York 20 Kaohsiung/New York 23 — —Evergreen/ITS/Hatsu Marine — NUE 4,050 Shimizu/Charleston 21 Shanghai/Charleston 28 — —Zim/China Shipping/U.S. Lines — ZCS 4,600 Yokohama/Savannah 21 Keelung/Savannah 27 — —MSC — Transpac Pendulum Service 4,700 Busan/Pt. Everglades 22 Ningbo/Pt. Everglades 24 — —Grand Alliance — PAX 4,700 Tokyo/Savannah 23 Hong Kong/Savannah 28 — —Grand Alliance — East Coast North 4,000 Busan/New York 28 Hong Kong/New York 22 — —CMA CGM/CSCL/ANL — PEX 1/AAE 1 4,100 Busan/Miami 30 Hong Kong/Miami 24 — —COSCO/“K” Line/YML/Hanjin — AWE-2 3,800 — — Hong Kong/Charleston 21 — —New World Alliance/Evergreen — N.Y. Express 4,650 — — Kaohsiung/New York 22 — —COSCO/“K” Line/YML/Hanjin — AWE-4 3,900 — — Hong Kong/New York 22 — —Evergreen/ITS/Hatsu Marine — AUE 4,200 — — Kaohsiung/New York 23 — —ITS/Zim/Hatsu Marine — AUX 2,800 — — Qingdao/Port Everglades 25 — —Evergreen/COSCO/ITS/Hatsu Marine — CUE 2,800 — — Hong Kong/Savannah 29 — —CMA CGM — Pacific Express 3 3,150 — — Hong Kong/Savannah 30 — —* Monthly service.RWT = Round the WorldSource: ComPairData (www.compairdata.com).64 AMERICAN SHIPPER: APRIL 2006

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TRANSPORT / OCEANthe Suez Canal is 118 miles long and 984feet wide at its narrowest point. Ships witha draft of up to 53 feet are allowed passage.The Suez Canal Authority has planned toincrease the permissible draft to 72 feetby 2010, which will allow the transit ofsupertankers.At present, supertankers can offloadpart of their cargo onto a canal authorityownedvessel, and reload at the other endof the canal.Today, there is one shipping lane throughthe canal that has several passing areas.Vessels transit northbound or southboundin tug-escorted convoys of 15 or 20 ships. Acomplete passage takes 11 to 16 hours.Usually, transits go smoothly. There areno locks to negotiate, nor periodic tidalsurges. However, sandstorms can disruptvessel convoys.Early in February, high winds whippedaround the Okal King Dor, a 93,000-tonHong Kong-flagged cargo vessel, causingthe ship to veer at right angles to the sidesof the canal. The ship wedged itself in place,blocking all transit until four tugs were sentto realign the vessel. Pushed back into theshipping lane, the Okal King Dor continuedits northbound passage.“They cleared that ship in less than a day,”said Anil J. Vitarana, president of UnitedArab Shipping Co. (S.A.G.), which hasits U.S. office in EastCranford, N.J.Vitarana’s company,a long-time customerof the Suez Canal,has had no recentcomplaints.“The canal operatesquite smoothly,” Vitaranatold AmericanVitaranaShipper. “As a carrier, you always feel thatthe tolls are too high. However, since we’vebeen paying at that scale, there haven’t beenany huge spikes. What increases there havebeen are moderate.”A pilot takes each ship through the canal.There’s also a husbanding agent who usuallytakes care of a vessel from a shoresidevenue.Operationally, the canal requires advancenotice of hazardous cargoes, “but not tosame extent that you now find with thePanama Canal,” Vitarana said. “You know24 hours in advance where your ship will beTable 2Suez Canal traffic1995-2005(In million tons, revenue in $billions)Year No. of Million SCAships tons revenue2005 18,193 671.8 $3.462004 16,850 621.1 $3.082003 15,667 549.3 $2.602002 13,447 444.8 $1.962001 13,986 456.0 $1.912000 14,141 439.0 $1.941999 13,490 385.0 $1.821998 13,471 386.0 $1.781997 14,430 368.7 $1.781996 14,731 354.9 $1.851995 15,015 360.2 $1.94Source: Suez Canal Authority.placed in a convoy. The length of the convoydepends on when your vessel reaches theforming point.”United Arab Shipping maintains an officein Alexandria, Egypt, to deal with thecompany’s vessels transiting the canal.In contrast to the Panama Canal Authority’spublic openness via a Web site andfrequent press releases, the Suez CanalAuthority — which is part of the Egyptiangovernment — prefers a profile as low asthe desert along the canal.The authority doesn’t have a public Website, nor even a restricted one for oceancarriers to use.“When the canal authorities do respond tous, to answer questions or discuss issues wemay have, they do that through our Egyptianagent,” Vitarana said. “Most carriers workin that way, through local agents. There’snot much direct communication with theauthority itself.”Ancient Routing. There has alwaysbeen a canal in the Suez region. PharaohSenusret III (1878 B.C.-1839 B.C.), in theEgyptian 12th Dynasty, is believed to haveordered a west/east canal dug through theWadi Tumilat to connect the Nile Riverwith the Red Sea. Such a canal definitelyexisted during the reign of Ramesses II inthe 13th century B.C.The Nile-Red Sea routing received a morepermanent canal in 500 B.C., completed byKing Darius I, the Persian conqueror of Egypt.Darius liked the work that was done enoughto erect granite stelae commemorating it.One such marker near Kabret, Egypt,reads as follows: “Saith King Darius: Whenthe canal had been dug as I ordered, shipswent from Egypt through this canal to Persia,as I intended.”In the centuries that followed, Darius’scanal was modified, destroyed, and rebuiltseveral times before the Abbasid Caliph al-Mansur wrecked it for good in the Eighthcentury A.D.Almost 1,000 years later, in 1856, Ferdinandde Lesseps, a former French consulin Cairo, obtained concessions from SaidPasha, the viceroy of Egypt, to build a canalbetween the Mediterranean and Red Sea thatwould be open to ships of all nations.Alois Negrelli, an Austrian engineer, drewup plans for the canal, and work started in1859. The project was completed in 1867.The canal had an immediate and dramaticeffect on global trade. It also became a pawnin precarious Egyptian politics. In 1888,the Convention of Constantinople declaredthe canal to be a neutral zone under Britishprotection.Under the Anglo-Egyptian Treaty of1936, the United Kingdom retained controlover the canal. That state of affairs lasteduntil 1951, when Egypt repudiated the treaty.By 1954, the United Kingdom had agreedto leave Egypt.In 1956, after the United Kingdom and theUnited States had withdrawn their supportfor construction of the Aswan Dam becauseEgypt sought weapons from the Soviet Union,Egypt’s President Gamal Abdel Nasserpromptly nationalized the Suez Canal.In the week-long Suez War that followed,Britain, France and Israel invaded Egypt.Enough ships were sunk to block passagethrough the canal until April 1957. Once thecanal was cleared, a United Nations forcewas created to maintain the neutrality of boththe canal and the entire Sinai Peninsula.After the Six-Day War in 1967, Egyptblockaded the canal and kept it closeduntil 1975. Today, a multinational forcecomprised mostly of U.S. troops monitorsthe Sinai. This armed presence is not partof the United Nations, but remains in placeunder agreements between the United States,Egypt and Israel.In 2006, vessels of all nations — includingIsrael — transit the Canal without politicsbeing a factor.Daily News UpdatesFeature Articles & Analysisamericanshipper.comYour subscription to American Shipper brings you bothAmerican Shipper Magazine66 AMERICAN SHIPPER: APRIL 2006

TRANSPORT / OCEANVirginia counting on SuezPort believes it’s better placed than most to takeadvantage of Suez services from Asia.BY ERIC JOHNSONThe Port of Virginia landed a key allwaterservice from East Asia via theSuez Canal in the summer of 2005when China Shipping’s AMAX servicebegan calling at Norfolk.But that may just be the beginning for thegrowing mid-eastern port when it comes tobusiness through the Suez.With deep water, ship-to-shore cranescapable of handling 18,000-TEU ships andenhanced inland connections, Virginia maybe ideally suited to handle an expected floodof post-Panamax vessels transiting throughthe Suez from Southeast Asia, as well asIndia and the Middle East.“The Suez development is somethingwe’re hopeful will enable us to grow,” saidTom Capozzi, senior managing director ofmarketing at the Port of Virginia. “We feelwe’re better placed than any other port onthe East Coast to handle the services comingvia the Suez.”And an analyst agreed.“From everything we can look at, Norfolkis sitting pretty well,” said Paul Bingham,an economist with consulting firm GlobalInsight. “But it’s by no means guaranteed,because it’s a continual battle to try to capturebusiness from competitors.”No other port on the U.S. East Coasthas the geographic, physical and culturaladvantages of Virginia, Bingham said.“Baltimore says they’re the closest toChicago, but as a shipper you might considerNorfolk closer because of the time it takesto steam up the Chesapeake,” Binghamsaid. “In Savannah, there are limitationson channel depth (because of aquifers“It may be luck morethan brains, but Norfolk’sdone a good jobof positioning itself.”Paul Binghameconomist,Global InsightSuezCanalthat sit just below the port channel). AndCharleston has run into local opposition toits expansion, so Norfolk is well-placed. Butif I would have looked back eight years ago,I would have predicted Charleston wouldhave been bigger than Savannah, so thingscan change.”Virginia’s varied cargo sources (onlyabout 20 percent of its business came fromChina, versus roughly 50 percent for, saythe Port of Long Beach) means the portcan take advantage of those physical andgeographical characteristics to expand itsacreage and land services that other EastCoast ports might not be quite preparedfor.“The Suez opens up our ability to bringin larger vessels, because you don’t havethe restrictions of the Panama Canal,” hesaid. “You need deep water for these largervessels, and we’re the only port on the U.S.East Coast with 50 feet of depth. You alsoneed the ability to handle and dischargelarge volumes of cargo, which we havebecause we have phenomenal intermodalconnections and we’re right next to majorhighways. Those are two things that bodewell for us.”For instance, Bingham said, shippers andcarriers may prefer to make a first call inNew York or New Jersey, but pushback froma vociferous environmental movement andhigh land development costs there makeVirginia look more attractive.And while Savannah has done possiblyFastestAMERICAN SHIPPER: APRIL 2006 67

TRANSPORT / OCEANmore than any other East Coast port toenhance its position by facilitating constructionof massive distribution centers near theport, it still lies far away from any majorpopulation clusters.Virginia is close enough to the covetedNortheast market and has room to grow,and a business community that understandsthe impacts of maritime activity, possiblybecause of the U.S. Navy’s history in Norfolk,Bingham said.“It may be about luck more than brains,but Norfolk’s done a good job of positioningitself,” he said. “If I’m a retailer looking toput a distribution center, there’s room atTidewater (near the Port of Virginia) justlike there’s room in Savannah.”And if a shipper is looking to move goodsvia the Suez, and using a service that employspost-Panamax vessels, then Virginiais the only logical choice right now.Premium On Rail. Capozzi said anincrease in Suez services places a higherpremium on good rail connections, becauseproducts shipped from India and SoutheastAsia can suddenly arrive via the U.S. EastCoast and be sent by rail west to the Midwestor even farther.In contrast, he said, all-water servicesthrough the Panama Canal are typicallygeared only for East Coast distribution.“You have the reverse landbridge to theWest Coast, which is great for our regionbecause you put the eastern railroad on theinitial leg rather than the receiving end,”he said.But Bingham said he doesn’t yet seethe financial sense of that arrangement,even if railroads offered reduced rates forwestbound services.“You’re still paying for a lot of extra timeand transit,” he said. “I don’t see it workingpast Chicago.”And whether Virginia can land heavybusiness on the Suez depends, in part, onthe rail efficiency.“If you’re looking to feed New York out ofSoutheast Asia, if the rail network out of theWest Coast falls apart, then the Suez looksattractive, especially for high-end valuegoods,” Bingham said. “But if rail is good,then you’d probably look to put low-valueitems on the Suez route because it does takelonger, and you’re losing money every daythe goods are on the water.”Still, the Suez presents major opportunityfor U.S. East Coast ports to tap into theSoutheast Asian market.“You’ve seen services go into Savannahas carriers are induced to call there by thedistribution centers popping up,” Binghamsaid. “The same can be said of Norfolk, too,with Wal-Mart opening up a big (distributioncenter) there. There’s a strong desireon the part of importers to diversity soyou’re not beholden to Panama or the WestCoast. It’s going to depend on your mix ofcustomers.”“As India developsinto a manufacturingcenter, that does openup the attractivenessof the Suez. We’ve beenbuilding our facilitiesto handle the growthof those markets.”Tom Capozzisenior managingdirector of marketing,Port of VirginiaSoutheast Asian cargo represents about6.4 percent of Virginia’s business, comparedwith 5.8 percent from India (its fastestgrowing market, at more than 20 percentgrowth the last three years), 3.9 percentfrom the Middle East and 30 percent fromNortheast Asia.The development of India as a tradingpartner with the United States could open upopportunities in Southeast Asian countries,Capozzi said.“As India develops into a manufacturingcenter, that does open up the attractivenessof the Suez,” Capozzi said. “We’ve beenbuilding our facilities to handle the growthof those markets.”Those developments include a plannedon-dock expansion at the port’s Norfolkterminal, container cranes that can stretchacross ships 26 containers wide, andimproved intermodal connections on theNorfolk Southern Railway.The port, which handled 1.98 millionTEUs in 2005, is also planning to morethan quadruple its throughput capacityover the next decade — first with an APMterminal in Portsmouth designed to handle2.1 million TEUs that’s due to come onlinein 2007, and then with development of a 5-million-TEU terminal on Craney Islandplanned for opening in 2017.“Nobody else has this ability to grow,”Capozzi said.Much depends, of course, on what transpiresin Panama.“If we assume that the Panamanianscontinue to have problems with expansion,then there will be a growth in fees, andoverall trade growth is large enough to pusha lot of trade through the Suez,” Binghamsaid. With an expansion in global vesselcapacity, “you have a lot more containervessel capacity to deploy somewhere andit becomes more attractive as a carrier toput capacity on that route.”That’s because the Suez route is a muchless competitive environment than, say, thetranspacific, so rates will reflect that. Butthe viability of the Suez is also dependenton Egypt.“They can change things overnight,”Bingham said. “They’ve been more flexiblein their marketing and pricing as far as tollsthan the Panamanians have been.”Capozzi agreed, especially since a significantslice of Virginia’s business movesthrough Panama.“It’s not as if the Suez will come onlineand Panama will disappear,” Capozzisaid. “Panama will remain viable and willadd capacity, but it will serve a differentmarket.”And Capozzi said there’s plenty of cargoto go around on the East Coast anyway.“If you look at the projections for futuregrowth, they’re staggering,” he said. “I rememberthe days when everyone was happyto have 3 to 4 percent growth. Now you’renot happy unless it’s double digits. There’senough to go around to keep everybodyhappy.”Aside from the China Shipping AMAXservice, six other services call on Virginiavia the Suez, and Capozzi said he expectsVirginia to land another one this year.“And in ’07, that’s when I hear all theSuez services will begin coming online,”he said.Daily News UpdatesFeature Articles & Analysisamericanshipper.comYour subscription to American Shipper brings you bothAmerican Shipper Magazine68 AMERICAN SHIPPER: APRIL 2006

TRANSPORT / OCEANAdvance on the new Silk RoadTurkish company retreading Marco Polo’s pathwith multimodal Europe-to-Asia Suez alternative.BY SIMON HEANEYCenturies ago convoys of donkeysand camels trudged goods alongthe dusty Silk Road joining the twoworlds of Europe and Asia. Now, Istanbulbasedfreight forwarder Advance Internationalhas made use of international agencyplans to re-establish reliable landbridgeroutes between the two continents.In March, the company’s subsidiary AdvantageInternational Transport & LogisticLtd., specialists in project cargo shipments— particularly power generating machineryand petrochemical, smelting and miningequipment — became the exclusive containeroperator for energy-rich Kazakhstan,predicted to be one of the world’s top fiveoil producers by 2015.The weekly combined rail and oceanAdvantage Express Service operates alongthe Transport Corridor Europe-Caucus-Asia(TRACECA), established by the EuropeanUnion in 1993.Cargo moves via rail from the Georgianport of Poti at the Eastern edge of the BlackSea across to Baku, where it is loaded ontoa ferry across the Caspian Sea to Aktau,Western Kazakhstan, for a final rail journeyvia Tashkent to former capital Almaty.The eight-day Poti-Almaty transit includes36 hours for the ferry journey and10 to 12 hours of loading and unloading onto the ferry. The first test run in Decemberon the 4,111-kilometer route actually tookonly 132 hours or about six days.Advance estimates that the service willtransport 50,000 TEUs each year with 56Russian-type single-stack wagons on eachblock train. It is marketing the service tonon-vessel-operating common carriers as acheap alternative to the existing road and riverroutes, which can get ice-choked in winter.“The freight rate will be between euros2,500 ($4,000) to euros 3,000 ($3,600) perTEU compared to euros 5,500 ($6,500)for the all-road service, offering the samequantity and transit time,” said Jawad Kamel,Advance’s president and chief executiveofficer.New Silk Road. In September 2000,two United Nations commissions identifiedSuezCanalfour major Euro-Asian transport corridorroutes, the Trans-Siberian, the TRACEA, theSouthern and the North-South Corridor, torevive the historic Silk Road, launching itsJoint Project on Developing EURO-ASIANTransport Linkages 2002-2006 (see map,next page).By improving transport infrastructureand removing border barriers with a harmonizedtransport policy, the joint projectaims to provide scheduled multimodal servicesfrom Western Europe as far across asChina’s Eastern seaboard and as far downas South Asia to compete against shippinglines travelling through the Suez Canal.Another of the project’s aims is to open upthe vast, often hostile and largely landlockedCentral Asian market. Kazakhstan is a largeimporter of equipment for the oil and gasindustries, but is out of reach via Suez.The International North-South TransportCorridor estimates that Baltic to India cargoeswill benefit from an improved transittime of 25 to 30 days, compared to 45 to60 days via the Suez Canal.In May, Advantage International willexpand its Advantage Express Service byconnecting it to the Trans-Siberian corridorto supply empty containers to Urumqi, a hubcity in North-West China.China’s container availability is desperatelylow due to the trade imbalance. Kameladmitted that the volumes of containers thecompany could provide to China wouldbe “just a drop in the ocean” compared tothe country’s burgeoning needs. COSCOEasiestAMERICAN SHIPPER: APRIL 2006 69

TRANSPORT / OCEANis Advance’s agent in China.The expansion to Urumqi will offer apotential connection from the extremewestern Chinese inland region to Poti andthen by feeder ships to Europe and the EastCoast of North America.Advantage International already operatesrail services originating in Turkey, CIS andRussia and combined rail, roll-on/roll-offand ferry services, as well as container feederservices, between Black Sea and Mediterraneanports to Poti for onward transport byrail and road to all destinations within theCIS, Iran and Iraq.Anticipating good volumes on the AdvantageExpress Service, the companyplans to charter some 12,000- to 15,000-ton multipurpose ships to operate betweenWestern Europe and Poti on a 14-day ortwice-monthly sailing frequency. The transittime between Antwerp and Poti is expectedto be about 12 days.For North American cargoes, AdvantageInternational charters ships from Germany’sBBC Chartering and Logistics on tworoutes: from Houston, Galveston, Baltimoreand Charleston to Poti; and from Toronto,Montreal and St. John’s in Canada to theGeorgian port. Houston-based World ProjectsInternational acts as Advance’s agentin North America.There are also plans to increase the AdvanceExpress Service’s frequency to five departuresa week by the end of this year.“With a question mark over suppliesfrom other parts of the world, energy fromKazakhstan is becoming more vital everyday,” Kamel said.“Furthermore, with the Chinese governmentkeen to open up inland parts of thecountry to international trade, more shipperswill need to consider the overland option.Central China is a long way from the portsof the country’s Eastern seaboard, and thenew express link will be vital in opening upthese areas to the outside world,” he said.Iran At The Hub. While the IslamicRepublic of Iran may be considered partof the “axis of evil,” it is also located at thecrossroads of the TRACECA and North-South Corridor, and has big plans to makethe most of its strategic location.From Europe, Iran imports vehicles frommanufacturers like Daimler, Renault, Peugeotand Fiat. Cargo from the United Statesincludes frozen food stuffs.In September 2000, Russia, Iran and Indiasigned the North-South Transport CorridorAgreement to restore Soviet Union-era connectionsby extending the Helsinki/St. Petersburg/Moscowroute across the CaspianSea through to the southern Iranian port ofBandar Abbas, India and eventually beyondto South East Asia.To facilitate the burgeoning corridor,Iran has embarked on one of the world’slargest railway construction programs. Lastyear, it committed to a five-year economicdevelopment plan to plug holes in its railnetwork and increase its cargo capacity to53 million tons by 2010.To do this, Iran aims to upgrade 5,600kilometers of its existing 8,300 kilometersworth of track and lay down an extra 3,500kilometers of electrified railway lines.The development of the Qazvin-Rasht-Astara railway has been identified as apriority, which will connect the northernprovince of Gilan to the state railway networkand complete the western branch ofthe North-South Corridor.Other major transport infrastructureprojects include extending the Sangan-Heartrailway by 201 kilometers to link Afghanistanto the Persian Gulf, and a Baku-Astarahighway.Astara Transit Terminal. Advancehas identified Astara on the Azerbaijan andIranian border as a major rail/road hub forthe future. Over two years, the companyhas invested about $17 million to develop70 AMERICAN SHIPPER: APRIL 2006

TRANSPORT / OCEANJawad Kamelpresident and chiefexecutive officer,AdvanceInternational“Central China is a longway from the portsof the country’s Easternseaboard, and the newexpress link will be vitalin opening up these areasto the outside world.”and become a 50-50 joint shareholder withthe Azerbaijan State Railway in the AstaraTransit Terminal.Advance said cargo moved by rail fromWestern Europe can reach Astara in about15 days, or five to 10 days from Russia andthe CIS countries. From Astara, cargo will bedispatched to final destinations throughoutIran by road.The terminal has new offices able to offerthrough documentation, and is equipped tohandle breakbulk cargoes, 20-foot and 40-foot containers, including heavy lift, andoutsized cargoes up to 120 tons, within therail loading gauge. It has 6,000 square metersof warehousing, 120,000 square meters ofopen storage and four sidings, connecteddirectly to the warehousing area.The terminal is also prepared to transfercargo from the Russian broad gauge to theIranian standard gauge in readiness for whenAstara is connected to Iran’s rail network.“Before its break, the former SovietUnion was a main supply corridor by railfrom Western Europe to Iran via the Soviet-Iranian border at Djulfa; at its peak movingover 800 rail wagons a day,” Kamel said.“However, the war between Azerbaijan andArmenia (1988-1994) disrupted this routeand the railway through Azerbaijan to Djulfawas eventually destroyed,” he said. “Cargohad to be rerouted, either by sea to the Iranianports of Bandar Abbas and Bandar ImmamKhomeini, or by road via Turkey.“Other alternatives were rail via Russia tothe Caspian Sea port of Astrakhan and thenby conventional shipping to the Iranian portof Bandar Anzali or, during May to Octoberonly, the Volga River.“There is also a very long rail route fromRussia via Kazakhstan, Uzbekistan andTurkmenistan to the Iranian border.“All of these alternatives are either morecostly, or not as efficient. Shippers in Iran areseeking more freight capacity on routes to andfrom Europe. Business is booming and theAstara Terminal heralds the return of a CentralAsian transport artery,” Kamel said.Notwithstanding its position in the “axis,”Iran has recently troubled a number ofgovernments by threatening to develop itsnuclear capacity. Kamel dismissed Iran’sfaltering diplomatic relations as a potentialthreat to the success of the North-South Corridorand the Astara Transit Terminal:“No matter how many sanctions havebeen imposed on Iran in the past, none haveworked. It is a big market with a populationof 70 million. There are so many willingtrading countries that sanctions would justmake the middleman rich,” he said.Although Advance has earmarked Iranand the Central Asian region with its latentconnections to China and South Asia as agrowth market, Kamel refused to be drawninto the company’s profit expectations forthe Astara terminal.“It is difficult to anticipate when we willmake money back on the investment. Aswith any investment, any money is writtenoff on day one,” he said.Moving cargo through Iran and CentralAsian has been problematic in the past.“There were a lot of mishaps on deliveryof cargo. In one case a container roof wascut away and stripped of its contents withthe consignee receiving an empty container,”he said.“Those days are fortunately gone. Unfortunately,there are still a lot of difficulties.Custom invoices go missing and containerscan wait more than a year to be deliveredawaiting documentation.”To counter this hazard, all documentationwill be handled at the Astara Transit Terminalsite office while sales will be controlledfrom any of Advance’s offices in Bulgaria,Romania, Turkey, Azerbaijan, Uzbekistan,Iran, Kazakhstan or Russia. Advance hasalso established a network of 30 differentsub-agents, headed by Seabreak Antwerp inBelgium, to handle sales of Astara TransitTerminal services in Europe.How long before a seamless new SilkRoad is completed will depend on thewillingness of numerous states, some withlong-held grudges towards one another, towork together and make serious transportinfrastructure investments. For a quicker andcheaper alternative to the transport throughthe Suez Canal, shippers will hope past differencescan be easily resolved and othercompanies will decide to join Advance onthe Silk Road.■ClosestAMERICAN SHIPPER: APRIL 2006 71

TRANSPORT / OCEANEnvironmentally friendly heirA year after pollution violations, Evergreen Marine Corp.chairman lays out environmental challenge to the industry.Kuo-Cheng Chang, heir to the Evergreenthrone, took the opportunity inearly March to lay down the gauntletto the rest of the shipping industry.Speaking to a massive crowd of industryofficials that included port, carrier and shipperluminaries, Chang said Evergreen wouldbuild only environmentally friendly vessels,and they’d turn a profit doing it.But he challenged the rest of the industryto follow suit, or risk jeopardizing the veryplatform that allows ocean trade to be sucha lucrative global business.“These issues may be dismissed as commerciallyinsignificant, something to bedealt with by the P.R. department,” Changsaid. “This is no longer the case.”Chang then showed a quote from his father,Evergreen Group Chairman Yung-Fa Chang:“We shouldn’t wait for the introduction ofregulation to tell us where to improve.”Later, in an interview with AmericanShipper in a hotel suite overlooking the Portof Long Beach, Kuo-Cheng Chang said hedoesn’t exactly expect to be a pied piper forthe industry. “My intention is not to influenceother people. People have to decidethemselves,” the affable Chang said. “Wehave to at least face this. We cannot continueto keep blind and not face these issues.”Educated in the United States at theUniversity of Boston and University of California,Los Angeles, Chang is due to be thenew face of Evergreen, which is celebratingits 30th year in the liner business.Started in 1975 as a low-cost carrier,Evergreen has emerged as one of the world’sbiggest shipping lines three decades later.But it was almost exactly one year ago thatEvergreen was in the news for decidedly unfriendlybehavior toward the environment.On April 4, 2005, the U.S. Justice Departmentmeted out it largest penalty ever forconcealing vessel pollution — 24 felonycounts and five misdemeanor counts in all— and the Taiwanese company found itselfon the business end of a $25 million fine.The investigation of Evergreen shipsand companies began on March 4, 2001,after the discovery of about 500 gallonsof oil in the Columbia River near Kalama,Wash., according to a Justice Department72 AMERICAN SHIPPER: APRIL 2006BY ERIC JOHNSONKuo-Cheng Changchairman, maritimedivision,Evergreen“My intention is notto influence other people... We have to at leastface this. We cannotcontinue to keep blindand not face these issues.”news release. In all, seven Evergreen shipswere found to have used bypass equipmentto dump oily waste and sludge, and thecompany was found to have systematicallyconcealed the actions.Yet by December, Evergreen’s first in aline of what it calls “green ships,” made itsfirst call on American soil, when the HatsuSigma docked in Los Angeles.The company has ordered 10 ships inthe string of S-type vessels, each capableof carrying 7,024 TEUs, and has alreadytaken delivery of four.“All our new ships will be green ships,”said Chang, who indicated that it’s too earlyto have concrete assurances from shippersthat they’ll be more apt to have their cargomoved on environmentally friendly ships.The S-type ships have:• Auxiliary fuel tanks that enable theship to run on low-sulfur fuel while dockedand near ports.• The capability to run on electricalpower while docked for terminals withcold-ironing facilities.• Higher volume oil water and bilgewater storage tanks.• Double-skinned hulls.• Fuel tanks that are positioned insideof container stacks so they are less likelyto rupture in an accident.During his presentation at the conference,Chang said Evergreen is not ignoring thefinancial realities of equipping ships withenvironmental safeguards that have not yetbeen required of carriers.He said it would cost $5 million per vesselto upgrade environmentally, plus $400,000maintenance annually over the 20-year lifecycle of a ship.“We estimate the cost to the industry to be$70 billion, which is a huge cost for the carrierindustry, one with low profit margins,” Changsaid. “We are not blind to the costs.”When asked in the interview if Evergreencould maintain its stance if other carriersdidn’t follow through, thus placing it at acost disadvantage, Chang said the companycan indeed absorb the costs.“That is an easy question,” he said. “Nomatter what, we have to survive. Everycompany has its costs situation.”Perhaps it’s because Evergreen has beenable to maintain low operating costs comparedto other carriers, at least so far asChang is able to tell.“By total cost, I am quite confident we arethe lowest cost operating company,” he said.“But honestly speaking, I don’t know othercompanies’ costs. The shipping industry isnot an open industry.“The other companies may have their ownsecrets,” he said with a chuckle.This year promises to strain the carrier industry,as dipping freight rates are juxtaposeduneasily with rising operating costs.And Chang said security is a competingcost with environmental upgrades for anindustry with a low profit margin. Oil priceshave tripled in the last decade while the tradeimbalance on the transpacific has swelledto about 2.75 eastbound containers to onewestbound container as of October.“This creates huge repositioning costs forcarriers,” Chang said. “We have reached thetipping point of trade imbalance.”Most carriers at this point have diversifiedtheir business to handle logistics functionsor terminal operations, or both.“Some companies use terminals just forinvestment purposes. They use the terminalsas profit centers,” Chang said. “Some wantto invest in terminals other than for commercialpurposes. We just want to make ourterminals smooth — not to make a profit,but to provide a better service.”When queried about carriers buyingterminal leases as assets, (as evidenced bythe huge amount Dubai Ports World is payingfor its controversial purchase of P&OPorts) Chang said he couldn’t quite figurewhy terminals were so valuable.“Why is DP World spending so muchmoney to buy (P&O Ports)?” he said. “PSA

TRANSPORT / OCEANEvergreen’s Hatsu Sigma, its first in a line of “green ships,” made its firstU.S. call at Los Angeles in December.decided it was not commercially viable (atthat price). Maybe they see in the futuregrowing returns, but I really don’t know.”Evergreen’s businesses now include an airline,a hotel chain and a logistics division.“Every shipping line has their logisticsarms,” he said. “I think that’s a trend, becausethe shippers demand more and more.”He said the expected service level of shippershas gone from point-to-point, to doorto-door,to floor-to-floor, with some evenrequiring smart labels and radio frequencyidentification (RFID) tagging.“It’s a requirement of the shippers, and theindustry is just following on,” he said.As for vessel overcapacity worldwide,with analysts predicting as much as a 5percent gap in container slots and actualdemand, Chang appeared unruffled.“As a company, we are short of capacity,”he said. “The past three years, we have hada load factor higher than other companies,so I don’t think we’re concerned with overcapacity.”And on rates, Chang doesn’t see the rateYung-Fa Changchairman,Evergreen Group“We shouldn’t waitfor the introductionof regulations to tell uswhere to improve.”decline that some analysts predict.“Transpacific rates will be quite stable, butEuropean rates have come down,” he said.Chang also commented on the burgeoningpossibilities of expanding Asia/U.S. EastCoast lanes through the Suez Canal. Andagain, he said the market will dictate whereEvergreen goes, not the other way around.“It depends on the American and Europeanpeople,” he said. “Where are they going tobuy products from? Are they going to shiftfrom China to India? We cannot decide whichlane we are going to open. Within five years,it’s possible (that shippers will diversify theirsources of supplies). Vietnam is the onlyplace that can compete with China on cost,but the population can’t compete. Gradually,China labor costs are increasing, so low-valueproducts may go to India or Indonesia.”But intermodal costs in the Unites Statesmay make the Suez even more attractive asa way to get around rail and terminal congestionon the U.S. West Coast or lack ofcapacity through the Panama Canal.“Singapore is the mid-point for goingthrough the Panama or Suez,” he said. “Forthe more time-sensitive products, (the Suez)can be quite practical.”But Chang’s main goal was to stressEvergreen’s emergence as an environmentallysound player. And he urged the industry asa whole, not just his carrier competitors, topitch in.“We have to look at the cost of the globaleconomy against future generations,” Changtold the conference. “It is our responsibility toaddress these issues proactively. How can weinvest together to protect the environment?“If we all want to protect the environment,we all must share the cost to protectit. The success of the supply chain dependson sustainability, so you cannot expect oneparty to protect the environment and carryon the success of the carrier industry.” ■The PortOf VirginiaNew straddle carriers complementa $279 million renovation atNorfolk International Terminals,ensuring your cargo is handled inthe fastest, most efficient mannerpossible. We’ve devised the easiestway for truckers and shippers tosave time and money: a one-of-akindtruck chassis pool. A growingnumber of companies, looking forthe closest possible access toEastern U.S. and Midwest markets,are taking advantage of thePort’s ideal location and have setup distribution centers in Virginia.The Port of Virginia. It doesn’t getany better than this.TheIs HereVirginia Port Authority • 600 World Trade CenterNorfolk, VA 23510 USA • Phone 757-683-8000FAX 757-683-8500 • Toll Free 800-446-8098 •www.vaports.comAuthorityFuture© 2006 Virginia PortAMERICAN SHIPPER: APRIL 2006 73

TRANSPORT / INLANDCongestion release valveSmall, shallow-draft ports offer opportunityto barge containers from big terminals.Small, shallow-draft ports may notget much attention from containershippers, but they could very wellbecome an essential release valve for increasingbox volumes in major U.S. Eastand Gulf Coast ports and on the nation’shighway system.Several small port operators recognizethis potential, and want to offer containerbarge services between busy neighboringport giants and their docks.“We want to shatter the myth that shallow-draftports can’t help ease congestionin the United States,” said Howard W.Hawthorne, executive director of the Portof Victoria in Texas.Victoria, located about 125 miles south ofHouston, handled more than 5,700 bargesor 6 million tons of cargo last year. Thesebarges transport liquid and dry bulk commoditiesfor large shippers located withinproximity to the port.The 35-mile-long Victoria Barge Canalempties into the Gulf Intracoastal Waterway,which provides links to major shippinglines servicing ports along the Texas coast.“We can put a container on a barge here atthe Port of Victoria and it can go to Japan,Germany, India or wherever” via Houston,Hawthorne said.Virginia’s Port of Richmond has similarplans. The port wants to provide handlingservices to a barge operator willing to shuttlecontainers between the large marine terminalsin Norfolk and its facilities located 78miles up the James River.Richmond is no stranger to containerhandling. Independent Container Line callsthe port once a week to discharge and receivecontainerized cargoes. However, with a 25-foot draft in the river, Richmond is unlikelyto attract other container vessel operators.Martin J. Moynihan, executive director forthe Port of Richmond, said the increasingsize of container ships makes it even moredifficult to attract vessel operators to theport. However, he believes conditions areripe in Richmond for barge operators.Richmond offers immediate access toInterstates 95, 64 and 85. The city and itsenvirons are also home to large shippers,such as Phillip Morris, BASF, Honeywell,74 AMERICAN SHIPPER: APRIL 2006BY CHRIS GILLISHoward W.Hawthorneexecutive director,Port of Victoria,Texas“We want to shatterthe myth that shallow-draftports can’t helpease congestionin the United States.”E.I. du Pont de Nemours & Co., and ReynoldsMetal.Victoria and Richmond have yet to starthandling container barge services, and bothport directors know it will take some effort toconvince shippers to switch from trucks.It requires a “leap of faith” by shippersto have the “willingness to adapt to newtransportation solutions,” Hawthorne said.He believes that once shippers in the Victoriaarea try the container barge service they willcontinue to use it. The port has been discussingthe concept with several area shippers.Jeffrey Sweeney, director of market researchfor Martin Associates in Lancaster, Pa.,said the cost savings from a container bargeservice must outweigh the delivery costs tomake it work. “There has to be a unique needand unique customers,” he said.Container-on-barge services have “aposition in the supply chain because notevery shipment is urgent,” said Thomas W.Craig, president of LTD Management, aconsulting firm in Glenmoore, Pa. But heemphasized shippers don’t make transportchanges lightly.Not all container barge operations havebeen successful. Pan Atlantic attempted thisservice between Norfolk and Richmondabout 10 years ago, but it quickly folded.Three years ago, the Port Authority ofNew York and New Jersey and its counterpartat Albany, N.Y., launched a containerbarge service. The goal of the service wasto alleviate port and highway congestion,improve container handling and developenvironmental benefits by shifting cargo toinland ports using an all-water service. Theservice was started with the help of morethan $4 million in state and federal subsidies,with the goal to make it self-sustaining.Columbia Coastal Transport was picked tooperate the container barges.The so-called “Albany Expressbarge” beganas a once-a-week service. The plan wasto shortly ratchet up the sailing frequencyto twice a week. The barges called at sixNew York-New Jersey container terminalsbefore heading to Albany.The goal for the ports was to transportabout 10,000 loaded containers a year. However,at best, the service mustered only 8,000containers from inception in March 2003 towhen it terminated in mid-February.“It was a difficult sell to shippers whenthey’re already comfortable with using truckand rail services,” said Steve Coleman,The Port of Victoria, Texas, about 125 miles south of Houston, handled 6million tons of cargo last year.

spokesman for the Port Authority of NewYork and New Jersey.Proponents of container barge services saythe timing for starting these operations on theU.S. East and Gulf coasts has never been better.There is mounting community pressureon large port operators to find ways to reducetruck traffic in crowded urban areas.There are also increased calls to reducetransportation-related pollution. Accordingto the U.S. Army Corps of Engineers,the cost of one gallon of fuel would moveone ton of cargo 60 miles by truck and 200miles by locomotive, compared to 500 milesby barge. The agency notes that 16 percentof total domestic freight is moved by bargeat only 2 percent of the freight bill, whichis a cost savings of more than $10 per tonof cargo shipped when compared to othertransport modes.The U.S. Environmental ProtectionAgency found that inland barge transportationemits 86 percent less hydrocarbonsthan trucks and 80 percent less than rail; 89percent less carbon monoxide than trucks and69 percent less than rail; and 95 percent lessnitrous oxides than trucks and 71 percent lessthan rail. Barge proponents say accidents areless likely to happen due to the remoteness ofinland barge transport with urban areas.More broadly, the U.S. Maritime Administrationestablished the Short Sea ShippingCooperative Program several years ago toencourage more efficient use of all-waterdomestic freight transportation, such ascontainer barge services.Drawing Board. Within the Victoria andRichmond ports, there is an enthusiasm thatcontainer barge services will start soon.Victoria and Houston signed a memorandumof understanding in February 2005 thatbacks the development of a container bargeservice between the ports.Houston-based Osprey Line, a large GulfCoast container barge operator, is leaningtoward providing the service. “Based on thebusiness in the Victoria Barge Canal, webelieve there’s a sufficient market to supporta barge service,” said Mike McQuillan,Osprey’s executive vice president.But McQuillan noted that Victoria muststill make some minor infrastructuralchanges to its docks to support a containerbarge service.David F. Host, president and chief executiveofficer of Norfolk, Va.-based T. ParkerHost, began exploring the possibility of acontainer barge service between Norfolkand Richmond about five years ago. At thetime, it wasn’t feasible to start the service.“We weren’t having quite the congestionTRANSPORT / INLANDand fuel cost we do now,” Host said.Today, it’s a different story. During thelast three years, Norfolk-Richmond truckrates increased from about $250 to $350 dueto driver shortages,traffic congestion andrising fuel costs.Host said the servicemust operate withoutstate and federal subsidies.“It’s got to standon its own two feet,”he said.“In theory, I’d like toHostsee a barge with 200-TEU capacity loadedwith cargo up and back — not just a bunchof empties,” Host said. “The barge wouldcall at Richmond every three days, twiceweekly.”Host insists that the container barge servicebetween Norfolk and Richmond will happen.“It’s just a matter of when,” he said.Despite the setbacks of the defunct AlbanyExpressbarge, the Port Authority of NewYork and New Jersey believes the containerbarge is still a viable concept for the region.The port is discussing the service optionwith Quonset, R.I.; Bridgeport, Conn.; andCamden, N.J.“We’re not giving up on the idea,” Colemansaid.■Who Should Attend?CONECT presents the2006 Northeast Trade &Transportation ConferenceApril 5-7, 2006 • The Hotel Viking, Newport RI• Importers/exporters• Air & ocean cargo owners• Brokers/forwarders• Transportation providers• Trade attorneys• Government officials• Logistics providers• Insurers• Warehouse/distributionfacilities• Port authoritiesTopicsEconomics• Market trends• Supply chain pricing• Wall Street perspective• Mergers & acquisitionsPresented by CONECTNew Programs!Wednesday Seminars AddedTechnology• Trends• RFID• Supply chain visibility• Future services• SecurityPhoto courtesy of The Preservation Society of Newport County10th Anniversary Dinner Thursday, April 6at the legendary Newport Mansion, “Rosecliff.”Coalition of New England Companies for Trade10thAnnualRegulation• Compliance, C-TPAT• Census• AES, ACE• Licenses & penaltiesand more!For more information or to register, go to www.CONECT.orgEmail conect@charter.net or phone 508-481-0424 For Hotel Viking reservations, call 1-800-556-7126 (Ask for CONECT rate)AMERICAN SHIPPER: APRIL 2006 75ASENETRADE01_JLB.indd 1 3/7/06 3:53:47 PM

What’s nextfor port security?Dubai Ports World deal hits political landmine.BY ERIC KULISCH76 AMERICAN SHIPPER: APRIL 2006

How did a well-publicized international mergerbetween two port operators go unnoticed for almostthree months until the 11th hour, only to betorched by a wildfire of opposition in the United States overconcerns that an Arab company owned by the governmentof Dubai posed a threat to national security?The tinder for a conflagration existed in the form of Americanpost-Sept. 11, 2001 anxiety about Middle Eastern terroristsstriking again, economic patriotism and thegovernment’s incremental approach to improvingsecurity for ports widely consideredvulnerable to smuggling of weapons or adirect attack via a container or vessel.But it would take someone to light thefuse and set off the political fireworks, asAmericans reacted to the perception thattheir ports and security were being handed toa foreign government with ties or sympathyto Al Qaeda terrorists.The demise of Dubai Ports World’s effortto gain control of several U.S. port terminalscan be traced back to a little Florida companythat felt left out when two big boys inthe port management business decided tomerge without giving it a chance to buy outits joint venture partner in Miami.Fort Lauderdale-based Eller & Co. is aterminal operator that specializes in contractstevedoring and agency activities inFlorida’s Port Everglades, Tampa, Miamiand Port Canaveral. Terminal owners hirecompanies like Eller to load and unloadvessels and provide special logistics servicesfor ship crews and cargo. Eller subsidiaryContinental Stevedoring & Terminals is aminority partner with P&O Ports NorthAmerica in the Port of Miami TerminalOperating Co. (POMTOC), one of threemain terminals at the port.P&O owns 50 percent of the company,with the other half split between Eller andFlorida Stevedoring. Eller ITO, a 50-50 jointventure between Eller and P&O, contractswith the longshoreman’s union to providecargo handling for POMTOC and otherterminals in the port.Eller officials were furious when venerableBritish ports operator Peninsular andOriental (P&O) Steam Navigation Co.announced last November that it would beacquired by the government of Dubai, eventhough Eller lacked the resources to buy thecompany. Eller had ambitions of increasingits stake in the public terminal it co-ownedwith P&O Ports.P&O officials contend that Eller doesn’thave a right of first refusal in POMTOCbecause the POMTOC partner, P&O PortsFlorida, is not selling its stake. Joint ventureagreements often have provisions that allowmembers to match the price if one of thepartners receives an offer for its share. P&Oinsists that any changes in the parent companydo not affect the subsidiary’s stake in POM-TOC, because P&O Ports Florida would justcarry over to the new owner and retain its 50percent share. The corporate documents donot grant the partners buyout rights whenthe parent company several subsidiaries upthe chain changes hands, said Robert Scavone,executive vicepresident, P&O PortsNorth America, in aninterview.Furthermore, P&Owas not interested inselling its propertiesin piecemeal fashion,and few companiesin the world had theScavoneresources to finance a multibillion-dollartakeover of the company in one bite. The additionof P&O’s 29 terminals in 18 countriesvaulted DP World to the number three spotamong global terminal operators, with a totalthroughput of 33.3 million TEUs.The debate over the port sale centered onP&O’s container terminals located in sixmajor ports: New York (cruise terminal) andNew Jersey (a half-share), Philadelphia, Baltimore,Miami and New Orleans. P&O PortsNorth America actually operates 22 facilitiesin U.S. ports handling bulk, breakbulk androll-on/roll-off cargo in places such as PortArthur and Freeport, Texas; Baton Rouge,La.; and Gulfport, Miss. P&O also handlescontainers at the Port of Houston and has acontainer joint venture in Norfolk, Va.In January, P&O signed a long-term leaseto operate terminals at the Port of Tampa,including the recently completed HookerContainer Terminal. The deal was madepossible after a U.S. company, SeattlebasedSSA Marine, agreed to terminate itsconcession agreement for terminal spaceand stevedoring services, according to theTampa Port Authority.P&O also renewed a contract with theDefense Department to load and unloadmilitary equipment at the ports of Beaumontand Corpus Christi, Texas.A bidding war briefly erupted when theSingapore government’s terminal operatingcompany PSA International placed a rivalbid for P&O, forcing DP World to up its offerfrom $5.7 billion to $6.8 billion.Representatives for Eller claim the DPWorld takeover was negotiated in the darkwithout a formal bid solicitation process,but the company had the same opportunityas PSA to counter DP World’s offer afterthe fact.Eller had little recourse to stop the deal,although it tried to do so without successin a British court.So it lit the political match, sparking theinferno that engulfed Dubai Ports World.Eller’s Strategy. A lot of activity tookplace behind the scenes before the sale ofport facilities to the Dubai governmentRoadmap to support: Washington lobbyist Joseph Muldoon III took amap of P&O Ports North America’s U.S. port facilities and targetedlawmakers who represent those ports.AMERICAN SHIPPER: APRIL 2006 77

TRANSPORT / PORTSbecame front-page news.In mid-October, more than a monthbefore the takeover of P&O was officiallyannounced, DP World lawyers informallyapproached the U.S. Treasury Departmentabout their potential investment. Treasuryheads an interagency group known as theCommittee on Foreign Investment in theUnited States (CFIUS) that reviews foreignacquisitions to make sure they do not threatenU.S. security. Other agencies represented onCFIUS include the National Security Agencyand the departments of Defense, HomelandSecurity, State, Justice, and Commerce.The CFIUS process is officially launchedwhen the Treasury Department receives awritten notice of the transaction, but in mostcases companies consult with executiveagencies ahead of time to head off potentialproblems and make sure they have a goodchance of getting approved.Treasury officials immediately referredDP World to the Department of HomelandSecurity to resolve any security issues.By the time DP World formally appliedfor a security clearance on Dec. 16, it hadalready been vetted by the intelligencecommunity and several agencies.On Jan. 17, CFIUS met and approved theP&O sale to DP World.Eller was unable to afford a high-pricedlobbying firm, so it hired a Washington lobbyistnamed Joseph Muldoon III who wasfriends with someone at the company.Eller was rebuffed by CFIUS, so on thelast day of January Muldoon took Eller’scomplaints to Capitol Hill. Eller arguedthat DP World threatened security becauseit would be more difficult to get a foreigngovernment to comply with U.S. securityrules, and the company would have accessto security plans for protecting ports thatcould be shared with the government ofDubai, elements of which it claimed mayhave ties to terrorists.Muldoon started with the Senate BankingCommittee, because it had held a hearinglast year about problems with the CFIUSprocess after a Chinese company tried to buya U.S. oil company. He also met with staffon the Homeland Security, Armed Servicesand Commerce committees.Then, Muldoon said, he took a map ofP&O Ports North America’s 22 port facilitiesand targeted lawmakers who representthose ports. High on his list was DemocraticSen. Charles Schumerof New York, home ofthe Port of New York-New Jersey.Schumer spokesmanIsrael Klein confirmedthat the senatorwas first tipped off tothe sale and the administration’sapproval bySchumeran Eller representative and subsequentlytalked to a wire service reporter.The Arabs Are Coming. On Feb. 11,the Associated Press reported that the P&Osale to DP World had been quietly approvedby a Cabinet-level committee that meets tomake sure foreign investments do not posea threat to national security. A handful ofnewspapers followed up that week witheditorials denouncing the sale. But the storydidn’t take off until Feb. 16, when Schumerheld a press conference along with a halfdozenlawmakers questioning the linkupbetween the two port operators and askingfor a more thorough review.The members of Congress said theyplanned to launch hearings if the administrationdid not take a second look at the deal, andsome threatened to take legislative action toblock the sale of U.S. port assets if PresidentBush didn’t withdraw DP World’s permissionto do business. They argued that the UnitedArab Emirates, a loose federation of statesTimeline: How the port deal went downthat includes Dubai, could not be trusted withinfrastructure vital to national security becausetwo of the Sept. 11 hijackers originatedfrom there, and received money transfersthrough the loose UAE banking system. DPWorld should also be disqualified, they said,because of the UAE’s previous support for theTaliban regime in Afghanistan, and its role asa transfer point to hide the origin of nuclearand chemical components smuggled to Iran,North Korea, Libya and Pakistan.“Outsourcing the operations of our largestports to a country with a dubious record onterrorism is a homeland security accidentwaiting to happen,” Schumer said, raising thespecter that terrorists could easily infiltratethe company to gain access to secure areas ofthe port and assist an attack or smuggling ofa weapon of mass destruction in a containerdestined for a major city.Rep. Vito Fossella, R-N.Y., said handingcontrol of strategic ports to the UAEis equivalent “to an official announcementthat Dubai was taking over security at ourairports.”On Feb. 17, Eller filed suit in Florida askinga judge to block the sale because it wasbeing involuntarily dragged into the deal towork alongside DP World, in violation of itspartnership arrangement with P&O.Schumer held a press conference thatweekend with 9/11 victims’ families on thewaterfront near the site of the former WorldTrade Center to attack the president forjeopardizing homeland security by givingDubai access to U.S. ports.Michael Chertoff, secretary of homelandsecurity, appeared on Sunday morning talkshows to defend the “very disciplined” reviewof the proposed sale and the extra safeguardcommitments negotiated with DP World. Buttelevision commentators criticized him forarguing that the country needs a balancedapproach to trade and security.Meanwhile, DP World sent a team of top•October•••November• • •DecemberOct. 17Lawyers for DP World, P&O quietlyapproach Treasury Departmentfor preliminary discussions.Oct. 30London’s Sunday Timesreports DP World is preparingtakeover bid for P&O.Nov. 2Treasury staff request intelligencerisk assessment from the Directorof National Intelligence.Oct. 31P&O acknowledges takeover bid fromundisclosed buyer. U.S. Customs andBorder Protection reviews pendingtransaction for the first time.Nov. 29DP Worldmakes$5.7 billionofferfor P&O.Dec. 16After two months of informalinteraction, DP World,P&O file merger noticewith Treasury, starting30-day security review period.Dec. 2Temasek Holdings, the Singapore governmentcontrolledparent company of global portoperator PSA International, begins raisingstake in P&O from 2 percent to 4.1 percent78 AMERICAN SHIPPER: APRIL 2006

American executives to Washington to tryand salvage the deal.By Feb. 20 the story was in full burn, flamedby Democrats who saw an opportunity to castPresident Bush as weak in an area — nationalsecurity — that was viewed as his politicalstrength. Many Republicans, with their eyeon the mid-term election in November, didnot want the opposition party to outflankthem as tough on defense, and joined withDemocrats to fight the transaction, rather thanside with an increasingly unpopular presidentwho might be a liability at the polls.The administration dug in its heels andrefused to extend its investigation of the DPWorld transaction.As each day went by more members ofCongress jumped on the bandwagon, callingon the president to cancel approval for thecontract or launch a complete investigationinto the matter. Republican leaders in theHouse and Senate were forced to ask Bushfor a moratorium until the administrationcould take a closer look at the transaction andassure Congress that a company owned bythe Dubai government did not raise the riskthat terrorists would use its marine terminalsas gateways for launching an attack.Soon Congress was joined by politiciansat the state and local level expressing concernthat the transfer could affect securityat ports within their jurisdiction.The Port Authority of New York and NewJersey, at the behest of the New York CityCouncil and Gov. George Pitaki, filed suitto terminate its lease with P&O because itsaid the company did not provide adequatenotice of the change in ownership.Maryland Gov. Robert Ehrlich and theMaryland Transportation Department similarlyexplored breaking the P&O lease at thePort of Baltimore, while Baltimore MayorMartin O’Malley slammed the Bush administrationfor an “outrageous” decision toapprove the DP World investment. Ehrlich’sstance came after his hand-picked head ofthe Maryland Port Administration, BrooksRoyster, had defended the deal.Gov. Jon Corzine of New Jersey unsuccessfullysued the federal government to stopthe sale on the grounds that CFIUS shouldhave shared the documents it used to reachits decision so that the state could make itsown risk assessment of DP World.Several politicians questioned whether DPWorld received favorabletreatment becauseTreasury SecretaryJohn Snow’s formercompany had businessties to the portoperator.Snow was chairmanand chief executive officerof Jacksonville,SnowFla.-based CSX Corp. — which owns thelargest railroad in the eastern United States— until early 2003. CSX sold its internationalport terminal business, CSX WorldTerminals, to DP World for $1.1 billion inJanuary 2005.Treasury Department lawyers concludedTRANSPORT / PORTSthere was no need for Snow to recuse himselffrom the decision because the CSX sale toDP World occurred nearly two years afterSnow had left the company.President Bush’s Feb. 21 threat to veto anylegislation to halt or delay the DP World saleonly served to harden opinions. Congressionalleaders made it clear that they hadthe votes to override a veto.By the middle of the week, Bush faceda complete mutiny from leaders withinhis own party on Capitol Hill. The WhiteHouse finally admitted that it should havebriefed Congress sooner about the deal, butthe administration was still slow to explainthe reasoning for its approval.The main argument given was that theUAE was a strong ally in the Middle Eastand that the president should be trusted toensure the nation’s security.“If there was any chance that this transactionwould jeopardize the security of theUnited States, it would not go forward,”Bush said.The military defended the UAE as a strongally against terrorism since 9/11, and pointedout that the country provides the U.S. Navyaccess to a vital harbor, logistics supportand air warfare training facilities. Defenseofficials were reluctant to speculate on therepercussions of blocking the sale, but wereclearly worried Dubai might retaliate byshutting down some military-to-militarycooperation.Administration officials on Feb. 21identified some of the extra security as-Feb. 24DP World says it will leave U.S. operations under P&Omanagement while consulting with U.S. officials.March 6British court rejects Eller appeal,sanctions contract with DP World.Jan. 17CFIUS concludes its review, approvesthe sale. President Bush nominatesDP World executive David Sanbornto head the Maritime Administration.••• •• • •• • •• • ••January February MarchJan. 6DHS receives assurancesletter from DP Worldaddressing port securityJan. 26Singapore-government-owned PSAInternational bids $6.33 billion for P&O.Feb. 13P&O shareholders voteto accept DP World’s$6.8 billion offer.Feb. 10PSA Internationalpulls out of biddingfor P&O.Jan. 27DP World makes$6.8 billioncounteroffer.Feb. 11AP runs story about U.S.approval of sale andUAE’s ties to terrorism.Feb. 17Eller & Co.files suitto block saleclaimingDP Worldsale violatesits contractwith P&O.Feb. 27Sen. SusanCollinsdisclosesCoast Guardmemo onintelligencegaps in DPWorld review.March 8DP World officially takes ownership of P&O.House Appropriations Committee votes62-2 to block sale. Bill is attached to mustpassspending bill for Iraq and Afghanistanwar efforts and Katrina recovery.March 9DP World announces intent todivest U.S. assets to an U.S. entity.March 2British court postpones scheduledsale closing to hear Eller & Co. protest.Feb. 26Sen. John Warner goes on Meet the Pressto announce DP World offer to submit to secondinvestigation and hold separate its U.S.operations until review process is complete.Feb. 16Sen. Charles Schumer, other lawmakershold press conference denouncing sale.Feb. 21Bush threatens to veto any legislationto delay or halt DP World’s acquisition.AMERICAN SHIPPER: APRIL 2006 79

TRANSPORT / PORTSsurances that they had received from DPWorld, including mandatory participationin a container inspection program in Dubaiand a supply chain security best practicesprogram, both managed by U.S. Customsand Border Protection.It took a few more days for officials toreveal that DP World also committed to allowU.S. law enforcement agencies to collectcompany records without a subpoena anduse the information to screen or investigateDP World employees working in the UnitedStates. DP World also promised to maintainP&O’s existing security policies and proceduresand operate the domestic facilities withthe current U.S. management structure.The assurances did not assuage an increasinglyhostile Congress about the sale.DP World Chief Operating Officer EdwardBilkey tried to explain at several hearingsthat his company was a good corporatecitizen that met all U.S. and internationalmaritime security regulations.“You may feel, Mr. Bilkey, that there isno risk. But I don’t care what you say, I’mgoing to protect my family, my constituents,my country and my state as much as I can.And your assurances are nice to hear, butthat’s not enough for me,” said Sen. FrankLautenberg, D-N.J.The fallout from the port controversyalso claimed the nomination of DavidSanborn, a DP World executive who Bushhad nominated to be maritime administrator.Senators put his nomination on hold,questioning whether he would favor DPWorld in his regulatory role and perhapsoverlook security concerns.DP World’s announcement March 2that it would go ahead with its scheduledcontract closing with P&O, but defer takingoperational control of the U.S. portion ofthe business to provide a cooling off periodin the United States, did little to quell thefirestorm against the sale, as did news twodays later that the company would resubmitits application for a security review of itsacquisition. While trying to show its willingnessto compromise, DP World also madeclear that it considered the original approvalvalid and that it would seek to be indemnifiedif it was forced to divest.Days before the scheduled closing date,Eller filed suit in Britain to stop the transaction.It argued that port authorities wereconsidering revoking P&O’s leases, andthat P&O shareholders were not given theopportunity to approve the restructured dealfor hands-off control of U.S. operations. Ellersaid Continental Stevedoring & Terminal Inc.did not give its consent for P&O to transferits interest in Miami to DP World, and arguedit would suffer millions of dollars in lossesit its joint lease was terminated.Bush’s comments that he still felt the approvaldecision was correct and statementsby administration officials that the extratime would be used to educate the Congressabout the merits of the sale further inflamedlawmakers, who concluded that the secondreview was nothing more than a rubber stampand that officials did not intend to open upnew lines of inquiry about DP World andthe United Arab Emirates.Senators wanted to know if the originalsecurity clearance panel had consideredquestions such as whether Al Qaeda hasany financial links to the company, whetherthe company had connections to nuclearsmuggling, and if contingency plans werein place if a coup toppled the pro-Americangovernments in the UAE.On March 2, Rep. Duncan Hunter, R-Calif.,issued a list of incidents in which nuclear andchemical components were smuggled throughthe UAE, including a case in 2003 in whichDubai Customs allegedly ignored CBP pleasto stop an illegal shipment of nuclear switchesfrom the United States to Pakistan.A British court on March 3 dismissedAmericans hold key DP World postsWASHINGTONPartially lost in all the commotion abouta foreign government-owned companyacquiring the right to operate portions ofseveral U.S. ports is the fact that Americansaccount for a sizable portion of the managementteam at Dubai Ports World.The international port operator agreedto pay $6.8 billion to acquire its Britishrival, Peninsular & Oriental Steam NavigationCo., but U.S. politicians rushed toblock the takeover on the grounds thatforeign managers from DP World mightbe more inclined to aid or ignore terroristswho want to use the port as a basefor attacking the United States.But the Dubai Port Authority and itsinternational port division have a historyof hiring top talent from around the world,enabling the company to become one of thebiggest and best-run global port operatorsin a short period of time. The companyhas had a pipeline to the old Sea-LandServices carrier group that was bought byDanish container line Maersk from CSXCorp. in 1999.In fact, Sea-Land Service operatedthe Port of Jebel Ali for 10 years untilthe Dubai Port Authority had developedthe expertise to manage operations on itsown in 1988.DP World’s chief operating officer isEdward “Ted” Bilkey, who previouslyserved as president of Norton Lilly & Co.,a Mobile, Ala.-based shipping agency. Healso served as vice president of MaherTerminals, which operates a major terminalat Port Elizabeth, N.J. In the late1980s until the mid-1990s, Bilkey servedas executive director of the Dubai PortsAuthority and Jebel Ali Free Zone.Bilkey is scheduled to retire soon andtaking his place will be Anil Wats, managingdirector Asia and Australia. Wats spent21 years at Sea-Land Service, rising tochief executive of Middle East business.After Sea-Land was bought by Maersk,Wats was chief executive of parent companyA.P. Moller Maersk in Indonesia.General Counsel George Dalton previouslyworked at CSX World Terminals,the international port arm of Jacksonville,Fla.-based railroad CSX. Dubai Ports Internationalbought CSX World Terminalsand its nine facilities in January 2005 toform DP World. Before that he worked ascounsel for Sea-Land and was a partnerin the New York City maritime law firmof Kirlin, Campbell & Keating.The head of business development forDP World is Matt Leach, who also joinedthe company when it absorbed CSX WorldTerminals. At CSX he was vice presidentof operations and development, where heled the company’s expansion into Korea,China and Venezuela. Leach joined Sea-Land Service in 1995.Michael Moore, DP World’s commercialdirector, joined the company aftersix years at Maersk. He started out atSea-Land Service in 1984.Meanwhile, the most prominent DPWorld executive in the news is DavidSanborn, who President Bush nominatedin January to head the U.S. MaritimeAdministration. Sanborn’s nomination isbeing held up by Congress until the disputewith the White House about the port saleis resolved.Sanborn was director of operationsfor Europe and Latin America. Prior tothis, Sanborn served as French carrierCMA-CGM’s senior vice president NorthAmerica service delivery. He also servedas vice president for network operationsat APL, and earlier as director of operationsat Sea-Land Service. He is a retiredlieutenant in the U.S. Naval Reserve andholds a bachelor’s degree from the U.S.Merchant Marine Academy.80 AMERICAN SHIPPER: APRIL 2006

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TRANSPORT / PORTSEller’s suit and tentatively approved thecontract between P&O and DP World. OnMarch 6, the court declined to hear an appealby Eller, clearing the way for the dealto be finalized two days later.On March 8, the House AppropriationsCommittee sent a resounding message toPresident Bush, voting 62-2 to block thedeal. The bill was attached to an emergencyspending bill for Iraq military efforts andKatrina recovery to make it politically difficultfor Bush to veto.Business groups were slow to rise to thedefense of the Dubai Ports World deal. OnMarch 9, the U.S. Council for InternationalBusiness and the U.S. Chamber of Commerceasked Congress to give the administrationtime to complete its security reviewso that foreign investors are not spooked bya perception that the investment process hasbeen politicized.By then, it was too late. Sen. John Warner,R-Va., one of the few legislators whosupported the transaction, went to the floorof the Senate March 9 to read a statementfrom DP World that it was throwing in thetowel and divesting its interest in the U.S.port properties.“DP World will transfer fully the U.S.operations of P&O Ports North America Inc.to a United States entity,” the statement said.“This decision is based on an understandingthat DP World will have time to effect thetransfer in an orderly fashion and that DPWorld will not suffer economic loss.”But the story did not end there. DP Worldwas vague about whether it would actuallysell the U.S. business to an Americancompany, or whether the U.S. governmentwould have to make DP World whole. It alsodidn’t rule out the possibility of owning aU.S.-managed and based company.In fact, P&O Ports North America hadoperated as a U.S. subsidiary, with a separateboard of directors, and DP World hadalways stated it intended to maintain thesame structure.“I assumed they would manage us likethe old owners,” P&O’s Scavone said. TheNorth American subsidiary, based in NewJersey, handled day-to-day operations andsent its reports and requests for capital to theLondon headquarters. In turn it benefitedfrom centralized resources in areas suchas information technology, payroll and accountingand security expertise.“That’s the way an international terminalcompany works. It was always my understandingthat was never going to change,”Scavone said.Many observers interpreted DP World’saction as an effort to remove itself as apolitical lightning rod while still trying toretain its rights as a passive investor.82 AMERICAN SHIPPER: APRIL 2006On March 15, DP World cleared up some ofthe suspense and said it plans to sell the U.S.facilities within four to six months to an “unrelatedU.S. buyer.” The company’s financialadvisor, Deutsche Bank, is running a formalprocess to solicit and evaluate bids.Still unclear, however, is whether the U.S.government will be the buyer of last resortor help finance a deal. DP World has saidany sale must ensure that it doesn’t losemoney from its recent transaction. Companyofficials and analysts have placed the valueThe mainstream press andCongress gradually learnedthrough the Dubai PortsWorld political drama that foreigncompanies control operations in about 75percent of U.S. port terminals, and thatsome of those companies are actuallyowned by foreign governments, suchas Singapore, China and Taiwan.That led to several pieces of legislationto restrict foreign ownershipof port facilities and other types ofinfrastructure.The only significant American terminaloperators are Seattle-based SSA Marine,Maher Terminals at the Port of New Jersey,and Marine Terminals Corp. on the WestCoast. CSX Corp., which owns a major U.S.railroad, sold its marine terminals in China,Germany, Australia and South America to DPWorld for $1.1 billion in early 2005. It did notown terminals in the United States.Democratic Sens. Hillary Clinton of NewYork and Robert Menendez of New Jersey,who represent the Portof New York-New Jersey,introduced a billto prohibit companiesowned or controlled byforeign governmentsfrom purchasing portoperations. The billincludes a provisionrequiring the executiveSurprise! U.S. portsare foreign-ownedIt was news to Congress, and Capitol Hill is respondingwith efforts to end foreign ownership of U.S. infrastructure.Clintonbranch to conduct a study on existing foreigngovernment-owned companies operating inU.S. ports, and makes recommendations toCongress on how to handle any resultingnational security risks within 30 days.“We wouldn’t turn the border patrol or theof P&O Ports North America at about $700million, based on the sale price of the parentcompany and the fact that U.S. operationsonly accounted for about 6 to 10 percent ofits profits. It is unclear if other bidders willreadily accept the 20 percent premium analystssay DP World paid to win the bid.As for Eller, a British High Court saidit will have to pay P&O’s court costs forbringing a nuisance suit without foundation.P&O officials said their legal bill totaled$400,000 to $500,000.customs service over to a foreign government,and we can’t afford to turn our ports over toone either,” Menendez said in a statement.A bill introduced by Sen. Frank Lautenberg,D-N.J., sought to give portauthorities the power to protectthemselves by terminatingany lease when they canshow that transfer of terminalownership wouldaffect the security of theport. It would also requirethe Department HomelandSecurity to review any change inownership of a terminal operator for securityproblems.In the House, Rep. Duncan Hunter, R-Calif., authored a bill that would go evenfurther and require foreign companies thatown infrastructure such as airports, powerplants, tunnels, and terminals to sell it to anAmerican company if the Defense Departmentdetermines it is critical to nationalsecurity. The company would have to be 51percent U.S.-owned and have its chairman,chief executive and other top executives beAmerican citizens.Such a law, if passed, could bring additionalscrutiny to companies such as Suez, aFrench company that owns plants in 17 statesthat provides drinking water to 7 millionAmericans, and CITGO, which is controlledby the government of Venezuela and its anti-American dictator, Hugo Chavez. CITGO hasterminals and refineries in several states.Many of these bills moved forward in Congresseven after Dubai Ports World announcedits intention to divest its U.S. assets.But several authorities on national securitybelieve the United States already has

sufficient controls in place to make sureforeign companies comply with U.S. nationalinterests, or could have corrected the law torequire stricter standards without blockingthe sale of the U.S. terminal operations ofPeninsular and Oriental (P&O) Steam NavigationCo. to United Arab Emirates-ownedDubai Ports World.DP World early on said it intended to createa legal U.S. subsidiary to do business inthe United States, and the government couldhave insisted that the board be comprised ofAmericans who have security clearances, saidHarlan Ullman, a senior advisor on nationalsecurity affairs at the Center for Strategic andInternational Studies in Washington.“They may own the company, but theydon’t exercise complete leadership” under ascenario that makes them passive investors,Ullman said. And if serious problems arose,“we could nationalize it.”Similar concerns were raised severalyears ago when Hong Kong-based HutchisonWhampoa, a giant conglomerate withholdings in telecommunications, real estate,hotels and port operations, sought to openterminals along the Panama Canal. HutchisonPort Holdings is the largest port operatorin the world, and operates terminals on bothsides of the Panama Canal.“People were saying (the canal) will bedominated by mainland China. That wasnonsensical because this was the capitalistof all capitalists,” Ullman said of HutchisonChairman Li Ka-shing. “There was noway he was going to be the cat’s paw” anddisrupt trade.“Plus, the Chinese are as dependent ontrade as we are. The problem was more of aninvention than a reality,” Ullman said.There are also other precedents for foreigncompanies operating in areas in whichthe United States has national securityinterests.Maersk Line, a Danish vessel operator,acquired Sea-Land Services in the late 1990sand formed a North American subsidiaryso it could comply with U.S.-flag requirementsfor chartering cargo ships to the U.S.military. Maersk is now the largest providerof commercial vessel transport and relatedservices to the military under the MaritimeSecurity Program.The U.S.-flag requirements were institutedwhen the U.S. maritime fleet began todisappear in the 1970s and 1980s becauseU.S. regulations and wages made it too hardto compete with foreign operators. Theflag requirements were more of an effortto protect American industry than nationalsecurity, industry experts agree.Reform. The Dubai ports controversyalso created momentum to reform two areasof public policy, port security and foreigninvestment, that many claim have not receivedadequate attention in the post-Sept.11, 2001 era.Congressional critics said the securityquestions surrounding the deal should haveautomatically triggered a longer investigationthan the 30-day staff review conductedby the Treasury-led interagency groupknown as the Committee on Foreign Investmentin the United States (CFIUS).The president has the authority to prohibitany acquisition that could harm the nation’ssecurity. In 1988 Congress passed the Exon-Florio amendment delegating to CFIUS thetask of investigating foreign acquisitionsof U.S. companies to make sure they don’tendanger national security.Sens. Clinton and Carl Levin, D-Mich., insistedduring a hearingthat the law mandatesa 45-day investigationwhen the acquiringcompany is a foreigngovernment and thesale could impact nationalsecurity. Thatextra requirement wasadded in 1992 in re-Levinaction to the proposed sale of a missilemanufacturer to Thomson-CSF, the Americansubsidiary of a French firm that was then 58-percent owned by the French government.Deputy Treasury Secretary RobertKimmitt said successive Clinton and Bushadministrations have interpreted the law tomean that an agency has to register a nationalsecurity concern before it goes to a 45-dayinvestigation, and that any initial concernswere quickly addressed to the satisfaction ofall agencies. DP World received a clean billof health from the intelligence communityand unanimous approval by the assistantsecretaries on the panel.Coast Guard Memo. The administration’sposition appeared to be underminedwhen Sen. Susan Collins, chairman of theHomeland Security and Governmental AffairsCommittee, produced an internal CoastGuard memo stating that intelligence gapsprevented an analysis unit from fully assessingwhether the sale of terminal operatingrights to DP World posed a security threat.Homeland Security officials said theunclassified excerpt from a classified documentwas taken out of context, because itwas part of normal internal deliberationsto address questions that ultimately led theagency to sign off on the deal.Top DHS officials admitted they hadnever seen the memo before.Opponents of DP World’s investmentpounced on the new revelation as evidenceTRANSPORT / PORTSthat the administration did not thoroughlyexamine its national security implications.In fact, few foreign acquisitions have ledto full investigations. Since 1988, CFIUShas only opened investigations into 25 ofthe 1,604 transactions it reviewed. Twelve ofthose cases were sent to the president for adecision and only one deal was ever blocked.In many cases, companies have modified theirpurchase agreements to meet U.S. requirements,or dropped out of the deal when theywere unable to meet U.S. requirements.CFIUS reviewed 65 cases in 2005.Administration officials insisted that theirreview of DP World was not hasty. AlthoughDP World filed its formal application onDec.16 and CFIUS approved it one monthlater, officials said the sale was actually underreview for 90 days as a result of informal consultations.DP World was given extra scrutinybecause it is a state-owned company, theysaid, but also was a known quantity becausethe Department of Homeland Security hasestablished relations with Dubai Customs,the port authority and the company to implementU.S. cargo security programs. In fact,CFIUS had previously reviewed DP Worldbefore it acquired CSX World Terminals fromJacksonville, Fla.-based railroad companyCSX Corp. in January 2005.Members of Congress accused the administrationof approving a sale that shouldhave raised red flags without consulting withCongress. After the president’s claims aboutAl Qaeda connections and weapons of massdestruction in Iraq were discredited, andpromises that the government was preparedfor Hurricane Katrina last summer turned outnot to be true, lawmakers were no longer willingto trust the administration’s assurancesabout the sale at face value and demandedmore openness in the CFIUS process sothey could evaluate whether DP World wasin fact a trustworthy company. Members ofCongress were upset that the administrationdid not reveal any of the reasoning behindits decision in favor of DP World.Administration officials insisted that theywere just following confidentiality provisionsestablished to protect sensitive financial, securityand proprietary corporate information,and that under normal practice Congress isnotified of approvals after the fact. To preventpublic disclosure of information, CFIUSdoes not share information with Congressunless requested to do so, and then in limitedfashion. Many of the firewalls were put inplace by legislation and regulatory practiceto remove politics from the approval process.The Exon-Florio amendment specificallygave the president maximum control anddiscretion in determining whether to slowor block foreign investment.The lack of advance consultations ledAMERICAN SHIPPER: APRIL 2006 83

TRANSPORT / PORTSmany members to conclude that the administrationwas simply showing disdain againfor congressional oversight.In the aftermath of the DP World controversy,administration officials admitted thatthey need to do a better job of informingCongress about cases under review. Legaland security experts said the administrationprobably could have defused the whole situationby briefing leaders of congressionalintelligence committees ahead of time aboutDP World’s limited role within the ports andDubai’s track record supporting U.S. interestssince 9/11.Instead, opponents quickly characterizedthe sale as a takeover of six major U.S. portsby an Arab company with ties to terrorists.Administration efforts to explain that DPWorld was only leasing specific terminalswithin the ports and that the Coast Guardand U.S. Customs were still responsiblefor overseeing security measures related tocargo and ports proved too little too late.Although officials stood behind the technicalitiesof the confidentiality process, itbecame clear during hearings on the subjectthat there isn’t an absolute prohibition ondiscussing foreign security clearances withmembers of Congress.Critics contend that the dearth of investigationsproves that the CFIUS process isbroken because the Treasury Departmentis more interested in promoting its openinvestment policies than blocking dealsfor security reasons. The Government AccountabilityOffice in Congress issued areport last September stating that CFIUSnarrowly defines what constitutes a threatto national security.Congress should share the blame for notchanging the CFIUS process to meet thepost 9/11 security environment, said CharliePapavizas, a partner at Winston & Strawn,whose clients include ocean carriers seekingto meet U.S. citizenship requirements fortheir North American businesses.Last year, the Chinese National OverseasOil Co. (CNOOC) pulled out of a bid forU.S. multinational oil company Unocal afterCongress raised alarms about the potentialthreat to national security. Congress seemedintent on reforming the CFIUS process atthat time, but never made any correctionsafter the CNOOC deal evaporated.The hearings resulted in some informalpromises by the administration, which Treasuryofficials said they followed by givingthe port sale more than 30 days of scrutiny,getting other agencies and the intelligencecommunity involved early on, and agreeingto brief Congress on a quarterly basis aboutCFIUS reviews in the pipeline.The administration had actually plannedto begin briefing lawmakers about DP84 AMERICAN SHIPPER: APRIL 2006World and other cases the week that newsof the sale broke, but by then members ofCongress had already begun a campaign tosink the deal.“The real problem is that CFIUS is a ColdWar relic,” Papavizas said in an interview. “Itwas set up to prevent the Soviet Union andsatellite countries from getting our technologyso the Army doesn’t wake up one dayand find out that the Chinese governmentowns the subcontractor that provides therangefinder for the M1A1 tank.”When it comes to security concerns,CFIUS primarily focuses on telecommunications,laser technology, micro-technologyand other military useful and leading-edgetechnologies, rather than on terrorism or thevulnerability of the supply chain, he said.“The real problemis that CFIUSis a Cold War relic.”Charlie Papavizaspartner,Winston & StrawnLawmakers criticized the mid-level officialson CFIUS for not bumping up theDP World decision to their superiors, whomight have had the political sense to consultCongress. Stewart Baker, assistant secretaryfor policy and international affairs, tookresponsibility for signing off on the CFIUSapproval on behalf of DHS, and said he didnot refer the case to Deputy Secretary MichaelJackson because the agencies withinthe department supported the deal.“You can’t really blame the committeebecause it was not set up to do somethingthat deals with 9/11,” Papavizas said.Foreign investment regulators are accustomedto approving mergers except in clearcases of security threats because U.S. policyis geared to promote foreign investmentand aren’t used to drawing a line betweenan open economy, and protecting the nationfrom amorphous terrorist threats.“It’s unfair to expect bureaucrats to strikethat balance. That’s a national policy question,”Papavizas said.“If you were on the committee and noadjustments had been made by Congresssince 9/11, and you had been given no newreporting requirements, had not been told toput terrorist threats in a new category, whatwould you take from this? You’d take fromthis that it’s business as usual” and the DPWorld sale is no different than prior investmentsthat have been approved.Besides the lack of emphasis on terrorism,CFIUS process also does not factor insupply chain and transportation systems intothe security equation, Papavizas said.Unlike ocean carriers and airlines, andshipyards in times of war, there are not citizenshiprequirements for terminals, althoughthat could change if Hunter gets his way.CFIUS has broadened the scope ofnational security reviews and included theprotection of critical infrastructure as a factorsince 9/11, countered David Marchick,a partner at Covington & Burling whospecializes in guiding companies throughthe CFIUS process.Several proposals are in the pipeline thatwould replace Treasury as the department incharge of coordinating foreign investmentexams, make the CFIUS process moretransparent and include a role for Congressto review deals and possibly void them.Rep. Don Manzullo, R-Ill., introduced abill that would require automatic, extendedinvestigations by CFIUS when foreign governmentsare purchasers, and open up theprocess to greater participation by Congressand the public. CFIUS would be required toprovide a notice and comment period in theFederal Register, hold a public hearing andinform the relevant congressional committeeswhen an application is filed. Manzullo alsoproposed that the CFIUS process be chairedby the Commerce Department’s Bureau ofIndustry and Security, which examines theimpact of foreign imports on the defenseindustrial base and monitors licensing of exportswith dual military/commercial uses.Collins proposed establishing a new taskforce — the Committee for Secure Commerce— to replace CFIUS, and substitutingthe Department of Homeland Security forTreasury as the lead agency in charge ofthe process. The secretaries of Defense andTreasury would serve as vice chairs and theDirector of National Intelligence would bea standing member. The bill specifically includeshomeland security among the factorsthe committee should consider in decidingwhether to review or investigate a transactionand a requirement to brief Congress.But Congress should be careful not to overreactby enacting changes that could discourageforeign investment and encourage othergovernments to erect new obstacles to U.S.investment abroad, several industry officialstestified before the House Financial Servicessubcommittee on domestic and internationalmonetary policy, trade and technology.The United States spends more than itproduces and saves, and with a projectedcurrent account deficit of $900 billion thisyear, is more dependent than ever on importingdollars. Foreign investment is how theU.S. economy recycles money it loses dueto a burgeoning trade deficit, which rose to

TRANSPORT / PORTSa record $68.5 billion in January.The UAE is one of the few countrieswith which the United States actually hasa trade surplus.Increased consultations and public disclosureare a problem because of the potential forleaks that could make investors wary aboutgoing through the CFIUS process, accordingto Treasury and industry officials.Giving Congress a direct role in the decision-makingprocess would be an even biggermistake, said William Reinsch, president ofthe National Foreign Trade Council and formerundersecretary of the Export Administrationin the Clinton administration responsiblefor the dual-use export control program.The Exon-Florio provision was writtenduring a period of paranoia about Japaneseacquisitions, “but its drafters neverthelessunderstood very well that it made no sensefor Congress to review and opine on specificinvestments.“That would be micro-management in theextreme that would guarantee the injection ofpolitical criteria into a process that should bebased strictly on national security,” he said.Port security becomes priorityOnslaught of bills attempt to address vulnerabilities.More than four years afterthe Sept. 11, 2001 attacks,the U.S. governmentis still trying to implementa comprehensive maritime securitystrategy for port facilities, vessels,crews and cargo to prevent a largescaleattack on a port or major citythat could shut down commerce foran extended period.Cargo entering the United Statesis subject to 24-hour notificationprior to lading at a foreign port, overseasinspection at any of the 43 portsparticipating in the Container Security Initiative,and extra private sector controls whenbeing shipped by companies participatingin the Customs-Trade Partnership AgainstTerrorism, as well as port and vessel securityclearances from the Coast Guard.Lawmakers used the vulnerability of theports against the president, claiming thatsecurity was too poor to introduce anotherelement of uncertainty in the form of astate-owned company from Dubai.“If port security is not a top priority forour own government, how can we everexpect it to be a priority for a foreigngovernment,” said Sen. Edward Kennedy,D-Mass., during a Feb. 23 Armed ServicesCommittee hearing.The Dubai Ports World controversy gavelife to many new or existing pieces of legislationaddressing various aspects of portand cargo security, and sent shivers throughsome industry groups that recent efforts tostreamline cargo clearance at the nation’sborders would be trampled under a floodof heavy-handed regulations.Department of Homeland Security officialssaid they negotiated commitmentsfrom DP World that Dubai would continue toparticipate in the Container Security Initiativeand the Megaports Initiative, and that P&O’smembership in the voluntary Customs-TradePartnership Against Terrorism program thatencourages the use of security best practices,would transfer to DP World.Under CSI, U.S. Customs andBorder Protection officers arestationed in overseas ports totarget suspicious containersfor inspection by the hostcountry. Dubai Customsis also in the process of installingfour container-sizeradiation detection machinesloaned by the Department ofEnergy under the Megaports program.C-TPAT is a program that provides reducedinspection levels for shippers who tighteninternal shipping controls and demand similarsecurity measures by their manufacturing andtransportation providers.But those assurances did not providemuch comfort to lawmakers who insistedthe programs are largely ineffective becausefew containers are actually inspected overseas,and the supply chain security programfunctions as an honor system that largelybased on paper-based reviews.Critics of the Bush administration’sprogress on port security say that while theCoast Guard and CBP are well intentioned,they have not been given the resources toeffectively carry out security programs putin place after the 9/11 attacks.The Coast Guard, for example, has only 20inspectors, 13 for all of Europe, Africa, LatinAmerica and Central America and seven forAsia. This means foreign ports do not getfrequent checks to make sure they meet internationalmaritime security requirements,according to Stephen Flynn, an authority onborder security and a senior fellow at theCouncil on Foreign Relations.“There are more TSA security agentsat one security checkpoint (at LaGuardiaAirport) than the Coast Guard has receivedfor the entire inspection system. This is nota credible system,” he said at a recent Househearing.Several pieces of port security legislationthat languished in Congress nowhave considerable momentum, and manycommittees are expected to start passingbills in this area by April. Many measuresfocused on expanding port security grantsand requiring significantly higher levels ofcargo inspections.Republican Reps. Duncan Hunter, thepowerful chairman of the House ArmedServices Committee, and Jim Saxton, R-N.J., co-authored an anti-DP World billthat includes a provision to scan all cargocontainers and trucks entering the UnitedStates for terrorist weapons.Hunter said on C-SPAN’s WashingtonJournal program that the United States hasthe technology to do an X-ray exam of everyocean container or truckload exiting a U.S.sea or land port.“We need to have a directive to portdirectors that they need to figure out aconfiguration for their port to be able to doa screening of these cargo containers as theycome off the ships or come off the trucks.Either do that at the port — if they haven’tdone that earlier at the country of origin— or let’s find somebody who can,” he saidin a direct shot at CBP, which is responsiblefor inspecting cargo imports.CBP currently uses automated X-rayor gamma ray imaging systems to inspectabout 5 percent of all containers enteringthe country. Some of the inspections aredone by foreign customs as part of CSI.The DHS uses a risk-based managementapproach that relies on advance shippingdocuments and intelligence to target shipmentsthat score high on a computer analysisfor non-intrusive imaging or, if necessary,physical inspections.“We could easily have one of these hightechwand systems that will allow trucks tocome through at a couple of miles an hour.So while they are doing their paperwork,we could have them X-rayed. We could dothat. That’s something that a port directorwho is aggressive and creative could do,”Hunter said.“He could figure out how to get thosemachines in there, how to configure themso you could pull those trucks through. Youwouldn’t stop commerce in the least, andthat’s the one time when everybody is linedup on the same road and they are all in arow and you can bring them through likecattle coming through a chute and inspectthem,” he said.At a hearing March 2, Hunter said importersshould pay a fee to cover the cost ofAMERICAN SHIPPER: APRIL 2006 85

TRANSPORT / PORTSinspections.Sen. Hillary Clinton, D-N.Y., said CBPshould be inspecting at least 15 percent to20 percent of all inbound containers, comparedto the 5 to 6 percent that are physicallyinspected now. And Sen. Robert Menendez,D-N.J., proposed “dramatically” increasinginspections of cargo containers enteringthe country as a start towards a 100 percentinspection regime.The lawmakers’ approach appears to clashwith CBP’s efforts to improve efficiency andspeed up the inspection process, especiallyat land borders. In particular, a large effort isunderway to eliminate paperwork processingby requiring truckers to electronically filetheir manifest prior to arrival at the bordercheckpoint to eliminate backups.Many of the backups spillover into theMexican or Canadian side of the border,where the United States doesn’t have jurisdiction.A major constraint on CBP activity isthe limited dock space in congested portfacilities to conduct exams. Non-intrusiveexams require enough space for containersto be laid in a row, plus an additional bufferfor the equipment to safely operate.As of last summer, CBP had deployedabout 165 mobile, truck-mounted gammaray systems since the Sept. 11, 2001 attacks,as well as some semi-fixed systems.And the fixed and mobile Vehicle andCargo Inspection Systems in use at portscan only process about 20 containers anhour because it takes time for specialiststo analyze the image.A new Eagle system can process aboutone container per minute. But it takes up alot of space, and must have containers laidout for the car-wash style machine to passover them. Another constraint on speedingup the inspection process is that longshoremenrefuse to drive trucks through stationaryVACIS machines, citing health concernsabout radiation exposure.A private sector initiative in Hong Kongthat automatically inspects every containerreceived a great deal of attention during severalhearings on the DP World takeover. Twoterminals in Hong Kong are experimentingwith a combination X-ray, radiation detectionand optical scan system that can recordtrucks as they enter the terminal at about 15kilometers per hour.The idea, heavily promoted by Flynn forthe past 18 months, is to capture a physicalrecord of each container that can be viewedas needed by customs authorities on site orin the country of destination.DP World executives offered to install thenon-intrusive detection systems at every foreignterminal at a cost of $2.6 million apiece.Chief Operating Officer Edward Bilkey saidthe company was evaluating the equipment,but liked the fact that the new system couldprocess 400 trucks per hour.Flynn and the Hong Kong terminal operatorsuntil recently have had trouble convincingDHS to consider the system. Flynn saidCongress should have taken advantage of DPWorld’s offer to provide additional guaranteesand make the installation of the equipment atall 51 terminals a condition for approval.Grants. The port security grant programis likely to receive a substantial boost. TheBush administration has proposed for thesecond year in a row lumping port securityinto a $600 million catchall grant programfor critical infrastructure.Protectionist undercurrentsWASHINGTONCriticism of the proposed portinvestment by a sheikdom in theUnited Arab Emirates centered onconcerns that a foreign governmentcould manage U.S. marine facilitiesas an instrument of foreign policy toaid a terrorist attack on the UnitedStates.But in the eyes of some, the realproblem is foreign companies ofany type controlling terminals theybelieve should be reserved for Americanbusinesses.Several anti-foreign investment billscropped up in both houses of Congress aslawmakers and the public discovered thatforeign companies already dominate managementof U.S. waterfront operations.Rep. Clay Shaw, R-Fla., introducedlegislation in February aimed at preventingforeign entities from operating U.S. seaports.His legislation falls between a proposal byDemocratic Sens. Hillary Clinton of NewYork and Robert Menendez of New Jersey torestrict foreign governments from operatingports, and one by Rep. Duncan Hunter, R-Calif., that would limit ownership of criticalinfrastructure to American firms.Shaw said his legislation would requireany marine facility at a U.S. seaport to be86 AMERICAN SHIPPER: APRIL 2006bought or sold by companies with at least51 percent majority ownership by Americancitizens. A press release didn’t explain howa U.S. company could sell terminal rights ifthey are in the hands of a foreigncompany, and a spokespersondid not return calls forcomment.Industry experts estimatethat up to 75 percentof U.S. marine terminalsare operated by companiesfrom South Korea, Japan,Taiwan, Denmark, Singapore,China and other countries.“To ensure the continued safety of ourcitizens, U.S. ports should be controlled byAmerican companies,not foreign entities,”Shaw said.“Commercial portsare used to send defenseequipment” around theworld, Menendez saidon PBS’ The Newshourwith Jim Lehrer.“Imagine if a portHunteroperator decides to shut down operations ifhe doesn’t agree with U.S. policy.”Menendez plans to co-sponsor a bill thatwould bar companies owned or controlledby foreign governments from operating U.S.port facilities.Shaw’s approach is favored by the InternationalBrotherhood of Teamsters and Eller& Co. Inc., a Fort Lauderdale, Fla.-basedcargo handling company that shares operationswith P&O at the Port of Miami’s mainpublic terminal.The Teamsters, which has tried withoutmuch success to organize independentport drivers who shuttle boxes on and offthe docks to warehouses for distributionthroughout the country, called on Congressto block the P&O sale to DP World becauseof the “increased security threat of openingour nation’s ports to the UAE.”Opponents of the sale said the UAE servedas operational and financial base for some ofthe Sept. 11, 2001 attackers, even though theDefense and State departments emphasizedthat the Persian Gulf nation is a major allyin combating terrorism and supporting U.S.military forces in the region.“There are three major, reputable U.S.-owned terminal operating companies thatcould bid on P&O’s U.S.-based assets ifgiven the chance. They should be given thatchance,” the Teamsters said in a statement.In an interview, Teamsters spokesmanBret Caldwell identified those terminal operatorsas SSA Marine, Maher Terminals andOakland-based Marine Terminals Corp.Officials at each company declined tocomment about any potential interest in theDP World properties.

Several senators pushed for budgetamendments to support a separate port securitygrant program and increased funding.Menendez offered an amendment to tripleport security grants. The bill would add $965million for port security efforts in fiscal year2007, increase funding for research and developmentof cargo scanning and port securitytechnologies, and provides assistance fordeveloping countries to improve their abilityto scan and inspect containers.Congress appropriated $175 million forport security grants last year after the Bushadministration only requested $46 millionfor the fiscal year 2006 budget. DHS hasdistributed about $708 million during thepast four years.Sen. Kay Bailey Hutchison, R-Texas,called for quick passage of her bill directingthe expansion of the CSI.Rep. Frank Lobiondo, R-N.J., chairmanof the House Transportation and Infrastructuresubcommittee on Coast Guard andmaritime transportation, introduced a billto require security officials at U.S. ports beU.S. citizens.Several proposals attempt to correctweaknesses in C-TPAT and CSI.Last November, Sens. Susan Collins,R-Maine, and Patty Murray, D-Wash., coauthoredthe Green Lane Maritime CargoSecurity Act, which would provide $835 millionin each of the next five years to expandCSI and C-TPAT, provide extra funds for portsecurity grants, create a cargo security policyoffice in DHS and implement other measuresto protect ports and cargo from terrorists.Collins said CSI and C-TPAT were goodprograms in concept that do not work wellbecause they have been underfunded byCongress and the Bush administration.“We want more aggressive implementationof those programs and we are willingto back it with the funding,” she said at apress briefing on Capitol Hill. “I feel likethe current uproar will build support formore congressional funding.”The Government Accountability Officelast year reported that 17.5 percent of highriskcontainers are X-ray inspected overseasby governments participating in CSI. Thereare 43 ports that allow CBP inspectors to helptarget outbound shipments for inspection.“Our bill, by providing steady funding forTRANSPORT / PORTSthat program, would allow more inspectorsto be stationed overseas” to help increase thenumber of inspections, Collins said.The bill would also give additional resourcesto CBP for C-TPAT, which has beencriticized for being slow to check whethercompanies are implementing promisedsecurity measures before they receive reductionsin inspections.The bill requires CBP to end its practiceof granting benefits to members before theyundergo a validation process.Flynn told the House Armed ServicesCommittee that he believes the C-TPAToffice needs to have at least 500 specialiststo validate companies and their suppliersaround the world, five times CBP’s currentcapability. CBP has 88 supply chain securityevaluators and hopes to reach its target of 156officers this summer.Collins and Murray also criticized DHSfor trying to lump port security grants into ageneric infrastructure security grant program.Their bill would provide $400 million indedicated port security grants, as recommendedby the American Association ofPort Authorities.Caldwell added that if private firms arenot willing to do so then public entities suchas port authorities should run them.The International Longshoremen’s Associationtook a more tempered approach,urging Congress to force the Bush administrationto halt final approval until it conducteda more extensive investigation of theport sale’s national security implications.The ILA represents workers who movecargo in ports along the East and Gulf coasts.Longshoremen’s unions have complainedsince 9/11 that security is lax at ports, and thatgovernment attempts to require backgroundchecks on transportation workers couldunfairly cause some workers with criminalrecords to lose jobs. Longshoremen argue thatthey have a vested interest in high securitybecause they would be in danger if a terroristattack were to occur in a port. Some in theindustry see union calls for the governmentto require cargo handlers to inspect emptycontainers to make sure no weapons are beingsmuggled through a port as an effort to gainadditional work for their members.One company that was willing to discuss thepossibility of splitting off P&O’s U.S. assetsfrom the rest of the deal was Eller & Co.Eller subsidiary Continental Stevedoring& Terminals, which is a joint venture partnerwith P&O at the Port of Miami TerminalOperating Co., filed suit in Florida askinga judge to block the sale because it is beinginvoluntarily dragged into the deal to workfor DP World. The Eller subsidiary handlescargo for P&O in Miami, and said it mayseek more than $10 million in damages.“Eller sees this as a national security issue”because the U.S. government would have ahard time ensuring a foreign governmentcomplies with port security rules, JosephMuldoon III, an attorney representing Eller,told American Shipper. “It raises all sorts ofquestions such as sovereign immunity.”Terminals are required to develop vulnerabilityassessments and security plans incoordination with the Coast Guard that outlineprocedures for controlling access to thefacility, verifying credentials of port workers,inspecting cargo for tampering, designatingsecurity responsibilities, training and reportingof all breaches of security or suspiciousactivity, among other measures.“These documents are sensitive andshouldn’t be shared with a foreign governmentthat could possibly be infiltrated,”Muldoon said.Eller believes the solution is to put theMiami terminal and others in U.S. hands.Muldoon said in early March that Ellerwas interested in buying some or all of theport facilities if the deal died. Eller wouldconsider many options, including being partof a group of investors, to buy the P&Oterminals, which analysts have valued atabout $600 million to $700 million.Eller’s financial capabilities could not beindependently verified and representativesfor the privately held company were unableto provide revenue figures. However,the Associated Press reported that in thecompany’s court filings in Britain, Ellerplaced the potential loss of business in Miamiat $150 million if authorities shut down thejoint venture.DP World would not be harmed by givingup the North America facilities becausethey only represented less than 10 percentof P&O’s business, he added.Meanwhile, Hunter, the powerful chairmanof the House Armed Services Committee,and Rep. Jim Saxton, R-N.J., fileda bill to halt the DP World acquisition andrequire foreign companies that already owncritical infrastructure such as port terminals,airports, power plants to sell off their investmentsto U.S. companies.In a letter to House colleagues, Huntersaid Americans would have to own andcontrol 51 percent of a company that operatescritical infrastructure. The DefenseDepartment, assisted by the Department ofHomeland Security, would be responsiblefor creating a list of facilities that are vitalto national or economic security or publichealth and safety. Foreign companies on thelist would have to divest their properties.Companies in control of critical infrastructurewould need a chief executive officer,chairman and majority of the boardof directors who are U.S. citizens, someindependent directors, as well as a boardand security oversight committee approvedby the Defense secretary, according to thebill.■AMERICAN SHIPPER: APRIL 2006 87

TRANSPORT / PORTSBIG and LITTLE collaborationPorts discuss arrangement to expand Oakland’sreach, revive Sacramento’s flagging finances.Sacramento, Calif. is known more forits action hero-turned-governor thanfor being a major shipping destinationfor global cargo, but a linkup betweenthe fast-growing Port of Oakland and thesmaller, struggling Sacramento port maychange all that.In December, officials at the two portsinked a memorandum of understanding todevelop a plan to revive the fortunes of thePort of Sacramento, which sits upriver fromOakland, and which has posted losses eachof the last five years.Oakland’s interest is clear. Officials at theBay Area port, which handled 2.27 millionTEUs in 2005, want to develop Sacramentointo an inland port and distribution complex,simultaneously easing container congestionin Oakland’s terminals and allowing Oaklandto more effectively tap into California’scentral region.That’s how it’s all supposed to work out,at least.“Everybody right now is excited aboutthe opportunity,” said Ray King, generalmanager of marketing in the Port ofOakland’s maritime division. “We’ve gotstars in our eyes.”For the past five years, the Port of Sacramentohas been in what executive directorJohn Sulpizio calls a market trough, tusslingwith its nearby competitor, the Port ofStockton. He said the port, which handlesbulk cargoes, was in a period of transitionas it moved away from reliance on exportedtimber and toward growth in dimensionallumber from New Zealand and importedcement and aggregate.But the numbers spoke loudly. Fromafar, Sacramento appeared a losing proposition— $5 million in losses over thosefive years.So, in the summer of 2005, with rumorsof bankruptcy swirling around the 42-yearoldport, Sacramento officials decided on anew direction. The port would privatize itsterminal operations and act as a landlordport. Immediately, one of the first namesBY ERIC JOHNSON“The combined legislativeclout of Sacramento andthe Bay Area legislatorson port issues could bepowerful. And that couldripple back to Washington.”John Sulpizioexecutive director,Port of Sacramentoto pop up as an interested party was thePort of Oakland.For Sulpizio, an industry vet of more thanthree decades, the chance to link up withOakland provided credibility and clout tohis corner of the trade world.“The Port of Sacramento is a small port,”Sulpizio said in a February interview. “Ourchairman likes to say it would be difficultfor us to get hit by a bus if we were standingin the middle of an intersection. This givesus a linkup to a large port and the exposurethat comes with that.”But for now, he’s guarded in his optimismabout the arrangement.“The (local) press has made more out ofit than it really is,” he said. “We basicallyhave signed a memorandum of understandingthat we’re going to work together to seeif we can define a relationship and what itmight cost.”The two ports have jointly put out a requestfor qualification for terminal operators totake over operational duty at the inlandport, which sits near the confluence of theSacramento and American rivers, about 80miles northeast of San Francisco.By the end of March, Sulpizio said, theports expect to have responses from interestedoperators. If the bidders are qualified,the MOU calls for an 18-month operationsphase, eventually leading to an eight-yearcontract with the Port of Oakland that couldbe renewed for a further 10 years.“They may be able to augment ourmarketing effort and they can definitelyenhance our legislative advocacy,” Sulpizioadded. “The combined legislative clout ofSacramento and the Bay Area legislatorson port issues could be powerful. And thatcould ripple back to Washington.”For instance, Oakland was recently stifledin its attempt to secure $100 million fromfederal sources to expedite completion of achannel deepening project that would allowpost-Panamax ships to call at the Bay Area’smajor port. Oakland received $43 million,meaning the channel deepening won’t becomplete until 2008.Sulpizio suggested that the weight ofSacramento coupled with the Bay Area mayhave induced Washington to be more freespendingon the dredging project.Then there are the purely financial benefitsof attaching the Port of Sacramento tothe Oakland brand. Oakland’s TEU volumegrew faster than any other U.S. West Coastport in 2005.“From a financial standpoint, we’reobviously looking for increased tonnageand revenues from this,” Sulpizio said.“We also would envision more funding forinfrastructure from in-state sources.“We’re an underutilized facility. We’vegot acreage to develop. But our revenuesare depressed and we’re posting losses sowe’re looking for increased revenue andincreased volume.”Benefiting The Region. King said thearrangement is complementary to the interestsof both ports, and could act as an economicstimulus for Northern California.“They’re breakbulk and we’re containers,”King said. “Our relationships with beneficialcargo owners and ocean carriers and terminaloperators can be spaced out to them withouta lot of extra cost. This is an example of howwe can leverage our expertise to benefit theentire Northern California region.”King said the land surrounding the Portof Sacramento should be attractive to companiescrossing the Pacific and calling atOakland.“That land could be a very valuable componentto the supply chain, because you needwarehousing space and cross-dock facilities,”he said. “Orders need support. Sacramentocould serve as an inland port.”And by inland port, King means a destinationto which terminals could quickly bargecargo after arriving at the Port of Oakland.The concept of inland ports is gaining tractionin Southern California, where TEU volumeis more than six times that of Oakland,88 AMERICAN SHIPPER: APRIL 2006

ut Bay Area leaders see the sameconcept as crucial to expansion ofthe Oakland port.In this case, Sacramento couldliterally and euphemistically bean inland port.“You have the potential to gettrucks off the road,” King said.“As the port here grows, we haveto take on issues that address environmentalstewardship, and thiscould potentially accomplish thatas well as put Northern Californiaon a higher growth path in termsof global trade.”Port partnershipThe ports of Oakland and Sacramento are looking to link upto promote common interests — Oakland to expand its reachinto California’s central valley, and Sacramento to survive financially.Over the next few months, the ports will work to:• Improve operating efficiencies.• Create a synergistic marketing strategy.• Extend Oakland’s maritime industry relationships andalliances to Sacramento.• Consolidate and leverage governmental, business andprofessional alliances.• Development new sustainable business and new revenuesbetween the two ports.• Reduce pollution through a possible waterborne cargobarging operation.• Eliminate operating losses at the port of Sacramento.• Develop and fund needed infrastructure at the Port ofSacramento.• Develop environmental enhancement and mitigationprograms at the Port of Sacramento using successful programsdeveloped by Oakland.End Of The Road. Of course,if all goes according to plan, Sulpiziomight not be around to seeit. If the two ports are successfulin attracting a terminal operatorto manage the port’s five berthsand bulk handling equipment, itwill mean a significant downsizingof port staff.Sacramento has been run as an operationalport since its inception in 1963, so themove to privatizing operations representsa paradigm shift, Sulpizio said.“Port staff would be downsized to anominal group and folded into the city,”he said.It will likely be run by Mike Luken, theCity of West Sacramento’s port manager.“We’re hoping the relationship will providea steady stream of revenue,” Luken said.“From a city standpoint, it would be greatto see the port have success. It doesn’t doanybody any good to have a vacant industrialfacility in the middle of the city.”Aside from management, the governanceof the inland port is also due for a radicalchange. For years, it has been a politicalfootball, tossed around between four governmententities — the cities of Sacramentoand West Sacramento and the counties ofYolo and Sacramento.The port lies entirely within the city ofWest Sacramento and Yolo County, but thosefour agencies shared seven seats on the portboard — and, ironically, Sacramento cityand county had the board majority.That changed in September, when theSacramento-Yolo Port District Commissionvoted to dissolve the four-party board.Currently, West Sacramento has fourseats on the board, and Sacramento andYolo and Sacramento counties each haveone. Soon, Sacramento city and countywill withdraw.Sulpizio said the more streamlined boardwill only make the port more attractive toprivate terminal operators.“The wild card is whether terminal operatorssee this as a revenue opportunity toprivatize,” he said. “We hope that the politicalstability (on the board) and the Oaklandname will give us some clout.”King said Oakland will determine overthe next few months whether Sacramento’stransport insurance plus innovationInsurance for:Transport and logistics operatorsPorts and terminalsCargo handling facilitiesShip operatorsContact TT via your brokeror at any point in the networkNew JerseyTel +1 201 557 7300San FranciscoTel +1 415 956 6537LondonTel +44 (0)20 7204 2626www.ttclub.commarketing@ttclub.comTRANSPORT / PORTSfinancial problems are, indeed, ahindrance to consummating a portpartnership.“Our view is that’s more behindthe Port of Sacramento now,” Kingsaid. “The arrangement betweenthe two ports should contributeto the health of Sacramento. Ofcourse when you start the relationship,you have to work out thedetails. But we’re focused on thefuture of the two ports rather thanthe administrative and economictroubles.”Longtime Target. And that’sbecause Oakland officials havelong eyed the City of Sacramentoand its surrounding suburbs as apotential growth market.“I don’t think you can considerthe Port of Sacramento as a competitorto us,” King said. “We’vealways thought of Sacramento,because of its proximity to theCentral Valley, as more or less withinour sphere. But we never really thought,let’s have an arrangement with the Port ofSacramento.”That changed when the governance andfinancial problems in Sacramento forcedAMERICAN SHIPPER: APRIL 2006 89

TRANSPORT / PORTSofficials there to examine the port’s businessmodel.“Sacramento had a reason to want toassociate with us,” King said. “And we’vealways thought that was in our sphere. We’vethought about using the Central Valley topromote logistical support.”While the port has yet to decide what todo with its acres of undeveloped land, Lukensaid that since it’s currently zoned for industrialuse, he expects that West Sacramentowould keep it zoned that way.Which means the area would be primedto become a mini-distribution hub for inland-boundcargo and outbound cargo fromCalifornia’s Central Valley.And so the linkup should particularlyappeal to shippers and transportation companiesin that sense. Barging containersgives logistics specialists and shippers anoption that hasn’t existed for cargo arrivingin, or headed to, Oakland. While trucktraffic between Oakland and Sacramentoisn’t the nightmare that it is out of the portsof Long Beach and Los Angeles, it’s gettingworse and is a significant worry forofficials there.The prospect of barging containersbetween the two ports — in essence usingSacramento as an inland port — makessense particularly if it cuts down on emptycontainer loads traveling Interstate 80 betweenthe two cities, King said.“If there’s an opportunity to provide exchangeof containers so that they don’t returnempty to the Port of Oakland, then I thinkthat improves our competitiveness, cuts costsand helps environmentally,” he said.Sulpizio agreed.“We’d obviously be looking to the containerbarge service to relieve pressure onthe 80,” he said. “It allows them to shuttlecontainers immediately off the vessel to abarge, which clears up terminal space. Itdefinitely has the benefit of reducing trafficon I-80 and the barges, I believe, will haveless overall emissions per ton (of cargo)than trucks.”The products that could be barged toand from Oakland via Sacramento includeanything that could fit in a container — fromelectronics to exports of agriculture fromCalifornia’s farm-laden interior.Meanwhile, Sulpizio said Sacramento canhandle an influx of distribution centers andcontainers from the coast.“Sacramento is a fairly significant transportationregion,” Sulpizio said. “We’veactually been building on a goods movementnetwork infrastructure over time. Sacramentosits on the intersection of interstates5 and 80 and the port is a quarter-milefrom that intersection. You can take the 5all the way to Mexico and the 80 as a land90 AMERICAN SHIPPER: APRIL 2006“Everybody rightnow is excited aboutthe opportunity. We’vegot stars in our eyes.”Ray Kinggeneral managerof marketing, maritimedivision,Port of Oaklandbridge to Chicago, if you were so inclined.And the rail connections aren’t that bad.We’re well-placed and we’ve got availableland that would attract major warehouseoperators.”But he cautioned: “It would likely takesome modest capital investment to buildthe barge-container handling facilities sothere are some hurdles that need to beovercome.”Private firms will, no doubt, look longand hard at the port’s financial troubles thelast five years.In August, when American Shipper spokewith Sulpizio about press reports that theport was near bankruptcy, he said the rumorswere unfounded.“When people talk about running out ofcash, that assumes the do-nothing scenario,”he said.The port is also looking to sell a 33-acrepiece of property to raise $7 million. Thereare currently 150 acres in the terminal and500 acres of undeveloped land owned bythe port.“It’s a bridging strategy,” Sulpizio said.“No business can continue to sell off assetsas a long-term strategy.”But in February, the Sacramento Beereported that Sacramento had sold a 30-acreparcel of its land for $6.6 million to staveoff bankruptcy, a move that gave the portsome breathing room while seeing whereits future with Oakland lies.The newspaper also said Sacramento hasdebts of $13 million, reserves of $8 millionand lost $800,000 in fiscal year 2005.So the Port of Sacramento seems to havefound its safe harbor in the storm, whileOakland seems to have found a way to addressgrowth and environmental issues asterminal space shrinks.“You’ve got to find better ways to useexisting infrastructure,” Sulpizio said. “Andthis is a good way.”■‘Give up the MRGO’Closing of Mississippi River Gulf Outlet would forcerelocation of critical New Orleans infrastructure.Gary LaGrange, president and chiefexecutive officer of the Port of NewOrleans, laid it out in this year’sannual State of the Port address: “We areready to give up the MRGO.”LaGrange was referring to the MississippiRiver Gulf Outlet, the man-made shippingchannel that provides ocean carriers witha direct connection between New Orleansand the Gulf of Mexico, and serves as thehome for major terminals, warehouses andwaterfront businesses.The MRGO, often referred to as the Mr.Go, has long been seen as a blessing and acurse. The benefits — faster access to theGulf and a location away from city streetsthat offered more room for modern shippingoperations — led to its constructionin the 1960s.But navigation benefits turned to navigationimpediments when hurricane hit inyears past, causing the waterway to silt upand become inaccessible for large ships.BY JIM DOWWith key facilities like the France Roadand Jourdan Road terminals normally accessby the MRGO, that created ongoingproblems.But those problems paled when HurricaneKatrina hit late last summer. The MRGO essentiallyturned into a funnel for the incomingstorm surge, leading to the breaches along theadjoining Inner Harbor Navigational Channel(IHNC) that flooded the city’s Lower NinthWard area.The flooding led to calls for the permanentclosure of the MRGO. The state legislaturetook an important step toward that option inFebruary, when it passed a resolution callingfor Congress to close the waterway. Thefederal government, which controls access toports, will have the final say on the matter.For local shipping interests, already facedwith the challenge of bouncing back fromthe damage Katrina wreaked on both infrastructureand the economy, the prospectsof closing the MRGO present incredible

TRANSPORT / PORTSThe trolley that moved the container cranes at the France Road Terminal wasknocked off track by Hurricane Katrina. the terminal remains inoperable.financial and logistical challenges.LaGrange acknowledged the MRGOmight be near the end, yet he is remindingeveryone the change would come at a cost.He estimates that 30 percent of pre-Katrina operations are located on “innerharbor” locations, mostly on the IHNC.Although much of New Orleans maritimeoperations are back up and running, mostnotably the facilities located on the crescentof the Mississippi River, important questionsmust be answered concerning the operationshistorically dependent on MRGO access.A cyclical upturn in steel imports in Februaryput port statistics back up to Pre-Katrinalevels — at least on paper. But LaGrangenoted in his port address that there is noway to sustain those numbers until officialsdetermine how to replace the facilities andcapacity lost in the hurricane.There are nine major companies thatlocated their operations along the inner harborsite, with an estimated 1,000direct employees. Thousands ofother jobs are linked to thoseoperations.LaGrange said it would cost$360 million to relocate thosecompanies, along with the existingterminals. The container terminalsand cold storage facilities alonewould account for $180 millionof those costs.LaGrange said officials haveexplained the situation to bothstate and federal authorities, buthe is now challenging them to helpprovide a solution.“The losses that this industry issustaining are a direct result of thefailure of the federal governmentto provide a shipping channel thathad adequate flood protection measures,” hesays. “The federal government has a fiduciaryresponsibility to provide deepwater access tothe people who depend on the MRGO. Wedon’t care how they do it. But if they aren’tgoing to dredge the channel, they have tomake these companies whole by helping tomove their operations.”Even if the MRGO is shut down for good,LaGrange said, that does not mean the endfor everything along the IHNC.He pointed out that before Katrina hit theport had 77 agreements with 50 tenants onthe IHNC. Short term, the port has takensteps like deferring rent for some of them tohelp them survive the immediate aftermathof the hurricane.A handful of companies have left, but thereare still 45 companies with agreements tolease property in the industrial area.“From these figures, it’s clear to see thatthe IHNC will remain a great place forindustrial development in the city of NewOrleans,” LaGrange said.Even if deep draft vessels never use theMRGO again, one alternative is to restorethe lock system that was in place for decadesbefore the construction of the MRGO.The locks are old and outdated, but alreadysome companies are using them.New Orleans Cold Storage, a key portcustomer that moves high volumes of frozenpoultry for international customers, is usingan existing 80-year-old lock to access companydocks at the Jourdan Road Terminal,restarting operations earlier this year. Thecompany has also been trucking some cargoto an upriver wharf.Should old locks be modernized, access toIHNC companies could be greatly improved,LaGrange said.Other vessels that are too long or withdrafts that are too deep are coming into theIHNC from the Mississippi River.Still, the solutions created out of necessityafter Katrina are not always a match forwhat was in place beforehand.For example, LaGrange noted cold storagecompanies have lost the competitive advantageof having dockside facilities, wherecompanies like NOCS could blast freezepoultry and put it directly onto a ship.In addition to seeking state and federalfunding to relocate some facilities, officialswill have to find suitable new locations forthose operations.“We are now faced with the challengeof shoehorning some of the capacity andfacilities that we lost on the IHNC intoour current footprint along the MississippiRiver,” LaGrange said.There is some room for growth on theMississippi River Terminal Complex onthe East Bank of the river. But there are noobvious locations on the West Bank.“In some cases, we probably won’t findthe footprint we need on either theEast of West banks,” LaGrangeconceded.The goal is to keep companiesthat cannot resume operations inNew Orleans in state.LaGrange said he would beworking with the Ports Associationof Louisiana. Companiescould also be enticed to use otherLouisiana ports capable of providingsimilar services.For the other 70 percent ofthe operations not located on theIHNC, operations are gettingclose to pre-Katrina levels.The recovery efforts haveprompted the port chief to adopta new motto: “It’s not how far youfall, but how high you bounce.” ■AMERICAN SHIPPER: APRIL 2006 91

Cargo liability after English Channel collisionEarly on Dec. 14, 2002, three vessels — the Kariba,Tricolor and Clary — were navigating in a traffic separationpattern in the English Channel north of Dunkerque,France. The ships were operating in restricted visibilitydue to fog. The Kariba and Tricolor were on roughlyparallel courses in the westbound lane of the traffic pattern.At 2:05 a.m., both vessels had just made a turn atthe Fairy South buoy and were navigating from way-pointto way-point in their planned courses. At this same time,the Clary, a bulk carrier registered in Singapore, was alsoproceeding on a steady course in the northbound lane ofan intersecting branch of the traffic separation pattern.Tricolor, a roll-on/roll-off car carrier loaded with 3,000luxury vehicles, was in the process of overtaking Kariba— a Bahamas-flagged containership.When the Kariba and Clary were about three milesapart on intersecting courses, the Kariba made an abruptturn to starboard (right) and hit the port (left) side of theTricolor, causing the Tricolor to capsize and sink alongwith her entire cargo — valued at about $180 million.There were no human casualties, the crew of the Tricolorhaving made it safely on board the Kariba.During subsequent litigation in a New York federalcourt, legal representatives for the Kariba argued that ithad been boxed in by the Clary and Tricolor, and that thosevessels were at least partly to blame for the collision.“There is no dispute that it was the duty of the Clary,as the vessel intersecting the westbound traffic separationscheme, to turn to starboard and go safely astern of theKariba and the Tricolor, and that is what the Clary did,but allegedly later than it should have and not before theKariba turned to starboard and put itself on a collisioncourse with the Tricolor,” U.S. District Judge HaroldBaer Jr. said in his ruling.The court noted further that the master of the Karibahad misread his Automatic Radar Plotting Aid (ARPA)and believed that the Clary was closer than it was.Attorneys for the Kariba, according to Baer’s ruling,“made much of the fact that the Clary did not stay behindto help with the wreck and rescue the crew of theTricolor, but instead went on its intended course to theNetherlands.” The second officer of the Clary claimedhe did not understand the severity of the collision, andthought that the ships had merely “kissed.” “While hisactions after the collision may be indefensible and evenreprehensible, they appear to have no bearing on ourinquiry — which is to determine who was responsiblefor the collision,” Baer wrote in his ruling.“At first, the court was surprised that none of the shipscontacted one another via VHF radio to inquire whichone was to take evasive action, but testimony indicatedthat use of the VHF radio was discouraged because it wastoo difficult to identify which vessel was which becauseof there being so many ships in the traffic separationscheme,” the judge noted.The liability of the three vessels “for the claims beforethis court is to be determined in accordance with Article4 of the Brussels Collision Convention of 1910,” Baerdetermined. That article says, in part, that “if two ormore vessels are in fault, the liability of each vessel shallbe in proportion to the degree of the faults respectivelycommitted.”After assessing the evidence, the court noted that “inorder to be boxed in, there must be four sides closed.” Inthe event at hand, “one side of the box was always open,92 AMERICAN SHIPPER: APRIL 2006because at any time the Kariba could have simply cuther motor and slowed down.”Baer ruled, “the cause of the collision was the sole andexclusive fault of the Kariba. The Tricolor and Claryshare no portion of liability for the collision.”[Otal Investments, as owner of the Kariba, v. Wilh. WilhelmsenASA, et al., v. Zurich Insurance Co. v. Tricolor,et al.; U.S. District Court for the Southern District ofNew York; Docket numbers 03 Civ. 4304, 03 Civ. 9962,04 Civ. 1107; Date of ruling: Jan. 4]Jones Act proviso means what it saysHorizon Lines LLC, a U.S.-flag carrier active in theJones Act trades, sued in federal court to thwart approvalby U.S. Customs and Border Protection of a planby Sunmar Shipping Inc., a competitor of Horizon’s,to transport frozen fish from Dutch Harbor, Alaska,to Boston.Sunmar had received CBP approval to charter non-Jones Act vessels to bring fish from Alaska to Bayside,New Brunswick, a port about six miles south of St.Stephen, New Brunswick, which is across the St. CroixRiver from the Calais, Maine, point of entry to theUnited States.Rather than proceed directly to Calais, Sunmar proposedto move the fish in a triangular pattern, first bytruck and then by rail, to several towns in New Brunswick,adding 145 miles to the route prior to entry intothe United States. Sunmar did not intend to file ratetariffs for any portion of the route.Although the Jones Act generally prohibits transportof goods in the coastwise trade from one U.S. port toanother except on U.S.-flag vessels, an exception inthe act’s third proviso allows shipments on routes usingCanadian ports and railroads when such routes arerecognized by the Surface Transportation Board andrate tariffs have been filed with the STB.CBP, in approving Sunmar’s plans, had noted thatsubsequent to the enactment of the Jones Act’s third proviso,Congress had largely deregulated the rail industryand virtually eliminated required filings of tariffs. CBPthus reasoned that the rate tariff-filing requirement ofthe third proviso should be ignored, on grounds that“mechanistic adherence” to statutes requiring the filingof rate tariffs with the STB “in the present climate ofderegulation would lead to an absurd result that cannotbe justified.”At trial, Horizon Lines argued that Sunmar’s proposedroute was “commercially pointless” and in violation ofthe Jones Act’s third proviso.U.S. District Judge Ellen Segal Huvelle ruled thatCBP had gone too far in expanding the third provisoof the Jones Act. “This interpretation ignores both theplain language of the (Jones Act) and the congressionalintent in enacting it,” Huvelle determined.CBP’s rulings were “arbitrary, capricious and not inaccordance with law,” the judge said.Huvelle ordered that the case be sent back to CBP“for further proceedings not inconsistent with this …opinion,” meaning that the third proviso of the Jones Act[The Merchant Marine Act of 1920, 46 U.S.C. app. 883(codified as amended, 2004)] must be read literally.[Horizon Lines LLC, v. the United States of America andAmerican Seafoods Co. LLC.; U.S. District Court forthe District of Columbia, Docket number Civ. 05-0952(ESH). Date of ruling: Feb. 10.]

Corporate Appointments(800) 876-6422, FAX (904) 791-8836, e-mail gburrows@shippers.comLogisticsAudacious Inc.The Nevada-based transportation managementservices provider has appointedBill Jones as senior vice president of salesand marketing.Jones was vice president and generalmanager of transportation services at RyderIntegrated Logistics, after Ryder acquiredhis own company, BFJones Logistics, in1998.In his new position, he will be responsiblefor strategic direction, planning and executionof marketing and sales programs for Audaciousand its sister company, NTE LLC.Ozburn-Hessey LogisticsThe Tennessee-based third-party logisticsprovider has appointed Frank Eichler to thenewly created position of executive vicepresident and general counsel.Eichler was senior vice president andgeneral counsel for Dex Media Inc. inColorado, overseeing the company’s publiclisting in 2004 and its sale to R.H. Donnelleyearlier this year.At OH Logistics, Eichler will be responsiblefor contract administration, Sarbanes-Oxley compliance, analysis and counselon legal and policy issues as well as beinginvolved in acquisition activities.Ryder System Inc.The Miami-based logistics and transportationprovider named Mark T. Jamiesonexecutive vice president and chief financialofficer. He replaces Tracy Leinbach, whoretired.Jamieson comes to Ryder from SammonsEnterprises Inc., where he spent nearly 30years and eventually reached the position ofexecutive vice president and CFO.Ryder System has also appointed RobertBrunn vice president of investor relationsand public affairs.Brunn was Ryder’s group director of investorrelations. He will report to Jamieson.ForwardingGeoLogistics Corp.The Santa Ana, Calif.-based global freightforwarder and logistics services providerhas appointed John Kincheloe senior vicepresident, sales and marketing, Americas.Kincheloe was vice president, South Asiaat Eagle Global Logistics in the Houstonbasedcompany’s Singapore office.AirLufthansa CargoStefan H. Lauer has been named interimchairman, following the decision of Jean-Peter Jansen to step down from the Germanairline’s board March 31 for healthreasons.Lauer is Deutsche Lufthansa AG’s chiefofficer, aviation services and human resources.At the same time, Karl-Heinz Kopflewill take charge of operations at LufthansaCargo.SAS CargoSoren Busk has been named chief financialofficer, replacing Hans Ove Dahl wholeft the Scandinavian airline in January.Busk has worked within the SAS Groupsince 1981, most recently as CFO for SASScandinavian Airlines Danmark A/S.MaritimeMOL (America) Inc.After clocking up about 50 years in theshipping industry, Ray Keene has retired asexecutive vice president and chief operatingofficer at MOL (America).Prior to joining MOL in 1995, Keenewas executive vice president of MOL’s linerservices agency, Williams, Dimond & Co.He has also held executive positions atcompanies including Inchcape Shipping,Seatrain Lines, and Seapac ContainerService/OOCL.Keene will be succeeded by Tom Kelly,presently responsible for corporate operationsat MOL (America). Kelly joined thecompany in 1999 after stints at APL andLykes Bros. Steamship Co., Inc.InlandCanadian Pacific RailwayChief Executive Officer Robert J. Ritchieand Chairman J.E. Newall will leave thecompany after its annual general meetingMay 5.Fred Green, appointed president of CPR inNovember, will take over from Ritchie. DirectorJohn Cleghorn will replace Newall.PortsCopenhagen Malmo PortDanish-Swedish port complex CMP hasappointed Peter Maskell as chairman of theboard of directors.Maskell has been a member of CMP’sboard since 2001 and is a professor inbusiness economics at Copenhagen BusinessSchool.Port of HuenemeExecutive Director Bill Buenger said hewill step down in April.Buenger, the longest serving port directorin California, has served as port chief since1994 and presided over a port whose cargovolume increased 50 percent over the lastdecade. The port is the West Coast’s biggestimporter of bananas and citrus fruits and receivesnearly a quarter-million automobilesmanufactured in Asia and Europe.GlobalSolutionsfor contract managementand tariff services.eztariff offers a full range cost-effectivesystem that reduces costs and increasesprofit potential. With our user-friendlysoftware and intuitive search capabilities,you can turn your tariff and contractinformation into vital planning tools.Set up is quick and easy, with secureweb access through an easy login.Start today !For more information call,1-877-580-GMTSwww.globemar.com 1-954-340-8886 1-877-580-GMTSMADISON, NEW JERSEY CORAL SPRINGS, FLORIDAOAKVILLE, ONTARIO, CANADAAMERICAN SHIPPER: APRIL 2006 93

Service Announcements(800) 876-6422, FAX (904) 791-8836, e-mail gburrows@shippers.comAPL joins transatlantic leg of pendulumAPL has joined the westbound transatlantic leg of the weekly Europe/U.S.East Coast/Autralasia Oceania Pendulum service, jointlyoperated by Maersk Line and CP Ships.APL will take slots on the service betweenZeebrugge, Tilbury, Bremerhaven, Rotterdamin Europe, to Charleston, Savannah and Miami.The Singapore carrier, which markets theservice as ASX, said it is the first time it hasserved Savannah.The Oceania Pendulum service uses 11 ships averaging 4,111TEUS and has a full port rotation of: Zeebrugge, Tilbury, Bremerhaven,Rotterdam, Charleston, Savannah, Miami, Kingston, Balboa,Auckland, Melbourne, Sydney, Brisbane, Tauranga, Port Chalmers,Balboa, Kingston, Philadelphia and back to Zeebrugge.APL currently offers seven weekly services, including the ASX,in the transatlantic trade.FEFC lines raise rates, bunker surchargeThe Far Eastern Freight Conference, which includes most ofthe Asia/Europe container shipping lines, are raising freights ratesthis month.Effective April 1, the following rate increaseswill be implemented:• Six-month contracts for cargoes fromAsia (excluding Japan) to North Europe,Scandinavia and Mediterranean subject to a$200 increase.• Twelve-month contracts to jump $200 for cargoes from Japanto North Europe, Scandinavia and Mediterranean.• Six-month contracts for cargoes from Japan to North Europe,Scandinavia and Mediterranean to be raised in two tiers;$150 from April 1 to Oct. 1 and then another $150 for the nextsix month period.• Cargo moving from Scandinavia, North Europe and Mediterraneanto Asia (including Japan) will be subject to a $50 rateincrease.The FEFC also said its bunker adjustment factor will rise 5percent to $270 for the month of April, from $257 in March.According to the January World Liner Supply reports of ComPairData, fourth quarter 2005 capacity in the Asia/Europe and Mediterraneantrade increased 4 percent compared to the previous quarterand 15.8 percent compared to the same quarter 2004.FEFC carriers are: ANL Container Lines, CMA CGM, EgyptianInternational Shipping Co., Hapag-Lloyd, Hyundai MerchantMarine, “K” Line, Maersk Line, MISC, MOL, NYK, OOCL,Safmarine and Yang Ming.Zim details AMP service rotation changeZim Integrated Shipping Services provided details on a previouslyreported change to its AMP service in April, when ships onthe service will begin calling directly to East Mediterranean portsinstead of Adriatic ports.The new rotation will be: Piraeus, Kumport, Constanza, Haifa,Colombo, Singapore, Shekou, Hong Kong, Shanghai, Pusan, Vancouver,Portland, Pusan, Shanghai, Xiamen, Hong Kong, Shekou,News & Trends in Transportation MarketingReport: 34% of marketingpros in transportation earnover $100K a year.According to the 2006 TMCA MarketingTrends Report, 33.8% of marketing, sales,and communications professionals earnannual base salaries of more than U.S.$100,000 (excluding benefits and bonus).In addition, 44% receive an annual cashbonus of over $10,000. To order this newreport, visit www.TMCAtoday.org or call(952) 442-5638, x208.Emerging Trends in 2006• Market Research continues to play apivotal role in bottom-line results, rangingfrom product development and pricingto customer service, strategy andmeasurement. How are you leveragingindustry research and intelligence tostrengthen your company’s performance?• Lack of time, budgets and human resourcescontinue to limit a transportation company’sability to effectively “go to market.”• Building a brand establishes a sustainableadvantage in today’s changing marketplace.How are you leveraging your brandcapabilities to strengthen your positionin the marketplace?• Learn more from your peers and industrythought-leaders at the 2006 TMCA AnnualConference and Expo — May 21-23 inKeystone, Colo. For details, visit onlineat www.TMCAtoday.org.TMCA Conference & ExpoMay 21–23, 2006 • Keystone, COEvent Sponsors:Transport TopicsADVERTISEMENT94 AMERICAN SHIPPER: APRIL 2006TMCA provides connections, resources , information, and solutionsfor today’s marketing professional in transportation and logistics.

Singapore, Haifa Piraeus. The first vessel in the rearranged servicewill be the Zim Canada, scheduled to launch April 27.Meanwhile, the Adriatic service will be maintained by a dedicatedweekly service connecting Haifa and Ashdod.COSCO, Evergreen start China/U.S. loopCOSCO and Evergreen in March commenced a joint weeklyAsia/U.S. East Coast service.The China-U.S. East Coast Service (CUE) initially deploys threevessels of about 2,700 TEUs calling Shanghai; Yantian; HongKong; Cristobal, Panama; Savannah, Ga.; Miami; Cristobal; andback to Shanghai.Zim adds Oakland to RTW serviceZim Integrated Shipping Services said it has added another stopon the U.S. West Coast for its round-the-world service.Vessels on the service will begin calling at Oakland (the servicepreviously called only at Los Angeles) in response to market demand,the carrier said in a statement.The service’s new route is: Shanghai, Ningbo, Xiamen andChiwan in China; Singapore; Port Kelang, Malaysia; Mundra,Nhava Sheva and Tuticorin in India; Colombo, Sri Lanka; Suez;Port Said, Egypt; Felixstowe; Rotterdam; Hamburg; New York,Newport News, Va., and Charleston; Kingston, Jamaica; PanamaCanal; Los Angeles; and Oakland.Hanjin to join new Asia/Med loopKorean ocean carrier Hanjin Shipping has started taking spacefrom CKYH alliance partner Yang Ming on its recently startedweekly Asia/Mediterranean AMS2 service.The AMS2 service started late-February anddeploys seven 3,500-TEU ships, with “K” Lineproviding five of the vessels and Yang Mingthe other two. The port rotation is: Shanghai,Ningbo, Xiamen, Kaohsiung, Yantian, Singapore,Jeddah, Port Said, Genoa, Fos, Valencia,Port Said, Singapore, Hong Kong and back to Shanghai.Hanjin joins the AMS2 marketing the services as New AsiaMed Express (NMX).‘K’ Line, MOL introduce New Andes linkJapanese ocean carriers “K” Line and Mitsui O.S.K. Lines releaseddetails of their joint weekly Asia/Mexico/West Coast SouthAmerica service due to start April.The first sailing of the New Andes Service,which replaces the two carriers’ former vesselsharing agreement with A.P. Moller-acquiredP&O Nedlloyd, will be made by the vesselCielo D’ Europe when it departs ChiwanApril 8.The New Andes Service will use nine 2,000-TEU ships — fivefrom “K” Line and four from MOL — and have a port rotationof: Keelung; Chiwan; Hong Kong; Xiamen; Shanghai; Qingdao(fortnightly); Busan; Manzanillo, Mexico; Buenaventura; Guayaquil;Callao; Iquique; Valparaiso; Lirquen; Yokohama and backto Keelung.“New Andes will be the first service that offers direct link fromXiamen and Qingdao to West Coast South America ports,” thecarriers said in a joint statement.Econocaribe starts Newark/Ecuador serviceNon-vessel-operating common carrier Econocaribe has startedoffering a new service from the U.S. Northeast to Ecuador.Econocaribe said the new weekly less-than-containerload servicedeparts from the Port of New York-New Jersey to Guyaquil,Ecuador. Voyage time is nine days.Miami-based Econocaribe has an office in New Jersey, whereit has been consolidating shipments to several destinations in theCaribbean, as well as Argentina and Brazil. A company spokesmansaid growing volumes from the U.S. Northeast to Ecuador promptedthe company to start a regular weekly service.Internet Indexof AdvertisersCheck out these locations on the World Wide WebAmerican ShipperComPair Datawww.AmericanShipper.comwww.compairdata.comAlabama State Port Authority www.asdd.comAPL Co. PTE Ltd. www.apl.comAtlantic Container Line www.ACLcargo.comAvalon Risk Management www.avalonrisk.comCOSCO www.coscon.comCrowley Maritime Corp. www.crowley.comEmirates Sky Cargo www.skycargo.comEvergreen Marine www.evergreen-marine.comFreightgate www.freightgate.comGlobal Maritime Transportation Serviceswww.globemar.comHamburg Sud www.hamburgsud.comHatsu Marine www.hatsu-marine.comHorizon Lines www.horizonlines.com/alwaysHRMA International Trade Symposiumwww.PortofHamptonRoads.com/symposium/Hyundai America Shipping Agency Inc. www.hmm21.comIntermarine LLC www.intermarineusa.comIntermodal Association of North Americawww.intermodal.orgInternational Bond & Marine Brokerage Ltd.www.intlbondmarine.comInternational Container Terminal Services Inc.www.ictsi.comItalia Marittima S.p.A. www.italiamaritima.itLOGICON Conference www.wbresearch.comMaersk Line www.maerskline.comMatson Navigation www.matson.comMediterranean Shipping Co. USA Inc.www.mscgva.chMOL (America) Inc. www.molpower.comNational Industrial Transportation League www.nitl.orgNortheast Trade/Transportation Conference 2006www.conect.orgOld Dominion Freight Line www.odfl.comPort Authority of New York and New Jerseywww.portnynj.comPort Everglades Authoritywww.co.broward.fl.us/port.htmRickmers-Linie www.rickmers-linie.comSchneider National www.schneider.comSeaboard Marine Inc. www.seaboardmarine.comSouth Carolina State Ports Authoritywww.port-of-charleston.comTMCA Conference www.tmcatoday.orgTT Club www.ttclub.comVirginia Ports Authority www.vaports.comWaterman Steamship Corp.www.waterman-steamship.comAMERICAN SHIPPER: APRIL 2006 95

Someone should write a book titled Ports for Dummies, andmake it mandatory reading for our nation’s lawmakers, becausethey certainly displayed their lack of knowledge during therecent Dubai Ports World debacle.First they upset an American population still healing from theSept. 11, 2001 terrorist attacks by insinuating that the UnitedArab Emirates company was taking over a half-dozen U.S. Eastand Gulf Coast ports, when in reality they were only acquiringindividual terminals within those ports.And they left the impression that the federal governmentwas handing over security in those ports to DP World, whenin fact the Coast Guard and Customs and Border Protectionwould retain jurisdiction for overseeing security in those ports.These agencies still have a lot of work to do to bring security upto post-9/11 standards. But all terminals in the United States,whether they are operated by DP World or American companies,are equally vulnerable to terrorist activity.Second, many lawmakers insisted that America’s portsand maritime industry should not be “outsourced” to foreigngovernments or companies, although this has been happeningto the country’s marine terminals for years. For example, NeptuneOrient Lines, controlled by Singapore government entityTemasek, bought U.S. container line APL in 1997 and operatesterminals in Long Beach, Calif.; Oakland; and Seattle. ChinaOcean Shipping Co., a state-owned firm, has a joint operatingagreement with APL subsidiary Eagle Marine Services in LongBeach, and Yang Ming Marine Transport Co., which is partiallyowned by the Taiwanese government, operates terminals at theports of Los Angeles and Tacoma, Wash.Third, they maligned perhaps one of the U.S. government’smost valuable supporters in the global war on terrorism. Theleaders of the U.A.E. during the past five years have workedhard to win back America’s confidence after 9/11, despite thepossibility of exposing their homeland to terrorist attacks. TheFools on the HillU.A.E. provides numerous support services to American militaryoperations in the region, and participates in CBP’s ContainerSecurity Initiative.Fourth, lawmakers barked that DP World would threatensecurity of U.S. ports when it was more likely that it would useits deep pockets to improve security far beyond what existingport operators are able to afford. It stretches reality to believethat Dubai would invest $7 billion to have it all go up in smokeby watching an attack on its facilities. There’s cheaper ways forterrorists to carry out an attack. Besides, DP World officialsprobably would have taken extra precautions because they knewthat if an attack were linked to one of their facilities, the 7thFleet would turn its tomahawk missiles on Dubai faster thanyou can drop anchor in the harbor.All of these blatant missteps by Capitol Hill sent a clear messageto DP World and any other future foreign port investorsthat “you’re not welcome here.”That’s a terrible shame, since many of these large overseasmarine terminal companies are world-class operators with solidfinancial backing and a sincere interest to invest in Americanports and lift them out of the ever-deepening hole of inefficiency.These same terminal operators have even demonstrateda willingness to comply with U.S. container security regulationsoftentimes at their own expense.Unfortunately, Congress has done its damage and will moveon to other business as if nothing happened, leaving Americanports, carriers and shippers to pick up the pieces.96 AMERICAN SHIPPER: APRIL 2006

CREATINGOPPORTUNITIESIN GLOBALCOMMERCEMaersk Inc.Giralda FarmsMadison, NJ 07940maerskline.com