There may be a furor in Washington, but the global shipping industry does not share Capitol Hill's security concerns over Dubai Ports World, the United Arab Emirates company that could soon be operating shipping terminals at several major U.S. ports unless it is stymied by growing political opposition. The terminals have been managed by Britain's Peninsular & Oriental Steam Navigation Co., which Dubai Ports just agreed to acquire for $6.8 billion.
In the shipping world, Dubai Ports enjoys a solid reputation as one of the Middle East's most successful companies. With its emphasis on services, Dubai has become a thriving trade center not only for the Persian Gulf but for Asia. ``They ran a very efficient and successful port for years before they expanded into the international arena,'' says Neil Davidson, research director of London's Drewry Shipping Consultants Ltd.
Yet both Dubai Ports World and the Bush Administration have been taken by surprise at the strength of opposition across the U.S. political spectrum to the notion of an Arab-owned entity managing U.S. ports. Despite Dubai's and the U.A.E's friendliness toward the U.S., legislators such as Rep. Peter King (R-N.Y.) have said they need to strictly vet Dubai Ports to make sure it has no Al-Qaeda connections.
On Feb. 24, the Dubai company said it would delay taking over the management of the U.S. ports, which are a relatively small part of the P&O acquisition, pending further discussions with U.S. officials.
This unexpected fight comes as a blow to Dubai's aspirations. The tiny emirate, which has only modest oil reserves, has staked its future on an incredibly ambitious drive to be the region's leading commercial hub, a kind of Hong Kong on the shores of the aquamarine Persian Gulf. As part of this strategy, the al-Maktoum royal family first developed the monster port called Jebel Ali in the 1970s. Jebel Ali now plays a key role in the booming global trade with Asia. ``We continued building during all the wars; we took a risk, and it is paying off now,'' Sultan Ahmed bin Sulayem, Dubai Ports' chairman, said in an interview with BusinessWeek last year.
Bin Sulayem, a shrewd government official who has run the ports business for a quarter century, is one of three key advisors to Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum. There seems to be no limit to al-Maktoum's aspirations. He has orchestrated the creation of one of the world's largest airlines, Emirates. He recently inaugurated a new financial center that is attracting the cream of the world's banks. And he has put bin Sulayem in charge of a plan to build tourist resorts on artificial islands shaped like palm trees.
PREMIUM PRICE But ports are the heart of Dubai's business. In December, 2004, the company bought the port operations of Jacksonville (Fla.)-based CSX Corp. for $1.15 billion, thus securing facilities in Germany, Hong Kong, and South Korea. The P&O deal, which Dubai won in a bidding war against Singapore's PSA International, will vault Dubai Ports from No. 7 to a three-way tie for second place among container-port operators.
By buying P&O, Dubai Ports takes over management of facilities in New York, New Jersey, Baltimore, Philadelphia, Miami, and New Orleans as well as in Britain, Australia, and Belgium. According to a P&O shareholders' document, the company had a $280 million loss on revenues of $4.8 billion in 2004, while Dubai Ports earned $330 million on sales of $570 million. To help finance its expansion, Dubai Ports raised $3.5 billion through a convertible bond issue in January, and plans an initial public offering. Dubai Ports' Web site lists U.S. shipping company veterans on its payroll, such as retiring Chief Operating Officer Edward H. Bilkey and Senior Vice-President Michael Moore.
The Dubai Ports World-P&O deal is far from cheap -- the Dubaians paid a 70% premium to P&O's stock price. But Davidson says the deal will give Dubai Ports ``a wider geographical spread than any other operator.''
To many in the industry, such clout does not translate into a security risk. The U.S. ports will remain staffed by Americans. U.S. Customs, the Coast Guard, and other authorities, not the terminal operators, will have overall control of security. Still, by Feb. 21 high-ranking Republicans had joined in Democrats' calls for President George W. Bush to rescind U.S. approval of the Dubai Ports-P&O deal, while Bush vowed to veto any legislation blocking Dubai Port's ambitions in the U.S.
The Dubai company's agreement to delay exercising control over the management of the U.S. ports gives both sides welcome breathing room. But it's not certain that a compromise can be found.
Editor's Note: This is an updated version of a story published in the Mar. 6 issue of BusinessWeek
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