Foreign companies want to invest in U.S. marine terminals, but they face government scrutiny that could curtail or even block their efforts altogether.
Three deals involving proposed investment in U.S. container terminals by foreign companies potentially could rekindle the debate over the appropriateness of these entities operating marine terminals in U.S. ports.
Concerns about foreign investment in U.S. ports reached a fever pitch in 2006, when Congress voted to block Dubai-based DP World’s planned acquisition of P&O Ports North America’s marine terminal concessions in six U.S. ports and stevedoring operations in another 16 locations. DP World eventually withdrew its offer, leading to the creation of Ports America, today the largest U.S.-owned terminal operator and stevedore.
Now, these latest major port deals either are being reviewed or are likely to be reviewed as they move forward via the Committee on Foreign Investment in the United States (CFIUS).
They include:
• China-based COSCO Shipping’s planned acquisition of Orient Overseas (International) Ltd. and its Orient Overseas Container Line (OOCL) subsidiary Long Beach Container Terminal. OOIL/OOCL leases the Middle Harbor in the Port of Long Beach, where it’s building one of the largest and most sophisticated automated container terminals in the United States.
• The preliminary agreement that United Arab Emirates-based Gulftainer has signed to lease Delaware’s Port of Wilmington for 50 years and invest $580 million in the port, including $410 million for a new container terminal on the Delaware River.
• A letter of intent signed by the Mississippi State Port Authority to discuss future port expansion and an exclusive lease with Turkey-based Yilport Holding, a subsidiary of the Yildirim Group of Cos.
COSCO stated last July in a filing with the Hong Kong Stock Exchange that it’s seeking approval from CFIUS to purchase OOIL and its OOCL subsidiary, which includes the Long Beach terminal. On April 3, COSCO Vice Chairman Huang Xiaowen told Reuters the company is on track to completing the acquisition by the end of June.
“Up to now, we are quite confident to push forward this acquisition,” he told the news service. “It’s progressing normally.”
COSCO said its acquisition of OOCL aims to seize “historic opportunities presented by China’s ‘Belt and Road’ initiative” and increase the carrier’s international competitiveness.
Given rising trade tensions between the United States and China, one observer said COSCO’s effort to acquire the terminal could not come at a worse time.
The Wall Street Journal on Friday quoted an unidentified person as saying, “The Long Beach terminal is a prized asset, but it’s turning to be a roadblock to the completion of the deal, so it will likely be taken out of the equation. The plan is to sell it.”
A spokeswoman for OOCL said “The transaction process is ongoing and we remain confident. We will update the market when appropriate.” COSCO did not reply to a request for comment.
The investment bank Jefferies said in a market note that LBCT ” is only a small part of OOIL as the capex spent is only 4.8 percent of total assets” and that COSCO’s offer for OOIL is “is unlikely to be revised even if terminal is not included.”
“We believe the reason for the Offer is due to COSCO’s long-term strategy to become the third largest global container line. Hence, we believe OOIL’s Long Beach Container Terminal is unlikely to be a deal breaker for COSCO,” said Jefferies.
On Saturday Reuters reported “European Union and Italian authorities are investigating suspected wide-scale tax fraud by Chinese criminal gangs importing goods via Greece’s largest port of Piraeus, a trade gateway between China and Europe.”
COSCO owns 51 percent of the Port of Piraeus Authority.
Reuters said Fabio Botto, of the Italian Central Anti-fraud Office’s special investigative unit, told it the suspected scam had cost Italy tens of millions of euros in unpaid value-added taxes (VAT), though the total could be far higher as the investigation was not over. And Reuters said the European Anti-Fraud Office (OLAF) confirmed it was working with Italy on the investigation but declined to give details, citing confidentiality.
China Concerns. COSCO already has a 46 percent interest in the company that leases Pacific Container Terminals or Pier J in the Port of Long Beach, which it formed with SSA Marine in 2001. SSA, which performs the stevedoring at the terminal, has a 44 percent stake, while CMA CGM acquired a 10 percent stake in 2012.
COSCO is also part owner of the company that leases and operates the West Basin Container Terminal in the Port of Los Angeles, along with Yang Ming and Ports America. The Chinese carrier picked up its stake in the facility when it acquired China Shipping in 2016.
Though COSCO was able to form a joint venture with SSA to co-lease Pier J (along with CMA CGM later), its initial effort to lease a portion of the former Long Beach Naval Station was blocked by language in the 1998-99 Defense authorization bill. Some legislators were concerned “Chinese Communists could use the former base for military purposes and intelligence gathering,” the Los Angeles Times reported in 1998, adding that at the time Sen. James M. Inhofe, R-Okla., and Republican Congressmen Duncan L. Hunter and Randy “Duke” Cunningham, both of California, led the effort to block COSCO.
Opposition to DP World’s proposed acquisition of terminals in the United States was led by New York’s Democratic Sen. Chuck Schumer and Republican Congressman Peter King.
Gregory Husisian, a partner at the law firm Foley & Lardner, said, “Ever since the Dubai Ports announcement, there’s been interest in Congress in the international shipping supply chain.”
He noted when reviewing foreign investments in U.S. infrastructure, “the Trump administration has been much more aggressive, particularly where Chinese interests have been involved, and being more aggressive in finding that there’s a potential national security interest.”
The fact that the Trump administration quashed Singapore-based Broadcom’s proposed acquisition of Qualcomm has shown how broadly the government can declare that a foreign investment potentially threatens national security.
Instead of quelling concerns about Chinese investment in the United States, the fact that COSCO already has an interest in two terminals in Los Angeles and Long Beach “would probably work the other way,” Husisian said, because it gives COSCO “more of a direct impact on the U.S.”
CFIUS Reviews. According to Husisian, CFIUS reviews are quite common. He estimated that a couple of hundred deals might be reviewed annually.
“If the U.S. government finds there’s a national security interest they have the authority to come in and unwind the deal, basically to force the purchaser to sell off the company or to take steps to negate the impairment of national security,” Husisian said, adding that companies usually will request a review in advance if there’s a potential national security interest.
CFIUS, he explained, is not a standing committee but brings together officials from various government agencies — the Defense, Commerce and Energy departments, for example. “Different people are put on to review the deals from other parts of the government, depending on what the national security interest is,” Husisian said.
The CFIUS review process is not transparent, and companies are allowed to submit their requests for these reviews in confidence and routinely do. The U.S. government does not ordinarily say which companies are being reviewed, nor does it seek public comment.
“Often when the word gets out, it’s because the companies have told people, often in a regulatory filing with the stock exchange,” Husisian said.
The decision not to allow an investment is not subject to review. “If you were to try to contrive some way to get in court, the courts are highly likely to defer, saying this is a matter of national security, this isn’t a legal question,” he said.
Wilmington. Delaware Governor John Carney said the state’s General Assembly’s Joint Committee on Capital Improvement voted unanimously Thursday to move forward with the transaction to expand the Port of Wilmington.
“This expansion agreement will result in significant new investment that will allow the port to create new jobs and compete over the long term. I urge members of the Delaware House of Representatives and Delaware Senate to take up and pass a concurrent resolution that will allow this transaction to move forward,” Carney said.
But California Rep. Duncan D. Hunter, who took over his father Duncan L. Hunter’s congressional seat in 2008, on April 6 sent a letter to President Trump asking him to “place a hold on” Gulftainer’s plan to lease the Port of Wilmington, despite the fact Gulftainer has operated the container terminal at Port Canaveral, Fla., since 2015 after a CFIUS review. Then, as now, opposition to Gulftainer operating in Wilmington has been led by groups such as the Center for Security Policy and its president, Frank Gaffney. Hunter’s office said he has not written to Trump about the proposed investments by COSCO or Yilport.
Hunter claimed in his letter to the White House that “several news reports indicate a family connection between the officers of the company and Dr. Jafar Dhia Jafar, a top Iraqi nuclear scientist during Sadam Hussein’s regime. … Given the Port of Wilmington’s proximity to several military installations, and its strategic location on the Delaware River, foreign control of such an important asset deserves a full review.”
Peter Richards, Gulftainer’s group CEO and head of its U.S. arm, GT USA, did not respond to a request for comment from American Shipper, but told the Philadelphia Inquirer that “Gulftainer never has, never will have, anything to do with terrorism, with dirty money” and was open to a review by all federal authorities.
Delaware Secretary of State Jeffrey Bullock, who also is chairman of the Diamond State Port Corp., which owns and operates the Port of Wilmington, said, “The terms of our agreement with Gulftainer already require all necessary federal approvals, including the CFIUS review, to be completed successfully before we move forward with the concession.”
Gulfport. In April, the Mississippi State Port Authority and Yilport Holding said in an agreement that the Turkey-based terminal operator “would commit to investing in additional facility and equipment upgrades,” although the exact nature and amount of that investment is still under negotiation.
Gulfport Executive Director and CEO Jonathan Daniels said the port expects in the next six months to complete about $570 million in restoration and expansion work that has been ongoing since 2011. The port was severely damaged by Hurricane Katrina in 2005.
The port was expanded from 216 acres to about 300 acres and raised above the water line from about 10 feet to 14 feet.
He said the port has expanded its container terminal, added three new ship-to-shore gantry cranes and installed about six miles of new rail, both on the west side of the port’s container terminal and at two new rail storage and handling yards.
In addition, Chemours, formerly part of DuPont, has built an $85 million bulk-handling facility for ore and coke used to produce titanium dioxide, a widely used whitening agent.
Gulfport also is looking to enter public-private partnerships that will allow it to grow cargo volumes. “Those partnerships are based not only around expertise to complement what we have on site currently but also bring us a level of connectivity into our global carriers,” Daniels said.
In recent years, Gulfport has increased its container volumes from 175,000 TEUs to nearly 225,000 TEUs, most of which moves between the port and destinations in Central and South America. The port is one of the largest gateways for fresh fruit in the United States and used by both Dole and Chiquita. Crowley also uses Gulfport for its liner service to Central America.
The port entered into exclusive negotiations with Yilport, and Daniels is hopeful that it “could lead to a significant investment in additional infrastructure and provide both parties with increased global coverage.” However, he said Gulfport anticipates that since it’s a foreign company, Yildrim’s investment would be subject to a CFIUS review.
This is not first time Yilport has expressed interest in U.S. investments. In its 2016 annual report, Chairman Robert Yuksel Yildirim said his company was negotiating to acquire a majority of Ports America. It’s unclear whether those talks are ongoing. Ports America said it “doesn’t provide comment on financial or business strategies.” It pointed to a statement on its website that said it is still owned by Highstar Capital.
If approved, the Gulfport facility would be Yilport’s first terminal in North America, although it does operate a ferroalloys production and refining facility in Butler, Pa. Yilport has full or partial ownership in 19 marine terminals in Turkey, Europe and South America. The company was ranked as the 13th-largest terminal operator in a Drewry survey last year. Parent company Yildrim also has a 24 percent stake in CMA CGM Group, the world’s third-largest container shipping company, which has investments in Long Beach, Houston and Miami.
“Since we believe that we have very good know-how and the expertise in multipurpose port operations globally and we see lack of investments in many U.S. ports, we are committed to Gulfport Port Authority to upgrade, improve terminal productivity and services by applying state-of-the-art port technologies at Gulfport in order to make the port the most competitive in that region,” Yuksel Yildirim said.
“We see a great potential to feed volume, particularly refrigerated goods, to Gulfport from Yilport terminals in Ecuador and Peru and Latin America to reach [the] Midwest USA,” he added. “There is further potential in leveraging the company’s trading subsidiary to handle containerized liquid and bulk products out of the U.S. Gulf Coast region for small and medium-sized shippers.”
Some analysts believe U.S. port authorities, like Gulfport and Wilmington, will increasingly turn to private-public partnerships and foreign investors to fund needed infrastructure.
“Investments by institutional investors in the ports sector are not new or uncommon,” Moses Kopmar, an analyst at Moody’s Investors Service told American Shipper. But he said the proposed investments by Gulftainer and Yildirim are “much larger in scale than we have seen before. They undoubtedly provide a welcome source of capital for Gulfport and Wilmington, as these ports likely do not enjoy the same ability to access capital that larger leading ports in markets such as Los Angeles or New York would.”
Kopmar explained, “Certain ports in the Southeast, such as state-owned port authorities in Virginia, North Carolina, South Carolina and Georgia, have been able to satisfy large portions of their capital needs through significant public aid from their state backers, but it does not appear that Gulfport and Wilmington had similar opportunities. The transactions at both ports also entail long-term concessions with longer-than-typical durations compared to the lease or concession agreements that U.S. port authorities usually enter into with private operators. This could be a reflection of the need for a long payback period to recover the costs of such large investments in these particular markets.”
