Privatising the port

By Wilberne Persaud, Financial Gleaner Columnist

Last Friday's Financial Gleaner tells us Government intends to privatise the Kingston Container Terminal, lists the team chosen to manage this process and offers titbits of the group's terms of reference.

This is an important development worthy of comment on a number of grounds.

Let's begin with the notion of privatisation itself and separate ideological from economic and efficiency concerns.

On occasion, particularly in struggling less developed countries, multilaterals push the idea of privatisation. In almost all instances, the underlying rationale is ideological although efforts to avoid, or stamp out corruption sometimes play an important, if subsidiary role.

This is by no means Jamaica's first burst of privatisation initiatives - it is more like a second or third Test series in our recent past. Sadly, our track record of success is almost as bad as the West Indies teams following Clive Lloyd's and Viv Richards' band of committed high performers.

Sugar we privatised on multiple occasions and our public transport system continues in woe - if not shame and scandal - after different attempts and versions of privatisation.

Ideological battles continue with the one closest to home being that of the US continuing fight over health care delivery.

To think that private enterprise, operating for profit, is the best vehicle to deliver what is generally accepted as a social service is mind-boggling.

Pursuit of profit

In a US study of non- and for-profit health care delivery it was found that patients at "church-affiliated non-profit homes were prescribed drugs roughly as often as those entering profit-making 'proprietary' institutions. But patients in proprietary homes received, on average, more than four times the dose of patients at non-profits".

The consensus in explaining this was simple: the pursuit of profit. Sedatives are cheap. "Less expensive than, say, giving special attention to more active patients who need to be kept busy".

The commentator on these issues noted how unlikely it is for hospitals run for profit to offer services like home health and psychiatric emergency care, which are not as profitable as open-heart surgery. These are realities that should be self-evident.

We face no such issues in dealing with port services. What is good for the port operator's bottom line should be good for Jamaica.

And it should be good for Jamaica in a variety of ways, identifiable by a range of metrics readily in evidence - like cargo handled in TEUs, hectares of container space, volume of employment generated, dollars paid in taxes and spillover effects of skills and technology generated. This is a truncated list.

A good deal

There is but one issue that could raise concern or detain us here: shall Jamaica strike the best possible deal?

The first fact is that container trans-shipment is the fastest growing segment of the container-port market. Growth rates are at least three times as fast as port-to-port movements.

Professionals in the field estimate that at least 30 per cent of all today's containers move intra-modally in trans-shipment [mode refers to ship, train or truck; container technology is universal.

Containers may be moved by sea or land, they may be trans-shipped, fed mainline to feeder or feeder to mainline or moved mainline to mainline.

Obviously, Jamaica's forté is international trans-shipment - unlike say, Los Angeles; just compare income and, hence, import demand levels of the United States to Jamaica's.

The importance of trans-shipment agreed, we should take note that there is significant variation in its importance with respect to individual ports. For instance, Singapore trans-ships a fifth of the world's containers, while in Freeport, Bahamas, over 90 per cent of its activity is devoted to trans-shipment.

Once we agree Jamaica is on to a good thing, the first problem we face is timing. Going to market when we are in direst of need is not good. In this, perhaps we can do no better.

Second concern is what terms of reference have we given our team? The Financial Gleaner reports Jamaica House says the enterprise team "is charged with facilitating the privatisation process and ensuring the process is compatible with the general principles of privatisation".

The team should also "ensure the privatisation process is conducted in accordance with government policy and gives priority to the welfare of employees".

Well, this is not at all satisfactory. It is to be hoped that they have a specific mandate much clearer than this.

The 12 largest port holding operations in 2010 operated 284 terminals worldwide. They used and controlled more than 17,000 hectares of container land space and moved countless hundreds of millions of TEUs.

There are without doubt international firms, stevedoring entities, port holding companies and diverse investment entities that see a future in investment in the activities of ports, and particularly transshipment ports in this the era of globalisation.

A complex affair

The remit of the enterprise group is therefore complex and possible arrangements to be considered many.

An illustrious group of Jamaican public- and private-sector professionals is to be led by former central bank governor Derek Latibeaudiere in carrying forward this initiative. One does hope that the level of expertise required for an enterprise of this nature will be available to the group.

Finally, it appears that the group will be charged as well with the responsibility for negotiating the terms of whatever deal it finally decides is best worth pursuing.

This brings to mind an interesting bit of negotiating strategy encountered at business schools, narrated in Donald Dell's primer on negotiation Never Make the First Offer. He represented Arthur Ashe, the Wimbledon and US Open Tennis champion in a deal with the racquet manufacturer HEAD.

Ashe got a five per cent royalty on sales. In the midst of renegotiating the contract, the CEO stormed in and blurted out, "Goddamnit! This is outrageous. He's making 10 times what I'm making, and I'm chairman of this company!"

As the room fell silent in tension for what must have appeared an eternity, Dell uttered a master retort: "But Pierre, Arthur has a much better serve than you do."

There was laughter in the room, tension dissipated and the mutually beneficial deal finally struck. Our negotiator must be able to deploy these skills as well.

Wilberne Persaud, an economist, currently works on technology change and capital solutions for Caribbean SMEs. wilbe65@yahoo.com.