by BOOZ'ALLEN HAMILTON - Port of Portland · PDF fileTHE OREGON PORT ASSESSMENT for State of...

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THEOREGON PORTASSESSMENT

forState of OregonDepartment ofEconomic Development

and

the Governor's Advisory Committeefor Maritime Affairs

by BOOZ'ALLEN & HAMILTON

October, 1986

BOOZ·AlLEN &HAMILTON INC.SUlTE 1100W. 7315 WISCONSIN AVENUE' BETHESDA. MABYLAND 20814' TELEPHONE; (30Il 986·5000' TELEX II; 710·826·0552

November 18, 1986

Honorable Victor G. AtiyehGovernorState of OregonSalem, Oregon 97310

Subject: Booz, Allen and Hamilton's Final Report on the OregonPorts Assessment Study

Dear Governor Atiyeh:

We are pleased to present our final report on the sUbjectstudy. The report identifies some important development needsfor Oregon's ports and identifies several development andorganizational alternatives to respond to these immediate needsas well as promote future development.

We are thankful for having the opportunity to serve theState of Oregon on this study. We also sincerely appreciatethe confidence that members of your administration and yourAdvisory Committee on Maritime Affairs had in selecting Booz,Allen & Hamilton, and the support they provided us during thecourse of the engagement.

Very truly yours,

~~~---BOOZ'ALLEN & HAMILTON Inc.

Leo J. DonovanVice President

cc:

Mr. Roland T. Fisher - ChairmanMr. Lloyd AndersonMr. James A. BeallMr. Peter N. BeckettMr. Wes Gr illeyMr. Frank G. Martin, Jr.f!iJr. Jan Maur i tzf!iir. Art ReidelMr. Geoffrey L. StoneMr. Greg Baker, Department of Economic Development

•

I .

TAB L E

EXECUTIVE SUMMARY

o F CON TEN T S

PageNumber

1

1. Most of Oregon's 23 Public Ports AreNot Involved in Maritime Commerce 1

2. Historically, Oregon's Ports Have BeenAble to Meet the TransportationRequirements of Most Segments ofthe State's International Trade Sector 2

3. As a Highly Export Oriented State,Future Growth of Oregon's EconomyWill be Dependent Upon a Healthyand Responsive State Port System 3

4. Oregon's Ports Are Not Financially orOrganizationally Structured to Play aMajor Role in Future Economic Growth.A Continuation of Current Trends SuggestThat Future Oregon Imports and Exportswill be Depend~nt on the Port Systemsof Other States. 3

5. There Are Several Future GrowthOpportunities For Oregon's Ports 4

6. The EXisting Situation With Oregon'sPorts Suggests That the State Have anExpanded Role in Port Planning andDevelopment Activities. Such an ExpandedRole Could Take Several Directions andCould Require an Investment by thePrivate and Public Sector of Up to$260 Million Over the Next Ten Years. 6

II. HISTORICAL PERSPECTIVE FOR OREGON'S PORTS

1. Exports From and Imports to OregonHave Paralleled National Trends.During the Past Ten Years, OregonHas Held a Relatively Constant Shareof U.S. Exports and Imports

13

13

TAB L E o F CON TEN T S

PageNumber

2. Oregon Ports Have Increased Their Shareof Handling Total U.S. Waterborne ExportsAnd Imports Over the Past Ten Years,But Have Lost Market Share to Portsin California and Washington 18

3. Despite the Decline in Total West CoastMarket Share, Oregon's Ports AdequatelyMeet the Requirements of Most Exportand Import Sectors Within the State 21

III. A PROFILE OF OREGON'S PORT SYSTEM 23

1. The Port of Portland is a Diversified,World Scale Port Agency but With aDecreasing, Financial Capacity toUnderwrite Future Major Port ImprovementProjects 25

2. The Development of the Group II DeepwaterPorts Has Been Neglected Over the Past20 Years. Astoria and Newport are inPerilous Financial Condition. 32

3. The Principal Role of the Coastal(Group III) Ports is to ProvideRecreational and Tourism Facilities 39

4. The Group IV Ports on the columbiaRiver Are Involved in a Diversityof Commercial, Recreational, andEconomic Development Activity 42

5. Under Recent Federal Legislation, Oregon'sPorts Could be Required to UnderwriteApproximately $5 Million in AnnualMaintenance Dredging Costs 44

IV. PORT DEVELOPMENT IN NEIGHBORING STATES 47

1. While Similar to Oregon's System, theWashington Ports Have Been More Pro Activein Port Development. The Scale. of PortActivities Particularly in Puget Sound, isFar Larger Than That in Oregon. 48


PageNumber

V.

2. While Not Generally Tax Supported,California Ports Have Been Supported Bya Large Local Market and Oil RoyaltyPayments

EVALUATION OF THE FUTURE POTENTIAL OFOREGON'S PORTS

51

57

1. Oregon's Potential to Handle AgriculturalProducts Rests in Its Ability to DevelopHandling Techniques Designed to Provideit With a Competitive Advantage OverOther Port Gateways 58

2. Forest Products Shipments Via Oregon'sPorts Have Been Flat Over the PastFive Years. The Modest Growth Thatis Anticipated Over the Next 10 YearsSuggest That No Significant InvestmentsWill Be Required 68

3. The Port of Portland Has Emerged as theLeading Automobile Import Facility onThe U.S. West Coast. Future PortStrategies Should Be Guided by the Decisionof Pacific Rim Manufacturers to AssembleAutomobiles in the United States. 75

4. The Handling of Containerized CargoRepresents Substantial Growth Opportunitiesfor One or More Oregon Ports. In Orderto Achieve Substantial Growth, One OregonPort Would Have to be Developed as a LoadCenter. 81

5. The Only Potential for Oregon Ports toPenetrate the Longer Distance, LargeVolume General Cargo is to Assist inThe Development of Two Way ContinuousRail Movements 95

6. There is Little Potential to Increase theMovement of Government Sponsored CargoVia Oregon's Ports 96


PageNumber

7. Oregon's Ports Have Enjoyed Recent Successin the Ship Repair and Oil ModuleConstruction Markets. Changes Both inMarket Conditions and Government PolicyCould Jeopardize Oregon's Position inThese Markets. 99

VI. ALTERNATIVE PORT DEVELOPMENT ANDMANAGEMENT STRATEGIES 112

1. The EXisting Situation With Oregon'sPorts Requires That the State Have anExpanded Role in Port Planning andDevelopment Activities. Such an ExpandedRole Could Take Several Directionsand Could Require an Investment by thePrivate and Public Sector of Over$250 Million Over the Next Ten Years. 115

2. The State of Oregon Should Upgrade andExpand Its Span of Interest and InfluenceOver Oregon's Ports 119

LIS T o F E X H I BIT S

PageNumber

1

2

3

4

5

6

7

8

10

11

12

13

14

Oregon's Public Ports

Containerized Revenue Tonnage Handledat West Coast Ports

Supply and Demand Comparison ofContainerized Cargo in Oregon

Port Situation Matrix in Oregon

Comparison of the United States' andOregon's International Trade

Concentration of Export Industriesin the United States and OregonDuring 1985

Comparison of Export Concentration viaOregon With Total U.S.

Distribution of Employment by Oregon FirmsInvolved in Import and Export Activity

Distribution of Employment by Oregon'sAgricultural Sector

Share of Total U.S. Waterborne Exports andImports Moving via Oregon's Ports

Comparison of Export and Import MarketShares Handled by Major West CoastPorts Regions

Evaluation of Oregon's Share of RevenueTonnage and Longshoremen Work HoursAmong West Coast Ports

Estimate of the Share of Oregon's Importsand Exports Transported by Oregon's Ports

Oregon's Public Ports

2

5

6

10

14

15

15

16

17

19

19

20

21

23


PageNumber

15

16

17

Leading U.S. Ports in Terms of MarineTerminal Investment

Cargo Profile of the Port of PortlandSince 1970

Financial Summary of the Port of PortlandBetween 1980 and 1986

26

27

28

18 Revenue Profile of the Port of Portland1980-1986 29

19

20

21

22

23

24

Financial Profile of Port of Portlandby Line of Business

working Capital Provided From Operations1980-1986

working Capital From Operations Comparedto Long Term Debt

Group II Ports

Profile of Group II Ports

Exports/Imports via the Port of Astoria

29A

31

31

32

33

3435

25 Exports/Imports via the Port of Coos Bay36

26

27

28

29

30

Exports/Imports via the Port of Newport

Income Statement/Balance Sheet Summaryfor Group II Ports For the Year EndingJune 30, 1985

Group III Ports

Profile of Group III Ports

Income Statement/Balance Sheet Summaryfor Group III Ports for the Year EndingJune 30, 1985)

37

38

39

40

41

31

LIS'!'

Group IV Ports

o F E X H I BIT S

PageNumber

42

32

33

34

35

36

37

38

39

41

42

43

44

45

46

47

Profile of Group IV Ports

Annual Dredging Costs for Oregonwaterways (1976-1985)

West Coast Liner and Non-Liner Tonnageby State of Lading/Unlading

Washington's Public Ports Districts

Profile of the Port of Seattle

Profile of the Port of Tacoma

Tax Receipts and Donations Received bythe Port of Seattle Between 1981 and 1985

Profile of the Port of Los Angeles

Profile of the Port of Long Beach

Profile of the Port of Oakland

U.S. Grain Consumption and Export1970-1984

Major Grain Producing States andPort Gateways

U.S. Grain Exports Since 1970

Corn and Grain Exports Via Lower ColumbiaRiver and Puget Sound Ports

Projections of Corn and Wheat ExportsVia the Lower Columbia River

Capacity Utilization of Grain ExportFacilities on The Lower Columbia River

43

45

47

48

49

50

51

52

53

55

59

60

61

62

63

64


PageNumber

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

Proposed Automated Agribusiness Facility/Traditional Agricultural ProductsHandling Facility

Through Transportation Cost For BaggedGrains to India

The U.S. Softwood Lumber Market

U.S. Plywood Market

U.S. Paper Products Market

Forest Products Export TonnageVia West Coast Ports

Forest Products Exports via Oregon's Ports

Projections of Forest Products ExportsVia Oregon Ports

Capacity of Oregon's Forest ProductsTerminals

Comparison of Potential Demand for andSupply of Forest Product Capacity AmongOregon's Ports

U.S. Automobile Retail Sales

Passenger Car Imports by Country of Origin

Automobiles Imported Via the Port of Portland1978-1985

Projection of U.S. Automobile Retail Sales

Potential Automobile Imports Via Oregon'sPorts (High Scenario)

Potential Automobile Imports Via Oregon'sPorts (Low Scenario)

Demand and Supply Comparison of AutomobileImport Facilities in Oregon

66

67

69

51

71

72

72

73

74

75

76

76

77

78

79

80

81


PageNumber

65

66

67

68

69

70

71

72

73

74

75

76

77

78

containerized Revenue Tonnage Handled atWest Coast Ports

Inland Modal Distribution of ContainerizedCargo

Projected West Coast Container Tonnage

Conservative Containerized Cargo Projectionsfor Oregon Ports

Moderate Containerized Cargo Projectionsfor Oregon Ports

Supply and Demand Comparison of ContainerizedCargo in Oregon

container Tonnage at Five Atlantic CoastPorts (In Millions of Tons)

Location of Shippers and ConsigneesServed by Carriers at Puget Sound

Ocean Transportation Cost Between theFar East and Pacific Northwest Ports

Through Transportation Cost Elementsfor Marine Containers

Through Transportation Cost for aConsignment of Steel Products Japanto Chicago

Title II Exports Via the U.S. Gulf Coastand West Coast

Title II Bagged Agricultural Exportsvia Pacific Northwest Ports Between1978 and 1985

Military Shipments (Outbound) Movingvia West Coast Ports Since 1981

82

84

85

86

87

88

90

91.

92

93

95

97

97

98


PageNumber

79

80

81

82

83

84

85

86

87

88

89

90

91

Typical Maintenance Cycles

Home Port Fleets

Heavy Coastwide ROH WorkFY 1986 - FY 1990

West Coast Shipyards Specializing inNavy Repair Industry

Planned Navy Small Craft ProgramSpending (In Millions of Dollars)

Yards Competing for Conversion ofLarge Naval Vessels and Construction ofSmaller/Specialty Craft

Hourly Production Labor Rates at SelectedLocations

Percentage of Small Business Set Asideson Navy Repair Work During 1981 and 1985

Tanker Transits From Valdez to Lower48 Markets

Near Term Oil Module Projects

Benefit Cost Comparison ofAlternative Scenarios

Port Situation Matrix

Organizational Concept Under theAggressive Development Strategy

101

102

102

103

104

105

106

107

110

111

119

120

125

I. EXECUTIVE SUMMARY

I. EXECUTIVE SUMMARY

On January 31, 1986, the Economic Development Department ofthe State of Oregon retained Booz, Allen and Hamilton toconduct the Statewide Port Assessment Study. The day-to-daymanagement of the Booz, Allen study was the responsibility ofthe Division of Ports within the Economic DevelopmentDepartment. On policy related matters and larger study issues,Booz, Allen reported through a special task force of theGovernor's Advisory Committee for Maritime Affairs.

The task force was established in December 1984 to conducta review of the statewide port system. The review was tospecifically address three key questions:

First, what are the economic and transportationproblems that affect the ability of Oregon's ports tomeet the domestic and international trade needs of theState?

Second, what should be the roles of Oregon's ports andof private industry in maritime development?

Third, what alternatives are available to Oregon toenhance port and maritime trade development in Oregon?

In this initial chapter of Booz, Allen's Final Report, theprincipal findings and conclusions of the study are presented.

1. MOST OF OREGON'S 23 PUBLIC PORTS ARE NOT INVOLVED INMARITIME COMMERCE

The Oregon public port system consists of 23 ports locatedboth on the Columbia River and on it's Pacific coast.Specifically:

Three ports are located on the deep draft segment ofthe Columbia River

•

•

Six Ports are located on the shallow draft segment ofthe River

Fourteen ports are located on the Oregon coast

The location of the 23 ports in the state as well as theirproximity to major transportation corridors is shown inExhibit 1.

1

EXHIBIT 1Oregon's Public Ports

• t.t:Co4n:waFPCffT = WlERSTAl'IiiOMA)'$ _ oW4.IC\I1RU.I.MS_ PRIHC#"JII.~rs _ muM'U!if$

Only nine of the 23 ports include terminals that canaccommodate maritime commerce. Of these, only four, Portland,Coos bay, Newport and Astoria have been involved inInternational Commerce.

2. HISTORICALLY, OREGON'S PORTS HAVE BEEN ABLE TO MEET THETRANSPORTATION REQUIREMENTS OF MOST SEGMENTS OF THE STATESINTERNATIONAL TRADE SECTOR

One way to evaluate the ability of a port system to meetthe state's trade needs, is to examine it in terms of eachmajor international transport sector within the state.Specifically, Booz, Allen concludes. that Oregon's ports havehistorically handled:

300 Percent of the Automobile imports into the state(thus, the state is a net exporter of imported autos)

135 percent of the agricultural shipments of the state(thus, it ships more Washington and Idaho produce thanWashington ports ship Oregon products)

About 100 percent of Oregon's forest products

Approximately 85 percent of all othernon-containerized general cargo generated in, orconsumed by, shippers and receivers within the state

But only 50 percent of the containerized cargooriginating or destined within the state.

2

Thus, the ports are able to meet nearly all or theinternational transportation requirements of in-state shippersand receivers. Containerized cargo is a noticeable exceptionand represents the fastest growing international trade sectorin the nation.

3. AS A HIGHLY EXPORT ORIENTED STATE, FUTURE GROWTH OFOREGON'S ECONOMY WILL BE DEPENDENT UPON A HEALTHY ANDRESPONSIVE STATE PORT SYSTEM

The two principal industries in Oregon (forest products andagriculture) represent 95 percent of the total tonnage exportedby Oregon in a given year. These industries represent only 56percent of the total exports of the entire United States. Thissuggests that Oregon is more international trade dependent thenother states. In 1984 for example, Oregon's exportsrepresented over 11 percent of total gross state products,while exports represented only 7.5 percent of the grossnational product of the entire country. Future economicvitality of Oregon's economy will be inevitably linked to adynamic and viable port system.

4. OREGON'S PORTS ARE NOT FINANCIALLY OR ORGANIZATIONALLYSTRUCTURED TO PLAY A MAJOR ROLE IN FUTURE ECONOMIC GROWTH.A CONTINUATION OF CURRENT TRENDS SUGGEST THAT FUTURE OREGONIMPORTS AND EXPORTS WILL BE DEPENDENT ON THE PORT SYSTEMSOF OTHER STATES.

Of Oregon's 23 ports, only the Port of Portland has thetechnical staff, financial capacity, and maritime assets tosubstantially contribute to the growth of Oregon'sinternational trade. However, even the financial position ofthe Port of Portland, particularly if viewed principally as amaritime entity, is deteriorating. Between 1980 and 1986,marine terminal activity in Portland has produced a cumulativenet loss of nearly $20 million. The ability of the Port ofPortland to underwrite major capital improvements in themaritime sector is questionable.

A review of the situation at the other ports suggest aneven poorer financial profile. During the year ending June 30,1985, the other major cargo ports of Astoria, Coos Bay andNewport experienced a net operating loss of $2.7 million on agross operating revenue of only $3.2 million.

In order for these three ports to survive in maritimebusiness, either deep budget cuts and reduction in servicelevels or a substantial increase in business levels will berequired.

The remaining 19 Oregon Ports are involved in a variety ofother predominantly non-maritime activities. As a group theyare marginally successful with a few, such as the Port of St.Helens, performing quite well. However, the ability of the

3

current port system to participate as a catalyst for futureinternational trade growth for Oregon is perhaps best evaluatedwhen it is considered that Oregon's 22 ports, other thanPortland, employ only 28 management personnel.

Unless the situation among Oregon's ports is arrested, anincreasing level of Oregon's trade will be handled by ports inWashington, California and other states. A major public policyquestion in Oregon is whether this constitutes an acceptablestrategy.

5. THERE ARE SEVERAL FUTURE GROWTH OPPORTUNITIES FOR OREGON'SPORTS

During the course of the engagement, Booz, Allen wasrequired to evaluate future opportunities for Oregon's ports inthe following areas:

Containerized CargoGrainForest ProductsIron and SteelImported AutomobilesBreak-bulk General CargoLiquid BulkGovernment Sponsored Cargoes.

For the most part, growth in these areas was either modest,or the capacity of Oregon's existing port system was adequateto meet potential demand at least over the next ten years. Twoareas, however, represent potentially significant opportunitiesfor Oregon. These are touched upon below.

(1) The Use of New Cargo Handling Technologies CouldImprove Oregon's Position in Handling TraditionalAgriCUltural and Forest Products

The success of the overall economy in Oregon and eventhat of its ports, is dependent upon the vitality of itsagricultural and forest products industries. There hasbeen little technological development of Oregon's ports andmarine terminals in either of these sectors. In fact,there has been little productivity related development inagricultural and forest products terminals throughout theUnited States.

This situation is changing. European manufacturersand entrepreneurs in the United States are developing newsystems to dramatically improve productivity and thus,enhance market share of these terminals in the UnitedStates. (Examples of typical improvements are provided inChapter V of this report). It is Booz, Allen's view that

4

there is substantial potential for such terminals in theSouth Atlantic, West Gulf (Texas) and Pacific Northwesternparts of the united States. Oregon should be on theleaaing edge of the exploitation of this technology.

(2) The Potential Exists For Substantial Growth inContainerized Cargo Among Oregon's Ports

Terminal 6 in Portland is a substantial containerizedcargo facility. Nevertheless, as shown in Exhibit 2,Oregon's ports handle only three percent of thecontainerized cargo handled by all West Coast ports.

EXHIBI'I' 2Containerized Revenue

Tonnage Hanaled at West Coast Ports

DOREGON

~ WASHINGTON

tzz:I NORTHERN CALIFORNIA

mmrm SOUTHERN CALIFORNIA

IIIgUl:::>zUl

iiiox:

lil!l!Ulz~zoo~

~o:::;....i

60

50

40

30

20

10

1979

3%

1980 1981 1982

Source: Pacific Maritime Association

This situation is due not so much to a lack ofinitiative in Portland, but rather to the substantialcommitment to container port development by the ports inCalifornia and Washington. These ports systems enjoyseveral advantages not available to Oregon includingaccessibility to large local markets (California), accessto external capital (Washington) and the support of a largenumber of ocean carriers and particularly, U.S. FlagCarriers.

5

Should containerization continue to develop as it hasover the past two decades, and if Oregon is effective indeveloping new containerized cargo customers, Exhibit 3suggest that the potential demand for new containerfacilities could be well in excess of the existing capacityof Terminal 6 at Portland.

EXHIBrI' 3Supply and Demand Comparison ofContainerized Cargo in Oregon

rs:J CONTAINERIZED CARGO DEMAND

OPTIMISTIC... DEMAND SCENARIO

MODERATE..- DEMAND SCENARIO

CONSERVATlVE.- DEMAND SCENARIO

1'10·

o FACIUTY CAPACITY

118S

3000

at 2750

~ 2500

"'" 2250o 2000

g 1750.: 1500

12501000

750500250

o L--I.-j:

52'0 r5000)::

-ASSUMES 20% OP T·2 CAPACITY WIU BE USED FOR CONTAINERS, INCREASINGCAPACITY BY 150,000 TONS

In fact, the volume implications of the optimisticdemand scenario presented in Exhibit 3 suggest arequirement for a container capacity three times thecapacity of Terminal 6 by 1995.

6. THE EXISTING SITUATION WITH OREGON'S PORTS SUGGESTS THATTHE STATE HAVE AN EXPANDED ROLE IN PORT PLANNING ANDDEVELOPMENT ACTIVITIES. SUCH AN EXPANDED ROLE COULD TAKESEVERAL DIRECTIONS AND COULD REQUIRE AN INVESTMENT BY THEPRIVATE AND PUBLIC SECTOR OF UP TO $260 MILLION OVER THENEXT TEN YEARS.

At this point, the State of Oregon is left with fourchoices.

It could chose to do nothing

It could elect a minimum level of involvement, whichwould provide financial support to ports in tenuousfinancial condition, as well as support deferredmaintenance on ports that have been previouslyidentified (in Chapter 777.065) as strategicallyimportant ports e.g., Astoria

6

It could act to moderately enhance the currentposition of Oregon's ports

It could elect to follow an aggressive developmentstrategy.

The first option carries substantial risk of financialfailure of several ports, deterioration of the tax position incertain counties and over the long run, potential increasedtransportation costs, and thus, reduced international tradevolumes of major Oregon shippers and receivers. Therefore, thefirst option appears impractical. A choice from among thethree remaining options appears more appropriate for Oregon andthey are discussed below.

(1) The Minimum Involvement Strategy May Reguire A One-TimePublic Investment of $20 Million

This can be referred to as a banding wire strategy.It is designed to shore up the existing port system as itcurrently exists. No detailed cost estimates weredeveloped for this strategy, but for planning purposes, itwould include approximately:

$5 million to assist financially troubled ports.It is likely that this amount would be in theform of a gift or grant with no payback provision.

$15 million to repair and maintain those portsthat have been cited as an economic goal of highpriority (ORS 777.065) and have fallen into astate of despair. This pertains principally toAstoria and Newport.

This strategy would perhaps not arrest the decline inmarket share and financial performance of the maritimeproperties of the major ports and perhaps would representonly a short term financial remedy of other smaller ports.

(2) A Strategy to Moderately Enhance The Current positionof Oregon's Ports Could Reguire An Investment of AnAdditional $70 and $80 Million of Public and PrivateF~ds

The essence of this strategy is to respond to theopportunities, but perhaps not the high container scenario,identified earlier. In addition to the minimum investmentstrategy, this includes:

7

Incremental expansion of container facilities,probably at Terminal Six in Portland. This wouldrequire not less than one, nor more than two,berth expansions over the next ten years. Inthat infrastructure is alreaay in place atTerminal Six, the estimate used for planningpurposes is approximately $50 million.

Development of an automated agribusiness facilitysimilar to 1hat shown in Exhibit 48 in Chapterv. This should occur on the Lower Columbia (andagain probably at Portland) i this has beenestimated to cost up to $20 million, and couldlikely be underwritten with private funds.

Development of improved forest products porthandling techniques. This could occur at acoastal port and should probably focus onimproved handling of dry logs. E'or planningpurposes, this investment is estimated at between$5-10 million, and could also be underwrittenwith private funds.

Depending on market conditions, these investments mayneed to be backed or guaranteed by the State of Oregon, butothers (Port of Portland, private industry) would beresponsible for capital recovery.

This strategy is designed to maintain (andparticularly in the container sector) or moderately enhanceOregon's position in their principal international markets.

(3) An Aggressive Development Strategy Would Require TheAdditional Expenditure of predominately Public FundsTotalling $160 Million. Such An Investment SuggestsThe Need For New Port Facilities, Probably in TheLower Columbia River.

This strategy would be in response to a goal to handlesubstantially all of Oregon's containerized exports andimports as well as the development of a world scaleinternational transportation center. It is responsive tothe high container demand scenario set forth in Exhibit 3.It is highly speculative because, while there is littledoubt that such additional capacity will be required in thePacific Northwest over the next ten years, transportationpatterns are more developed to and at Puget Sound, than viaOregon Ports. This strategy indicates a desire by thepeople of Oregon to develop containerized cargo facilities

8

on a scale approaching those in Puget Sound andCalifornia. The strategy entails high risk because therewill be no short term financial payback, and even the longterm financial and socioeconomic return would be dependenton factors beyond the control of the state of Oregon.

Under the high container scenario, a four of fiveberth facility would be required. This is larger than theexisting facility at Terminal Six.

Should the state elect to pursue this strategy, thefacility should probably be located on the lower 50 milesof the Columbia River. Such a location is suggestedbecause the success of the project is entirely dependant onattracting a major ocean carrier. Interviews with leadingocean carriers suggest that a strategy designed to reducetotal cargo transit time is essential. A key element inthis equation is the ocean carriers' transit time,particularly at a time when a third generation containership requires up to $50,000 per day to operate. Theinvestment required to construct a three berth terminal ata down river location includes the following:

Approximately $35 million for new sitepreparation and development

• Approximately $100 million for terminalconstruction and improvement

Approximately $25 million for railroadinfrastructure improvements.

An investment of this magnitude ($135 million net ofrail improvements) suggest that facility location is animportant factor. Further, as this is not an incrementalinvestment in container facilities (unlike the moderateenhancement strategy which is a single berth incrementalexpansion), there is little value, other than avoiding therail infrastructure improvements, to co-locating theterminal adjacent to Terminal Six in Portland.

Booz, Allen forwards no specific recommendationconcerning which alternative is more appropriate forOregon. Such a decision involves public policy factorsbeyond those considered in this study and report and infact, will be made by a new administration in Salem.

Nevertheless, the situation in Oregon suggest the needfor a stronger state role in port matters. Exhibit 4 onthe following page indicates that the appropriate role is afunction of the port system's ability to be financiallyself sufficient and its market share.

9

EXHIBIT 4Port Situation Matrix in Oregon

NEEDS TO BUY

HIGH 1JJ1l:®1l 1JJ1l:1l1l1l:1li1 MARKET SHAREWITH RETAINED

EARNINGS

DEGREE OFFINANCIAL

1JJ1l:1l1l1l:1li1SELF MEDIUMSUFFICIENCY

NEEDS FINANCIALLOW BUDGETING AND

SUPPORT SYSTEMS

HIGH MEDIUM LOW

MARKET SHARE

Our view is that the current situation in Oregon isbest described by one of the three shaded areas inExhibit 4, and suggests a more proactive role for the statein port development.

The appropriate role for the state will probably varywith each of the four strategic options presented above.

Even under the do nothing and minimum investmentstrategies ($20 mi~lion), the Division of Ports(or alternative agency) should be upgraded toprovide an enhanced level of technical servicesto ports that would have difficulty providingsuch services in the future. These servicesinclude financial analysis, assistance withnavigation issues and permitting.

The moderate expansion strategy required anadditional $80 million in state or private (butperhaps state backed) funds. This suggests acontinuing financial responsibility andcommitment by the State. Due to both themagnitude, as well as the geographic scope of thefinancial exposure, the state should considerexpanding its role in port administrativematters. While there are a number of forms thatsuch expansion could take, a Commission formappears appropriate for Oregon. The role of theCommission would include the overseeing of stateinvestment in port facilities as well as themarketing of the newly developed facilities. TheCommission could also administer the sales andmarketing activities in Washington, D.C. thatfocus on both national port issues, as well as,ship repair and marine construction activities.

10

The aggressive development strategy combines allof the components of the two more conservativestrategies with the development of a multiberthcontainer facility on the lower 50 miles of theColumbia River. Combined, the states cumulativeexposure under this scenario would be in excessof $250 million over ten years. It is impossibleto predict whether this scenario would ever cometo pass. In the event that it did, it wouldimpose a substantial burden on the portadministrators of the Port of Portland and theState of Oregon.

The organizational implications associated withthe aggressive development strategy should be guidedby the following postulates:

• The economic and financial performance ofTerminal Six in Portland should become anintegral element of the overall performance of anew down river container terminal

The considerable resources and expertise of thePort of Portland in the container area should beconsidered and as appropriate, exploited

Both terminals should be managed by the sameorganization to have efficient utilization

The investment by the State of over $250 millionin State funds must also be considered. Thisconsideration dictates a broader and morepro-active port program by the State.

Again, the port commission (if appropriate portauthority) concept appears to be a suitable remedy tothis management and administrative need.

Under this scenario, the commission's powersshould include the following:

It must be provided access to the capital andoperation funds to discharge the powers andresponsibilities suggested by this scenario

It should not disrupt the autonomy granted tolocal port districts, but at the same time,should recognize that the source of funds(statewide) would often override localconsiderations

11

It should focus on international trade,navigation and related industrialdevelopment issues which are the primarymissions of the larger ports such asPortland, Coos Bay and Astoria

It should provide technical assistance ondredging and navigation issues to all portsand particularly, the smaller ports, butshould not be involved in activities d_ealingwith strictly local or non-trade issues suchas recreational boating, marinas, etc.

It is an unusual organization form withoutprecedent in other states, but it is in response to anunusual set of economic, financial and politicalconditions that exist in Oregon. The finalorganization form that is selected will depend, inlarge measure, on the development scenario ultimatelyadapted by the State as a blue print for long termdevelopment of Oregon's ports.

12

II; HISTORICAL PERSPECTIVE FOR OREGON'S PORTS

II. HISTO~ICAL PERSPECTIVE FOR OREGON'S PORTS

The State of Oregon has determined that a strong linkagemust exist between ports and organizations involved withexporting. Oregon law states, "that assistance andencouragement of enhanced world trade opportunities are animportant function of the state and that development of new andexpanded overseas markets for commodities exported from theports of this state has great potential for diversifying andimproving the economic base. of the state."l Of course, portsalso handle imports and it can be argued that imports, whileoften times representing a substitute for local labor, can beequally important to a region's overall economy. Importsprovide producers with lower cost raw materials, createemployment in the service sectors, and tend to balance theutilization of transportation equipment used in the carriage ofexports, e.g., ships, containers, rail cars, etc.

1. EXPORTS FROM AND IMPORTS TO OREGON HAVE PARALLELED NATIONALTRENDS. DURING THE PAST TEN YEARS, OREGON HAS HELD ARELATIVELY CONSTANT SHARE OF U.S. EXPORTS AND IMPORTS.

Clearly there is a strong linkage between the viability ofa state's export programs and the vitality of it's system ofports.

In this chapter, the state's position as an exporter andimporter is evaluated. Further, the role that Oregon's portsplayas a facilitator of exports from and imports to the stateis explored.

Exhibit 5 shows the value of U.S. international tradeduring the eleven year period between 1~75 and 1985. Theexhibit also identifies Oregon's exports and imports and placesthem in a context of the overall U.S. total. 2

It is useful to note that the international traderepresented for both Oregon and the U.S. total in Exhibit 1includes trade moved by all modes of transport (ocean, air,rail, truck) to Mexico and Canada as well as overseaslocations. The exhibit suggests that Oregon has held agenerally constant share of total U.S. exports and imports,although if 1983 were to be used as a reference point, Oregon'sshare of both exports and imports has slipped several tenths ofa percentage point. This is likely the result of the recentrecession in resource based and primary industries in theUnited States.

1 Oregon Law, Chapter 777 - Section 777.065.

2 Oregon Shipments include all shipments through the PortlandCustoms District and include shipments through WashingtonPorts on the Columbia River.

13

EXHIBIT 5Comparison of The United States' And

Oregon's International Trade

VALUE OF U.S. INTERNATIONAL TRADE

TOTAL U.S. IMPORTS(BILLIONS)

75 "71 71 '9 U 11 82 n U 35

15 1f 77 78 19 It 11 n 83 84 85

,..".".".,..,..'""..00...•••.20.00

00..••"

VALUE OF OREGON INTERNATIONAL TRADE..,••• OREGON IMPORTS3.'U (BILLIONS)3.'3.',..,..,..,.,,.....I.'...I.'1.0••.:t.,

TOTAL U.S. EXPORTS(BILLIONS)

OREGONEXPORTS

(BILLIONS)

75 16 77 73 111 10

751677" 1IIUI112n 84 u

..,•••3.'3.'3.'3.'3 ••,..,..,..,.,,..I.'•••...I.'I.'...:t..,

.."

H'".

~ 210j 11(1

is 1'0l:l He~ 120

'" 1 00~ ..3 f8;;;

OREGON"SSHARE (IN ")

1.' 1., 1.51.7 1.71.7 1.6 1.' 1.8 1., 1.6 0..1 G.' 1.01.2 1.1 1.1 1.11.31.4 1..1.1

Source: Bureau of the Census, Oregon Economic DevelopmentDepartment

(1) Oregon's Overall Export Levels Are Heavily Influencedby the Agricultural and Forest Products Sectors.

Exhibit 6 on the following page, indicates thatexports via Oregon are more concentrated in the resourcesectors, while the U.S. in total is somewhat morediversified.

The exhibit shows that Oregon's two leading exportindustries, forest products and agriculture, represent 95%of the State's total exports, while the two leading exportindustries at the national level represent only 56% oftotal U.S. exports.

14

EXHIBIT 6Concentration of Export Industries

in The United States and OregonDuring 1985

Tonnage and Percent of Total Exports

Oregon (1985) United States (1983)

Sector Million Tons Share Million Tons Share

Agriculture 7.7 53% 127.2 46%Forest Products 6.0 42% 27.0 10%Iron & Steel, 0.2 1% 8.5 3%

MetalsPetroleum Products 0.0 0% 12.3 5%

I Other Dry Bulk 0.2 1% 55.0 20%I General Cargo 0.5 3% 44.1 16%I & Other,,

TOTAL 14.6 100% 274.1 100%

Source: Bureau of the Census, MARAD

(2) The Economy of Oregon is More Export or TradeDependent Than Those of Most Other States.

From the above, it follows that the overall Oregoneconomy is more overseas trade oriented than most states.Exhibit 7 compares the export orientation or dependency ofOregon with the balance of the United States.

Exhibit 7Comparison of Export Concentration via

Oregon With Total U.S.

Total Gross Value of ExportsState State Product via the State Share of GDP

or during 1984 During 1984 Represented byRegion (in billions of $) (in billions of $) Exports

Oregon $35.9 $4.1 11.4%

Total U.S. $3,728.2 $278.3 7.5%

Source: Oregon Economic Development Department, EconomicReport to the President

15

The exhibit shows that exports via Oregon represent11.4 percent of Oregon's Gross State Product, whilenationally exports represent 7 percent of GOP.

This trade dependency is further supported by ananalysis of the 1985/1986 directory of Oregonmanufacturers. The analysis suggests that 847 Oregonfirms, employing over 115,000 (excluding agriculturalemployment) are involved in both imports and exports. 3Exhibit 8 shows a distribution of employment by county forthese firms.

Exhibit 8Distribution of Employment by Oregon Firms

Involved in Import and Export Activity

29843

iii341 POLK

1290

LINCOLN~

~BENTON

I310JOSEPHINE

JACKSON

~JEFfERSON

2591654

iiiiJDESCHUTES.

IKLAMATH

_ LUMBER AND WOOD PRODUCTS (SIC 241

o OTHER {All SICs EXCEPT 241

-,WALLOWA

1909

~MAlHEUR

Source: 1985 - 1986 Directory of Oregon Manufactures

3 This does not suggest that all 115,000 employees areinvolved with exports and imports but that their employersexport or import to some degree.

16

*

Exhibit 8 highlights the concentration of forestproducts firms in southwest Oregon, and both the strengthand diversification of firms in the northwest part of thestate. Exhibit 9 presents the same data for theagricultural sector and indicates somewhat more of an evendistribution throughout Oregon.

EXHIBIT 9Distribution of Employment byOregon's Agricultural Sector*

i;:tl~'%;i.~::~-,.

Employment includes seasonal and non-seasonal workers.

Source: Oregon Department of Human Resources

Combined, the firms or organizations involved withexport and import (but predominately exports) employ over152,000. This represents 83 percent of the 184,000employees involved in manufacturing, forestry andagriculture throughout the state and represents 13% of thestate's total employment. 4

4 The 13 percent understates the total employment related toforeign trade as the export/import employment representsonly production and not service sector jobs e.g.,longshoreman, agents, forwarders, etc.

17

The conclusions developed in this initial section of thischapter suggest perhaps the first imperative for an Oregonstatewide port policy; the need to support both the developmentand diversification of the state's export industries. However,such development should not ignore or be at tne expense ofimports. A strong import market will be necessary toefficiently use transportation services in the state andattract new transport services.

2. OREGON PORTS HAVE INCREASED THEIR SHARE OF HANDLING TOTALU.S. WATERBORNE EXPORTS AND IMPORTS OVER THE PAST TENYEARS, BUT HAVE LOST MARKET SHARE TO PORTS IN CALIFORNIAAND WASHINGTON

Oregon's ports (and principally the Port of Portland) havebenefited by the rapid growth experienced by most of the U.S.West Coast ports during the 1980's. This growth has beencaused by both the emergence of the Pacific Rim countries asthe United States major trade area, (the Pacific Rim surpassedEurope as the leading U.S. overseas trading partner during1981) as well as deregulation of our principle transport modesduring the early 1980's. To a certain degree, this growth ofthe western ports has been at the expense of many U.S. East andGulf Coast ports. Exhibit 10 on the following page, shows thatthe share of total U.S. waterborne exports and imports movingvia Oregon's ports has increased somewhat since the middle1970's.5

while Exhibit 10 places Oregon's ports in a proper nationalcontext, a proper evaluation of the port system's participationor effectiveness should be made at a more regional level.

(1) Oregon's Share of the Total Exports and Imports Movingvia All West Coast Ports Has Declined During the PastFive to Ten Years

Upon narrowing the scope of review from the nationalto a more regional level, it appears that Oregon's portsare losing market share to ports in Washington andCalifornia. This is depicted in Exhibit 11 which comparesthe share of total waterborne exports and imports handledby various West Coast port regions during the seven yearperiod between 1979 and 1985.

5 Import and export values represent all shipments movingthrough the Portland Customs District and include shipmentsvia Washington ports on the Columbia River.

18

EXHIBIT 10Share of Total U.S. Waterborne Exports and

Imports Moving via Oregon's Ports

'0018'180140

'"10'BO

80

40

20

SHARE OF U.S. WATERBORNEEXPORTS

7$ n 17 78 78 80 81 82 83 84

'0018.

18.140

12.10.

BO

80

40

20

SHARE OF U.S. WATERBORNEIMPORTS

201,7

,..,..,..,..3.3,..1.81,'

".",".

VALUE OF OREGON WATERBORNEEXPORTS ".,..,..,..,.,,..

1,8

1.'1.'

'1.2

I.'

VALUE OF OREGON WATERBORNEIMPORTS

0.'

'.9

OREGON'S 7S 78 77 18 7t 80 81 82 83 84 OREGON'S 15 7& 71 78 78 80 81 82 83 84SHARE 2.e 2.0 2.1 2.3 2.3 2.2 2.2 1.4 2.4 2.4 SHAR! 0.8 0.' 1.0 1.3 1.2 1.0 1.2 1.2 T.4 1."

Source: Bureau of the Census, Foreign Trade Statistics

EXHIBIT 11Comparison of Export and Import

Market Shares Handled byMajor west Coast Port Regions

4S~.., .••••••,.. WAStIllIlR'OI ••••••••

41 ", '.,.'".... .\.•....l 35 ,.,! 31 -..::L _i ZS , .....• ZlI" i ........

;;' StlUnlln tAlIFOIl,"A

"E~""=J.......:-:------1'0 .2:JlOImItIII tAlIfOUIA

:,!;.,,:--:::,;=..:-,=..';:-,--:,=..'';",-:,;~":-=,,"='--::'191'528 26 25 25 26 24 24

51f-

upom",---------.,51f- ,41r ' CAlIf'- "_ 1----'q "",fIII'-

l --_--"""• J5 - - ........--.,.....i II"' I' ..'.......1........

- II WAlllKl'Ol ••••I 25 ••••••

II JlOIml9lI CA'rOllltA"r==::::::::::::::?=~:-1" ,. -.';'i". --.....'f' , , , , ,:"·.,.,--''''...':-'''1::'.''::--:'"':'::--::,"''',,.-''''...,,--:::'1115

Or«t<il0n'. 16 15 14 II 13 11 9~"'!Uket Share

Source: Bureau of The Census, Foreign Trade Statistics

The exhibit shows that Oregon's share of imports hasdropped markedly while the Southern California ports havegained substantial market share. On the export side,Oregon has lost several share points presumably to SouthernCalifornia ports during the 1979 to 1981 period, and to theWashington State ports since 1981.

19

The loss in market share appears to date to the middle70's which coincide with the introduction and growth ofminibridge and other intermoaal transport systems centeredaround marine containerization.

In the previous exhibit, market share was expressed interms of percentage of weight tons. The use of weight tonstends to be biased toward ports with dense and bulkycargoes and away from those with lighter, more volumeintensive cargoes. In order to neutralize this bias,Exhibit 12 presents market share data in terms of revenuetonnage and longshoremen hours. A revenue ton is the basisby which ports and terminal operators charge for theirservices and eliminates any distortion resulting from theuse of weight tons. 6 The use of revenue tons andlongshoremen's hours represent a clearer indication oflocal economic activity than perhaps can be realized fromusing weight tonnage.

EXHIBIT 12Evaluation of Oregon's Share of

Revenue Tonnage and Longshoremen WorkHours Among West Coast Ports

Revenue Tonnage Longshoremen's Hours(In Millions) (In Millions)

All West Oregon Oregon's All West Oregon Oregon'sYear Coast Ports Ports Share Coast Ports Ports Share

1968 52.4 9.1* 17% Complete Information Not1969 57.8 9.4* 16% Available Prior to 19711970 60.0 10.2* 17% I

1971 48.5 8.4 17% 14.8 2.0 14%1972 59.6 11.5 20% 15.8 2.0 14%1973 71.0 14.0 20% 15.7 2.6 17%1974 75.5 14.6 19% 14.8 2.5 17%1975 67.0 11.4 17% 12.1 2.0 16%1976 76.3 13.5 18% 12.3 2.0 16%1977 78.6 14.2 18% 12.0 1.8

I15%

1978 92.0 15.3 17% 12.9 1.8 14%1979 103.1 18.1 17% 13.5 1.9 14%1980 113.7 18.1 16% 13.4 1.8 14%1981 113.0 18.3 16% 12.5 1.7 14%1982 104.2 16.3 16% 11.2 1.4 13%1983 116.0 17.1 15% 11.0 1.3 12%1984 133.3 17.8 13% 12.1 1.4 12%1985 134.8 16.7 12% 11.9 1.3 11%

* Revenue Tonnage for Oregon's ports between 1968 and 1970are Booz, Allen estimates.Source: Pacific Maritime Association (PMA)

6 The revenue ton generally is equal to the greater of 2,240pounds (or alternatively a metric ton) and 40 cubic feet(or alternatively a cubic meter).

20

The exhibit shows that since 1973 or 1974, there hasbeen a steady decline of the Oregon ports' share of revenuetonnage and manhours at all West Coast ports. While thedecline in Oregon's share of hours may be partiallyexplained by the development of container handlingfacilities somewhat later in Portland than in Californiaand Puget Sound, the continuation of share decline throughthe 1980's and the similar decline in revenue tonnagesuggests that factors other than the timing oftechnological development (eg., containerization) are moreresponsible for the decline.

3. DESPITE THE DECLINE IN TOTAL WEST COAST MARKET SHARE,OREGON'S PORTS ADEQUATELY MEET THE REQUIREMENTS OF MOSTEXPORT AND IMPORT SECTORS WITHIN THE STATE

From this chapter it is clear that Oregon has forfeitedmarket share to ports in California and Washington. A moreimportant question, though, is whether this loss in marketshare has an adverse impact of exports and imports within thestate of Oregon. One way to answer this question is toconsider the share of Oregon's total exports and importshandled by Oregon ports. While there is no single informationsource available to definitively answer this question, Exhibit13 presents an estimate based on the results of a interview andsurvey program conducted during the course of the engagement. 7

EXHIBIT 13Estimate of The Share of Oregon's Imports and

Exports Transported by Oregon's Ports

Estimate ofExport/Import Share Handled byCommodity Group In Millions of Tons Oregon's Ports

Forest Products 5.0 - 6.0 100%Agricultural 8.0 - 10.0 135%Automobiles (imports) 0.1 - 2.2 300%Containerized Cargo 1.0 - 2.0 50%Other General Cargo 1.5 - 2.0 85%

Source: Bureau of the Censusl Booz, Allen interviews andanalysis

Exhibit 13 indicates that Oregon's ports handle a verylarge percentage of Oregon's exports and imports in all but one

7 During the engagement, Booz, Allen mailed 847 surveys andconducted 56 personal interviews.

21

sector, containerized cargo. In fact, Oregon's ports handlemore than the State's requirements for imported automobiles andforest products. This suggests a series of additional policyquestions.

What is the impact on existing Oregon containerizedcargo shippers and receivers of using the portfacilities in other states, principally, Washington?

• Does a requirement to use the containerized cargofacilities in other states retard industrialdevelopment programs in Oregon?

What are the financial, economic and politicalimplications of a strategy designed to handle all orsubstantially all of the state's containerized cargotraffic?

These issues will become more sharply focused in subsequentchapters of this report.

* * * * *In this chapter, the following major findings and

conclusions were developed.

The State of Oregon has kept pace with the nation as awhole in terms of export/import activity

•

•

However, Oregon's international trade is moreconcentrated in a few sectors while that of the entirenation is more diversified

Further, the economy of the State of Oregon is moredependent upon exporting and importing than theeconomies of most other states.

Like most West Coast ports, Oregon's ports (andprimarily the Port of Portland) have increased theirshare of total U.S. trade but have lost share of thetotal trade handled by the West coast ports andprincipally in the containerized cargo sector.

In the next chapter of this report, the Oregon port systemis described.

22

III. A PROFILE OF OREGON'S PORT SYSTEM

III. A PROFILE OF OREGON'S PORT SYSTEM

The Oregon Port System consists of 23 ports located both onthe Columbia River and on it's Pacific coast. Specifically:

Three ports are located on the deep draft segment ofthe Columbia River 8

-Six Ports are located on the shallow draft segment ofthe River

Fourteen ports are located on the Oregon coast

The location of the 23 ports in the state as well as theirproximity to major transportation corridors is shown inExhibit 14.

EXHIBIT 14Oregon's Public Ports

-r....- ..~BAYCfTY

• t.CIC4TD1OFPORT = INTeRSTA1CHGHWAYS =- Mo\JORIWLUNESPRINCPALHIGHWAYS _ TFU«t.MS

8 This group includes Astoria

23

Oregon's ports are provided with broad powers to acquiredevelop and promote marine as well as non-marine facilities.~

While the statutes provide broad powers to all ports, theyclearly distinguish between ports and types of ports within thestate. For example:

The Port of Portland is governed by a differentstatute than that which applies to all other Oregonports. lO This statute clearly distinguishesPortland from other ports in terms of powers to engagein activities, methods of raising funds, methods ofappointing directors and commissioners, as well asseveral other areas.

The state also recognizes a special high priority inthe development of the deepwater ports of Astoria,Coos Bay and Newport (as well as Portland). (ORS777.065)

The enabling legislation also separately recognizesthe importance of the Columbia River Ports ofUmatilla, Morrow, Arlington, The Dallas, Hood River,and Cascade Locks to world maritime trade.

From the outset of the study, attempts were made todetermine if other states' ports systems were similar to thatin Oregon and could serve as role models. At first glance, theports in Florida, Louisiana, Texas, California and Washington,appeared similar as they consist of numerous independent publicport agencies. Washington, Louisiana, and Texas appearedparticularly analogous due to the dominance of a single port(puget Sound, New Orleans, Houston respectively) within amUlti-port system. However, the geographic, economic,political, and financial situation in those port systems aresUbstantially different from that existing in Oregon.Consequently, the applicability of the situation existing inthose states to Oregon is limited.

9 The powers are sufficiently broad to enable ports toacquire ships and water craft to promote the commerce ofthe state (ORS 777.195)

10 The Oregon statute applying to the Port of Portland isChapter 778, while that applying to all other Oregon Portsis Chapter 777. The most noticeable difference betweenthe two statutes is that Portland's Board of Commissionersis appointed by the Governor, while the Board's of otherports are elected.

24

Oregon's ports vary significantly in terms of purpose,size, financial condition and availability of professionalstaff resources. Variations in these characteristics are morepronounced among Oregon's ports than among ports in otherstates. Consequently, as an initial step in profiling Oregon'sports, it is useful to categorize the state's 23 ports intosub-groups, if for no other reason to facilitate subsequentanalysis. While there may be several reasonable ways tosub-divide the 23 ports, for the purposes of this study,Oregon's ports were divided into the following four distinctgroups:

Group I consists solely of the Port of Portland dueonly to reasons of scale.

Group II consists of those ports designated asdeepwater ports, other than Portland in Chapter777.065. These include the Ports of Astoria, CoosBay, and Newport. Their development is declared astate economic goal of high priority in Chapter 777.

Group III includes all coastal ports not previouslyassigned to a prior group. This group would includeNehalem, Bay City, Tillamook, Toledo, Alsea, Siuslaw,Umpqua, Bandon, Coquille River, Port Orford, GoldBeach, Brookings

~ Group IV includes all river ports not previouslyassigned to a prior group. This group includes St.Helens, Cascade Locks, Hood River, The Dallas, --Arlington, Morrow, and Umatilla.

In the balance of this Chapter, each of these groups iselaborated upon.

1. THE PORT OF PORTLAND IS A DIVERSIFIED, WORLD SCALE PORTAGENCY BUT WITH A DECREASING, FINANCIAL CAPACITY TOUNDERWRITE FUTURE MAJOR PORT IMPROVEMENT PROJECTS

The Port of Portland is a large, diversified port whosespan of control includes marine terminals, marine servicesincluding the Swan Island Shipyard, Portland InternationalAirport, two general aviation facilities, and an economicdevelopment activity. In fiscal 1986, the Port of Portlandgenerated over $80 million in total revenue, managed fixedassets valued at over $500 million and employed 710 persons.

The major emphasis (at least in terms of revenuegeneration) of the Port of Portland, is the development,operation, and promotion of marine terminals. As shown inExhibit 15 on the following page, the Port of Portland ranks15th in the United States in terms of marine terminalinvestment.

25

EXHIBI'I' 15Leading U.S. Ports in

Terms of Marine Terminal Investment

Total Marine TerminalInvestment in 1984

Rank Port (In millions of DollarsNet of Depreciation)

1 New York $6292 Long Beach 4473 Seattle 3734 Oakland 3725 Los Angeles 3626 New Orleans 3487 Alabama State Docks 3128 Houston 2959 Maryland 26210 Georgia Ports 22911 'l'acoma 18112 South Carolina Ports 17713 Virginia Ports 15614 Miami 14515 Portland 121

Source: American Association of Port Authorities

While the exhibit suggests the significant marine terminalinvestment by the Port of Portland, it also indicates therelative size of competing West Coat ports. Long Beach,Seattle, Oakland, Los Angeles and Tacoma, rank second, third,fourth, fifth, and eleventh respectively.

(1) The Port of Portland is Becoming More Specialized inThe Handling of Higher Valued Containerized Cargo andAutomobiles

In the last seven years, the Port of Portland hashandled between 6 and 8 million tons of cargo. As shown inExhibit 16 on the following page, the principal cargogroups handled by the public ports are changing.

26

EXHIBIT 16Cargo Profile of The Port

of Portland Since 1970Cargo TonsIn millIons10

9

S

7

6

5

4

Total Cargo

GRAIN

3 ~_-:::::TO:ta:/:c:a:rg:o~(~E;XC;lu;d:ln:g~Gr:a:,n:)~)..",...",...",...,,,...,,,...,,,.----1

2~--~To:t:al=co~n~ta~ln:e:rl:ze~d:=:ca:r:g:0::J-------..",...",...",.-----1and Automobiles

1

~9'=7=-S--":"1g::17::9:----1:":9:L-S=-0---1-::l9S:""1---1-9.LS-2---1...JgLS3---1gl.S-4---1...J9S5

Source: Port of Portland

BREAK BULKAND BULK OTHERTHAN GRAIN

HIGH VALUE,HIGH TECHPORTION

This exhibit indicates that grain products, andprincipally wheat, have been the single most importantcommodity category handled by the Port. In a typical year,between four and five million tons of grain products arehandled at the port. During 1985, however, the portexperienced more than a million ton decline in this groupcompared to 1984. It appears that this trend is continuingin 1986. Other commodities have grown significantly since1982 and particularly the containerized cargo andautomobile sectors. As indicated in the eXhibit, thissector has increased from between 40 and 42 percent oftotal non-grain related cargo at the port of Portland in1978/1979 to 55 percent by 1984/1985. While this suggeststhat the port has elected to specialize in those twosectors, as will be shown in the next section of thischapter, these sectors are capital intensive, highlycompetitive and characterized by relatively low margins.

(2) While Financially Strong, The Financial Performance ofThe Port of Portland Has Been Negatively Impacted byMarine Activities Over The Past Several Years

Exhibit 17 on the following page provides a financialsummary of the Port of Portland between 1980 and 1986.

27

EXHIBIT 17Financial Summary of The Port

of Portland Between 1980 and 1986(Dollars in Millions)

I

i Operating Income profit/LossFiscal Before Deoreciation

Year Total Revenue Amount % of Revenue Amount % of Revenue

1980 $58.4 $11.8 20.2% $1.8 3.0%

1981 60.8 9.2 15.1% (-1.4 ) (-2.3%)

1982 64.4 11. 7 18.2% 0.2 0.4%

1983 64.0 10.0 15.6% (-2.9) (-4.6%)

1984 75.7 8.8 11.7% (-5.1) (-6.8%)

1985 83.2 10.3 12.4% (-4.8) (-5.8%)

1986 81.1 10.2 12.6% (-4.7) (-5.8%)


The exhibit indicates a clear revenue growth trend,but a decline in operating margins. The port has recordeda loss in five of the last seven years. In an attempt tounderstand the causal factors behind this performance, itis useful to examine the principal lines of business inwhich the Port of Portland participates. These include:

Marine terminals

Marine Services which consists predominantly ofthe Swan Island Shipyard

Portland International Airport

Other services including Economic Development andGeneral Aviation.

Exhibit 18 on the following page indicates therelative role of each of these segments in terms of revenue.

28

Exhibi~ 18Revenue Profile Of The Port

Of Portland 1980-1986(In Share of Total Revenue)

The exhibit underscores the importance of marineactivities on the total financial performance of the port.Marine oriented activities represent an average of 70% oftotal port activity (at least as measured in terms ofrevenue)

Exhibit 19 presents additional operating data on themajor lines of business and further underscores the impactof marine oriented activity.

29

PERCENT O~ BEfORE DEPREC [A TION PERCENT Of(HANGE FROM TOTAL AUTHORITY PERCHH Of CHANGE FROM TOTAL AUTHORITY'

TOTAL PRIOR YEAR REVENUE TOTAL SteTOR REVENUE TOTAL PRIOR YEAR REVEI>UE

1980 127,232 47X 11. 731 '" S(-L3Sa) ( -2.3}';)

1981 27,153 (-0.3X) "" 889 ,3< (-2,la2) ( -60X) (-3.61;)

1982 27,956 3.0X "" L507 5. 'I" {-2,O27l " (*3.1X)

1983 29,252 '1.67; '" '" 1.2x (. 3,821.1) (-S91;) ( -6.01;)

198'1 43,920 51.9X 5" 2,615 6.0X (-1.370) '" (-LS}';)

1985 1.12.967 ( -2.27;) 52X '82 1.I.IX (-3,533) ( -1651;) (-1.1.1.1:1:)

1986 38.093 (-11. 3X) '" (fi7S) ( -l.8X) (-5.054) ( -391;) (-S.2:1:)

REvENUE

MARINE lERMINAL ~ACILlTlES

(DOLLARS IN THOU$ANDS)

OPERAr !rlG INCOME

BEFORE DEPRECIATION

MARINE SERVICES(DOLLARS IN THOUSANOS)

PROF I TflOSS

PORTLAND INT:RIlATIOIlAL AlRPORI

(DOLLARS IN THOUSANDS)

,-. "",;;""

IOPERATING INCOME

REVENUE BE <ORE DEPRECIAllON,I PERCENT Of BHORE DEPR(CIAlION PERCun Of

(HANGE fROM TOTAL AUTHORITY PERCENT Of (HMIGE fROM TOTAL AUTHORIT

I TOTAL PRIOR YEAR REVENUE TOTAL SECTOR REVENUE TOTAL PRIOR YfAR REvE/ME

r1980 12,666 '" 1'1,79·, 38.0'.4 S 1 2lli 2.2";

1981 13.865 9.5"; '" '1.639 )3.5'.4 '8' ( }l'.4) 1. 5T;

1

1982 14,96S 7.9X '" 4,433 29.61, '" ( ·44X) 0.8"

1':'183 15.839 5.8X ", 4,49';' 28.41, 272 ( -45X) o. 'I"1'.18'1 17.398 9.8}'; '" '1.92/ 28.31.: ( -liS) (-1431.:) { O.2"l

11985 18,635 7 .1% '" 4,540 2'1.41; ( -1.174) ( -895") ( I. 4},;)

1986 21.08'1 13.1'.4 2" 5.72'! 27 .2" (-a9) 9" ( o. I}';)

OTHER AC1(y!TlES

{{}OLLARS [N TIlOU$ANOSl

OPERATING INCOME PROf [T fLOSS

REVENUE BEFORE DEPRECIATION

PERCENT Of BEfORE DEPRECIATION PERCENT Of

CHANGE FROM TOTAL AUTHOR!TY PERCENT Of (HANGE ~ROM TOTAL AUTHORlf

TOTAL PRIOR YEAR REVENUE TOTAL SECTOR REVENUE TOTAL PRIOR YEAR REVENUE

1980 1'1.097 - m 13,086 21.9X S II' - 0.31;

1981 17,208 22.1x '" 2,633 15.3" '11 136" 0.71,

1982 17,432 1.37; '" 3.822 21.9X 6" 5" 1.01-

1983 16.269 (-6.7") '" '1,297 26.47; 778 20' 1.2"1984 10,544 {-35.2xJ 1" (1.I02l (- 3.8") ('1,088) ( -6181;) (-5.'1x)

1'985 13,206 25.2x 1" 1.497 11.3" (2,32lJ 'I' {-2.8xl

11986 18,186 37.7" '" 4,762 26.2" '" 138" 1. IX

-- --OPERATING INCOME PROf [T IlOSS

REVENUE BEfORE DEPRECIATION

PERCEIlT OF BUDRE DEPRECIATION PERCEN, Of

(UANGE FROM TOTAL AUTHORITY PERCE'll OF (HANGE fROM TOTAL AUTHORI T

IOTAL PRIOR YEAR REVENUE TOTAL SECTOR REVENUE Tor AL PRIOR YEAR REvENuE

1':'180 1 4.395 - '" 12,195 49 9x s "66' 3] 9}';

1981 2,618 (-40. 'IX) 4.3" 1 ,025 39 2" '0' '" 11.6x

1982 4.084 56.01; 6.3" 1.973 'Ia.3" 1,124 270" 27 5X

1983 2.615 (- 36.0X) 4.1\ 82" 31. 5" { -174J (-1161,) (-0.3Xl

\984 3,832 '16.5X 5. I}'; 1,702 44.4T; '" 3681.: 0.5x

\'385 8.342 117. '" 10.O}'; 3.6]8 44.1" 2,328 4001.: 2.8x

1986 3,757 {·55.01.:) 4.6X "" \1.0" (-3901 (-U7}';) ( 0.5X)

~

29-.1'.

The exhibit indicates that:

Portland International Airport has grown steadilyfrom year to year and contributes high margins.Profits after taxes have declined steadily,however, since 1980. Performance during 1986suggests that the profit decline may have beenarrested.

Marine terminal activity contributes very lowoperating margins and on a fully allocated basishas realized a cumulative net loss of nearly $20million between 1980 and 1986.

Marine services have described no clear trend dueto the instability of the shipbuilding and repairindustry. However, other than during 1984 and1985, this sector has produced good operatingmargins and a positive contribution afterdepreciation. The 1986 results suggest asubstantial turn around.

Other activity (civil aviation, economicdevelopment) produce very high operating marginsbut on a very erratic sales volume.Consequently, the year-to-year profit and lossswings widely, but represents the most profitableof all of the port's lines of business.

clearly, marine activity, which is the focus of thisstudy, dominates the financial situation at Portland andhas had a steadily deteriorating impact on the port'soverall performance over the past seven years.

(3) Under The Current Situation, The Ability of The Portof Portland To Underwrite Major Capital Improvementsis Questionable

The Port of Portland has effectively used a variety offinancing techniques to underwrite capital investments andimprovements. However, as shown in Exhibit 20, the abilityof the port to generate working capital from internaloperations has deteriorated during the past four years.

30

EXHIBIT 20Working Capital Provided

From Operations1980 - 1986

(Dollars in Millions)

1980 1981 1982 1983 1984 1985 1986

Total working Capital $53.6 $56.3 $37.9 $34.0. $42.7 $123.7 $50.8

'I'otal Provided from IOperations 12.2 11. 8 16.0 11.9 6.9 11.1 7.4

Percent FromOperations 23% 21% 42% 35% 16% 9% 15%

Source: Port ot Portland

Further, the ability of the port to underwriteadditional debt is questioned particularly if currenttrends continue. This is underscored in Exhibit 21 whichcompares working capital provided from operations (fromExhibit 20) with the amount of long term debt at the end ofeach of the last seven years.

EXHIBIT 21Working Capital From Operations

Compared to Long Term Debt(Dollars in Millions)

1980 1981 1982 1983 1984 1985 1986

Long Term Debt at$227.6 $226.3Year End $59.4 $58.4 $182.5 $173.2 $163.7

working Capital7.4From Operations 12.2 11.8 16.0 11.9 6.9 11.1

working Capital :Long Term Debt 21% 20% 9% 7% 4% 5% 3%


From the above, it is clear that the financialperformance of the port has declined over the past severalyears. This decline can largely be attributed to theperformance of marine oriented activities. Putting theshipyard aside for a moment, recent marine activities havefocused on the highly specialized, highly competitive, yetpotentially lucrative container and automobile sectors.

31

This suggests a major policy question for both the Port ofPortland and the state of Oregon. Can the Port of Portlandafford to continue to invest in these high growth, yethighly competitive lines of business?

In this section, a brief review of the Port of Portland(the only Group I port) has been presented. In the nextsection, the Group II ports of Coos Bay, Astoria, and Newportare reviewed.

2. THE DEVELOPMENT OF THE GROUP II DEEPWATER PORTS HAS BEENNEGLECTED OVER THE PAST 20 YEARS. ASTORIA AND NEWPORT AREIN PERILOUS FINANCIAL CONDITION,

The Group II ports include Coos Bay, Astoria and Newportand are illustrated in Exhibit 22.

EXHIBIT 22Group II Ports

ASTORIA,;

NEWPORT

This group consists of Oregon's original ports with theorganization of the Port of Astoria dating to 1910. Duringtheir history, these ports have been dedicated almostexclusively as transshipment centers for forest products.However, as shown in Exhibit 23 on the following page, theseports have more recently been diversifying into areas otherthan marine terminals.

32

EXHIBIT 23Profile of Group II Ports

METHOD OF MANAG·PORT DISTRICT MARINE MENT

ACTIVITY TERMINAL STAFFOPERATION SIZE

'"::> (.)

~ a: 0

"::>

~0 UJ

crl i5 a: '"~

l- i': 0ill (.) z "-

iUJ UJ a:

a: UJ~ a: ::>

UJ >" 15 "-I-

~~ I- 9 >iUJ a: UJz a: ti UJ " a: g I-

PORT ~~8 ~ ::> > UJ ~

<:,UJ "- z i€~'" a: ::>

1Jial

0 UJ a::'" '" " ~ " "-

ASTORIA • • • • • • 2

COOS BAY • • • • • 5

NEWPORT e e. e 3

Coos Bay's diversification efforts over the past severalyears have been particularly active.

(1) Cargo Activity at The Group II Ports Has Declined 40Percent Over The Past Six Years

cargo handling activity has been the principalbusiness activity for the Group II ports. 11

Newport's cargo activity has been handled at it'spublic dock

Astoria's activities have been handled at bothpublic and private facilities

Coos Bay's activity has been handled exclusivelyat private facilities.

11 For additional information concerning cargo prospects atthe coastal ports, refer to the report entitled"Assessment of Development Potential of Oregon's CoastalPorts" prepared for the Oregon Department of EconomicDevelopment by Phillips Cartner and Fay Associates anddated September 30, 1986.

33

Exhibits 24 through 26, on the following pages,present import and export activity at the three ports forthe seven year period between 1979 and 1985. The exhibitsshow that:

Astoria's international trade has declined nearly50 percent since 1979 or approximately 10 percentper year

Coos Bay's international trade has declinednearly 40 percent since 1979 or nearly 8 percentper year

Newport's cargo trend has been erratic butconsists of a very small base.

Overall total international cargo moving via all threeports declined from 5.8 million tons in 1979, to only 3.5million tons by 1985, or 40 percent.

EXHIBIT 24Exports via The Port of Astoria

(In Thousands of Tons)

Cargo Type 1979 1980 1981 1982 1983 1984 1985

High ValuedContainerizable Cargo 1 2 1 0 0 0 0

Low Valuedcontainerizable Cargo 4 6 2 0 8 0 0

Partly ContainerizableCargo 0 0 0 2 0 0 0

Refrig. Cargo 1 1 1 0 2 2 0

Neo Bulk Cargo 999 893 549 750 607 494 476

i Dry Bulk Cargo 65 47 196 72 162 190 81!i Petroleum 0 0 0 0 0 0 10,I Sub Total 1,070 949 748 825 779 687 567I

34

EXHIBIT 24(Continued)

Imports via The Port of Astoria(In Thousands of Tons)

ICargo Type 1979 I 1980 1981 1982 1983 1984 1985

High Valued ContainerizableCargo 0 0 0 0 0 0 0

Low Valued ContainerizableCargo 0 0 0 0 0 1 4

IPartly Containerizable

Cargo 1 2 2 0 0 0 0


Neo Bulk Cargo 8 10 5 8 11 9 7

Dry Bulk Cargo 25 174 36 0 0 42 0I

Petroleum 0 0 0 0 0 0 0

, Sub Total 35 186 43 8 11 52 11I

I Total Exports & Imports 1,105 1,135 791 833 790 739 578

Source:

NOTE:

Bureau of Census

The term Neobulk cargo used in this and thefollowing two eXhibits, refers to large unitvolumes of general (mark and count) cargo whichare generally not handled in containers. Forestproducts dominate this category at the threeports.

35

EXlfIBIT 25Exports via The Port of Coos Bay


!

1979 1980 1981 1982 1983 1984 1985cargo Type

High Valued containerizablecargo 0 0 0 0 0 0 0

Low Valued Containerizable·Cargo 16 4 29 30 19 2 1

Partly ContainerizableICargo 0 1 0 0 0 0 1


Neo Bulk Cargo 4,617 4,369 3,277 3,502 3,342 3,592 2,847

Dry Bulk Cargo 0 0 0 0 0 0 0

Sub Total 4,633 4,374 3,306 3,534 3,363 13,594 2,849

Imports via the Port ofCoos Bay


Cargo Type 1979 1980 1981 1982 1983 1984 1985

High Valued Containerizablecargo 0 0 0 0 0 0 0

Low Valued ContainerizableCargo 0 0 0 0 0 1 0

partly Containerizablecargo 0 0 0 0 0 0 0

Refrig. cargo 0 0 0 0 0 0 0

Neo Bulk cargo 15 1 0 0 2 8 0

Dry Bulk cargo 3 0 40 0 3 0 0

Sub Total 18 1 40 0 5 9 0

Total Exports & Imports 4,651 4,375 3,346 3,534 3,368 3,603 2,849

Source: Bureau of Census36

EXHIBIT 26Exports via The Port of Newport


cargo Type 1979 1980 1981 1982 1983 1984 1985

High Valued Containerizablecargo 0 0 0 0 0 0 0

Low Valued Containerizablecargo 0 0 0 0 0 0 0

partly Containerizablecargo 0 0 0 0 0 0 0




Sub Total 12 0 0 9 8 8 89

Imports via the Port ofNewport


cargo Type 1979 1980 1981 1982 1983 1984 1985

High Valued ContainerizableCargo 0 0 0 0 0 0 0

Low Valued Containerizablecargo 0 0 0 0 0 0 0

partly ContainerizableCargo 0 0 0 0 0 0 0




Sub Total 34 59 19 0 0 0 0

Total 46 59 19 9 8 48 89

Source: Bureau of Census37

(2) The Group II Ports Are In An Untenable FinancialPosition. Operating Revenues Are Insufficient ToCover Operating Expenses and The Ports Are OverLeveraged

Exhibit 27 presents a financial summary of the threeGroup II ports. For the fiscal year ending June 30, 1985,the exhibit shows that:

None of the three ports generated sufficientrevenue to cover operating expenses

• Contribution from taxes and grants exceededoperating revenue at the three ports (andparticularly at Coos Bay)

At least one of the ports (Newport) is at or nearfinancial insolvency

All of the ports are highly leveraged with acombined debt to equity ratio of 3.4.

Facilities in all of these ports are in need of repair ormodernization. These ports are financially incapable ofunderwriting such programs, let alone financing any newfacilities development programs.

EXHIBIT 27Income Statement for Group II Ports

For The Year Ending June 30, 1985(In Thousands of Dollars)

TotalAstoria Coos Bay Newport Group II

Category Ports

Operating Revenue ,~l,758 Ilf 604 ~. 834 If 3,196Operating Expenses 1,690 956 2,157 4,803Depreciation 414 142 0 556Operating Income (347) (494) (1,323) (2,164)

Non Operating Revenue 986 218 0 1,204Non Operating Expenses 1,416 290 0 1,706Net Before Public Support (777 ) (570) (1,323) (2,670)

Tax Revenue 1,092 762 513 2,670Other Public Grants 25 858 0 883Total public Support 1,117 1,620 513 3,303

Net Results 340 1,054 (810 ) 584Total Public Support 64% 95% 159% 123%

Total Revenue!

38


Balance Sheet Summary of Group II PortsFor The Year Ending June 30, 1985

(In Thousands of Dollars)

I Totalcategory Astoria Coos Bay Newport Group II

Ports

Current Assets ~12,459 I~ 1,497 ~ 765 11ji14,721Long Term Assets 14,395 19,639 7,809 41,843Total Assets 26,854 21,136 8,574 56,564

Current Liability 1,113 1,251 686 3,050Long Term Liability 17,172 15,340 8,152 40,664Total Liability 18,285 16,591 8,838 43,714

Net Worth & Equity 8,569 4,545 (263 ) 12,851Liabil Hies & Net Worth 26,854 21,136 8,574 56,564

IDebt/Equity Ratio 2.12 3.55 N/A 3.40,

The Group III ports are treated in the next section of thischapter.

3 •. THE PRINCIPAL ROLE OF THE COASTAL (GROUP III) PORTS IS TOPROVIDE RECREATIONAL AND TOURISM FACILITIES

The location of the 12 ports assigned to Group III for thepurposes of this study is shown in Exhibit 28.

EXHIBIT 28Group II I Por ts

TOlEOO•

SUSlJ,W

.COOUIU..e

39

Recreation is the common theme and the principal purpose ofthese ports. 12 However, as indicated in Exhibit 29, they areinvolved in other activities as well.

EXHIBIT 29Profile of Group III Ports

METHOD OF MANAG·

PORT DISTRICT MARINE MEHTACTIVITY TERMINAL STAFF

OPERATION SIZE~

"Q ~

~ '.i w" 0 >

~ crI is ~ '" ~~ill " Z 0- '"~ ~ ~w

~o '" ~w ,,; a~

~

~8~ s 9 ~

ww '" !.! ~

~ ~ a ~w ~ <

PORT ~~ ~Z Q

~'" w «~ ~ " ~ Q 0 0-

ALSEA • 0

BANDON • • 1

BAY CITY • 1

BROOKINGS • • 1

COQUILLE RIVER 0•GOLD BEACH • • 1

NEHALEM 0

PORT ORFORD • • 0

SIUSLAW • • • 1

TILLAMOOK • • 1

TOLEDO • • • 1

UMPQUA • • 0

Specifically:

Gold Beach and Tillamook operate airports

Brookings offers a ship and boat repair facility

Siuslaw, Tillamook, Toledo and Umpqua are active tovarying degrees in industrial and economic development.

12 The Southern coastal ports (including Coos Bay) haverecently pUblished a regional brochure entitled "DiscoverThe Ports of The Southern Oregon Coast" and is directedtoward the recreational and tourism market.

40

The ability to manage day to day activities and plan forfuture development of the Group III ports is limited by thelack of management capacity at these ports. Seven of the 12ports have a management staff of only one, while the remainingfive have no permanent management staff.

Exhibit 30 presents a financial profile of a cross sectionof the Group III ports. To the extent that this cross sectionis representative of the group, the exhibit suggests that (atleast until June 30, 1985) this group was in a reasonablyhealthy financial position.13 However, the group appears tohave no significant revenue base. During 1985, the six portsfor which data was available reported operating expenses ofover $2.5 million, yet generated only $.5 million in operatingrevenue. The group of six realized a loss of over $352,000even after tax supports and contributions from other sources.To the extent that operations during fiscal 1985 arerepresentative of the near term, the future financial conditionof the Group III ports will erode.

EXHIBIT 30Income Statement For Group III Ports

For The Year Ending June 30, 1985(In Thousands of Dollars)

Category Bandon Bay City Nehalem Siuslaw Tillamook Umpqua Total of 6

Group tIL Ports

Operating Revenue $3. $106 $0 $81 $330 $28 $5001

517 84. ,. 2,529Operating Expenses ,., 123 "Dept"eciation 0 14 0 0 0 43 14

Operating Income (l27) (40) (43) (436) (514) (198) (2,043)

Non Operating Revenue 34 15 4 ,. 307 18 1,293

Non Operating Expenses 0 , 0 0 141 211 152

Net. Before

Public Support (93) (31 ) (39) (420) (207) (217 ) (90Z)

'fax Revenue 38 '2 35 ,.. 13 77 444

Other Public Grants " 18 0 0 '8 7 10.

Total Public Support 101 80 35 166 81 84 550

Net Results (8) 43 (4) (254) (126) (153) (352)

Total Public Support 182T. ,,"- NfA 3161. 39,... 323'- 110T..

I Total Revenue

1 Includes capital outlay and non-bonded debt services

13 Bandon appears to be a notable exception and is in poorfinancial condition.

41


Balance Sheet Summary of Group III PortsFor The Year Ending June 30, 1985

(In Thousands of Dollars)

BANDON IBAY ClTY INEHALEM SlUSLAW TILLAMOOK I UMPQUA TOTAL OF 6

I IGROUP I I I PORTS

, I

CURRENT ASSETS 268 106 I 83 157 2.318 70 3.002I

LONG TERM ASSETS 1.2q8 577I

q11 3.523 2.725 3.012 11.q96TOTAL ASSETS 1.516

I683

Iq9q 3.680 5.0Q3 3.082 1q.q98

I ICURRENT LIABILITY 81

I112 I 7 198 9 q5 q52

LONG TERM LIABILITY 1.180 0 33 305 2.086 660 Q.26QTOTAL LIABILITY 1.261 I 112 qO 503 2.095 I 705 q.716

NEW WORTH &EQUITY 255 I 571 q5q 3.177II 2.9Q8 2.378 9.783

LIABILITIES &NET WORTH 1.516 683 q9q 3.680 5.0Q3 3.082 1Q.Q98

DEBT/EQUITY RATIO Q.95 0.20 0.09 0.16 0.71 0.30 .Q8

4. THE GROUP IV PO~TS ON THE COLUMBIA RIVER ARE INVOLVED IN ADIVERSITY OF COMMERCIAL, RECREATIONAL, AND ECONOMICDEVELOPMENT ACTIVITY

The six ports that are included in Group IV are shown inExhibit 31. Although it is located on the deep draft segmentof the columbia, The Port of St. Helen's has been included inthis group due to the similarily in characteristics of St.Helen's and the up river ports.

EXHIBIT 31Group IV Ports

ST. HELENSCASCADE HOOD

lOCKS RIVER ~lES

MORROQ!W~~U,"MA{,T::lll:A------\

ARLINGTON

Exhibit 32 indicates that these ports are more diversifiedthan the ports in Group III.

42

EXHIBIT 32Profile of Group IV Ports

METHOD OF MANAG·PORT DISTRICT MARINE ME NT

ACTIVITY TERMINAL STAFFOPERATION SIZE

'"00

0 00: 0:11 ~ w~ 0 rJ)...l Z 0: 0« w 0 I- ;;;:;;;:; rJ) 0.

rJ) frl z 0. 0:::i w w w ::>0: >0 i! ::i~ 0.W 0.

I- ,;;;:;l- e: 9 0: ;;! Ww <0: 0: ti; « 0: 0 ~

~;;;:;8 0 w

it w :::;PORT 0. ::> > z a:I ;:::l::i 0: 0 w J: w ::> 0:::i ::i ;;;: ;;;:; 0

rJ) 0 0. 0.

ARLINGTON • • • 0

CASCADE LOCKS • • 2

HOOD RIVER • • • • 1

MORROW • • • • 3

ST. HELENS • • • 1

•THE DALLES • • • • 1

UMATILLA • • • • 3

Of the Seven Ports in this group:

•

•

Four offer cargo handling facilities, which areprivately owned and operated

Six operate marinas

Three operate airports

All but one are involved in industrial developmentactivities.

While still understaffed, these seven ports include a totalof eleven management personnel, while the 12 group II portsemployed only seven management personnel.

43

Unlike the Group III coastal ports, the river ports areheavily involved in industrial development activities (andparticularly, St. Helens).

However, like the Group III ports, the ports operations,except St. Helens, produce deficits. Tax support is derived byall Group IV ports except St. Helens. With tax supports andgrants from other organizations, these ports still operated atfinancial deficits for the accounting period reviewed.However, these ports generally have broader revenue bases andwill tend to be financially healthier than the Group III portsas a whole. 14 .

5. UNDER RECENT FEDERAL LEGISLATION, OREGON'S PORTS COULD BEREQUIRED TO UNDERWRITE APPROXIMATELY $5 MILLION IN ANNUALMAINTENANCE DREDGING COSTS

Legislation has recently been enacted concerning local costsharing for both maintenance dredging of Oregon's ports.

On average, it costs about $20 million per year to dredgeOregon's rivers and harbors. 15 Exhibit 33 on the followingpage, identifies average annual dredging costs for each ofOregon's principal rivers and harbors. If, under the newlegislation, 25 percent of the cost is recovered from advalorem fees on cargo, this would cost the local ports anadditional $5 million per year. It has been made clear in thischapter that most ports would be unable to underwrite thisadditional expense or do not have th~ customer base to pass itthrough to in the form of user charges.

* * * * * * *

In this chapter, a profile of Oregon's ports has beenpresented. From this profile it is concluded:

The Port of Portland stands apart from all otherOregon ports in virtually every characteristic

14

15

• Portland has a large and well qualified professionalstaff, modern maritime properties and facilities, and,at least for the present, is financially strong

Financial statements were not included for Group IV portsas many of these ports are active in industrialdevelopment and (pass through) industrial developmentbonds tend to distort the financial condition of the ports.

The emergency dredging associated with Mount St. Helens isnot included in the $20 million average annual estimate.

44

EXHIBI'l' 33Annual Dredging CostFor Oregon Waterways

(1976-1985)

158 4,268

244 16,008

15 14,219

112 3.051

520 511

541 44]

93 263

536 442

"~".~= g

•~~~ .

•.;"~~8,938

3,389

18,312

••~"~

"~';i

"~o~

365

18.

5.558

2.0

28

53.

262

•••20

~:01•~ ....I~"":::5:J<>

.'"•si".. ~•.0

~ ..h""o •., ..

.0.

10,825

6,559

4,410

5,624

15,104

2,298

1,504

1,860

4,023

••.-. ~:~:::::"~hu_

1.906

208

188

82

27,935

1j-..f

}116

216

U

15'

3

o61

oo

23

§

~0.-.

<:l

623

35

61

oo,.

300

525

~..•••--01

.1;-...gt""o •u ..

41

1,561

110

82

33

o155

oo

116

2"

o65

,.6

13'

N'A

NIA

N'A

NIA

NIA

~""H.'"

~ ~-- ..01 ,•-- "" 0g g"-0".,u

••>-01..j8

z!

5.946

12.962

1,915

3,161

4,046

NIA

NIA

NIA

NIA

NIA

~§""~..oo

37

22

oo

10

120

o125

56

~•oie::~

!

::•..~~.010

]1.-E555

1,181

.37

156

3'5

206

2'6

385

262

506 58

•~~

'"~"~-..

537

5U

.,8

930

851

226

::••~

I:J<,••~~

378

62.

1.268

1,808

.,2

668

3,399

3,310

2,218

2,990

1,550

3,181

: ~0-_

8'"~a• 0.. ~."0"8il

••~•""~•~o.,,.83

133

315

,.55

"Eo~

I;~•o.....

265

185

U2.,51

62

18

331

56

136

10.

220

206

262

."

102

525

501

322

~.i~-=•."

• u~.

'"':•.....",llil

•~'"ou~a

"~

i..

261

171

400

316

406

116

153

200

11

131

1905

1984

1983

1982

1981

1980

1919

1918

1971

1916

~•_.. 0

I:~ fCtf: toat -oi 41I.oUW>Locflltoo4<o.l\I:I~

,." .... 0 ...... ot .... ..t

00 "U:c .. g:a E ~;....e~ :8110/) .......0:S"1i'IClOOOt)(,1OX:

",.

V1

Total 12.231 2,795 1,408 11,514 54,374 6,89315,201 5,427 114 314 28,630 1,193 2,104 1,629 542 28,529 54,113 2,401 36,381

I AVe 223 280 Ul 151 5.437 68. 520 5.3 11 31 5,126 238 210 163 5. 2,853 5,411 241 3,638

•

•

The other traditional deepwater ports (Group II) havebeen in decline during recent years both in terms ofinternational cargo activity, and in the condition anddevelopment of marine facilities16

All ports (other than Portland) are poorly staffedeither in terms of the number, or qualifications ofmanagement personnel

All of the ports (inclUding Portland) are currentlyoperating at financial deficits. In certain cases,the size of the deficits are sufficiently large tojeopardize the near term financial viability ofseveral of the Group II, III and IV ports.

The financial situation will become more acute ifOregon's ports are required to share in harbordredging costs as proposed in existing federallegislation.

This situation suggests the need for new policies orinitiativies by the state of Oregon. While there are no portsystems quite similar to the situation in Oregon, suchinitiatives should "consider" or be "guided by" the situationin the ports or the neighboring (and competing) states ofCalifornia and Washington. The port environment in thesestates is treated in the next chapter of this report.

16 Certain of the privately owned wood chip facilities inCoos Bay are state-of-the-art facilities.

46

IV. PORT DEVELOPMENT IN NEIGHBORING STATES

IV. PORT DEVELOPMENT IN NEIGHBORING STATES

Before an organization undertakes a major new initiative,policy change or investment program, it is essential tounderstand the ability of competitors to respond or otherwiseneutralize any actions taken by the organization. In thatports operate within a highly competitive environment, thisbasic tenet applies to ports as well as other competitiveenterprises.

Accordingly, it is appropriate for policy makers in Oregonto understand the port environment in the nearby and competingstates of Washington and California. The purpose of thischapter is to present such an understanding. It is not thepurpose of this chapter to provide an in-depth analysis of portdevelopment and operations in Washington and California.Rather, the purpose is to provide a brief summary of portactivities in these states with emphasis placed on the economicscale and financial capacity of the major ports in each state.

As a first step, it is useful to compare the businesslevels handled by the pUblic ports in Oregon and it'sneighbors. Exhibit 34 compares the liner and non-liner cargoin the three states. 17

EXHIBI'I' 34West Coast Liner and Non-Liner Tonnage

By State of Lading/Unlading(Million Short Tons)

TOTAL CALIFORNIA AND

YEAR CALIFORNIA OREGON WASHINGTON WEST COAST WASHINGTON SHARE

1975 22.6 13.8 24.5 60.9 77%

1976 25.0 15.5 29.0 69.5 78%

1977 25.9 14.8 28.5 69.2 79%

1978 28.4 17.4 33.3 79.1 78%

1979 31.8 19.9 37.0 88.7 78%

1980 35.0 19.8 38.9 93.7 79%

1981 40.6 19.7 33.7 94.0 79%

1982 46.4 17.1 31.1 94.6 82%

1983 36.7 19.0 43.5 99.2 81 %

1984 40.6 19.6 45.7 105.9 82%

1985 43.9 17.8 39.8 101.5 83%

CAGR 6.9% 2.6% 5.0% 5.2%

Source: Bureau of The Census, FT985 Reports

17 This cargo is that carried by commercial carriers and isconsidered to represent the cargo that is most oftenhandled at public facilities.

47

Next, the Washington and then the California ports aredescribed in the following pages.

1. WHILE SIMILAR TO OREGON'S SYSTEM, THE WASHINGTON PORTS HAVEBEEN MORE PRO ACTIVE IN PORT DEVELOPMENT. THE SCALE OFPORT ACTIVITIES PARTICULARLY IN PUGET SOUND, IS FAR LARGERTHAN THAT IN OREGON.

There are many similarities between the ports in Oregon andwashington. Each has a large number of independent portdistricts. Each is tax supported and, in nearly all cases,commissioners are elected rather than appointed. Beyond these,however, there are few other similarities.

(1) The Washington Public Port System Consists of 75Independent Districts. Perhaps a Dozen Are ActiveInternational Ports of Significant Size

The public port districts of Washington areillustrated in Exhibit 35.

EXHIBIT 35Washington's public Port Districts

POll OfSTIlitT~MO"'IUOl'

eOVNTlU WITMMOT .toIOlI( Til"'"J l'OllT 0IUI1C1'5

oCOU",T1U WITM~ITlIAHl

"OllT OilTlK:1t

g].....'" .'" .':.".\" •CO\,INTIU "",,,,. 100 I'OIl OI$TlICT

..<) 1'011 onnen .......

Source: Washington Public Ports Association48

Legislation authorizing public port districts inWashington was enacted in 1911. Since that time, 75independent districts have been formed, but only about adozen are active in international trade. Specificallythere are:

Approximately seven major ports in the PugetSound region.

Only one or two on the Washington coast

Three on the deep draft portion of the ColumbiaRiver and several shallow draft ports on theColumbia/Snake River System.

By way of comparison however, nearly all of the deepdraft ports referred to above handle international tradelevels roughly equivalent to or greater than thoseexperienced by Coos Bay.

The principal Washington Ports are in Puget Sound.Seattle and Tacoma are large, rapidly growing ports.Exhibit 36 provides a summary of key characteristics of thePort of Seattle, while Exhibit 37 presents similarinformation for Tacoma.

EXHIBIT 36Profile of

The Port of Seattle

Date of Authorization: 1911Number of Commissioners: 5Method of Selection: Elected at large for six year

termApproximate Staff Size: 1,100

Financial Characteristics <1985 )(In Millions of Dollars)

Total Revenue $98.3 Total Assets $831.1Operating Expenses

(Including Depreciation) 86.6 Total Liabilities 389.1Operating Income 11.8 Net Wor th/Equ ity 442.0Other Income/Expenses (5 .3)Net Income 6.5

49


Total

~L~a*s.:::t-::..F",i-,-v~e Yea r s1985 $ 63.71984 54.31983 48.01982 23.01981 29.0

$218.0

Next19861987198819891990

Five Years

$644.0

$644.0

Source: Port of Seattle

EXHIBIT 37Profile of

The Port of Tacoma

Date of Authorization: 1911Number of Commissioners: 5Method of Selection: Elected for six-year termApproximate Staff Size: 190

Financial Characteristics (1985 )(In Millions of Dollars)


(Including Depreciation) 27.0 Total Liabilities 97.6Operating Income 7.1 Net Worth/Equity 142.6Other Income/Expenses 2.7Net Income 9.8

Capital Expenditures(In Millions of Dollars)

Last Five Years Next Five Years1985 $49.8 1986 $ 27.71984 16.4 1987 35.21983 9.3 1988 27.01982 7.1 1989 16.21981 7.1 1990 15.4

Total $89.7 $121. 5

Source: Port of Tacoma50

These two ports alone manage a total asset base inexcess of $1 billion and, during the next five years, planto spend over $750 million in capital improvements.

While the powers and revenue authority of the Oregonand Washington Port systems are similar, Oregon's Ports donot have the tax base that is available in Washington.Further, as suggested in Exhibits 36 and 37, the WashingtonPorts have invested aggressively in facilities.Washington's ports, though, would not have been able tounderwrite their investments without considerable publicsupport. Exhibit 38 identifies the financial supportreceived by the Port of Seattle from property taxes andother donations during the past five years.

EXHIBIT 38Tax Receipts and Donations

Received by The Portof Seattle Between 1981 and 1985

(In Millions of Dollars)

Year

198119821983

·19841985

Five Year Total

Property TaxReceipts

$15.116.618.219.521.2

$90.6

Grants andDonations

$5.15.63.77.94.9

$27.2

Total

$20.222.221.927.426.1

$117.8

Source: Port of Seattle

The $117.8 million received from these sourcesrepresent 54 percent of Seattle's capital expendituresduring the five year period. Similarly, the Port of Tacomahas received between $4 and $5 million per year in propertytax receipts.

2. WHILE NOT GENERALLY TAX SUPPORTED, CALIFORNIA PORTS HAVEBEEN SUPPORTED BY A LARGE LOCAL MARKET AND OIL ROYALTYPAYMENTS

California law provides for port districts, harbordistricts, and small craft harbor districts. Generally, thesedistricts are more closely tied to county government than in

51

other states. The California ports that fall within thiscategory include:

• SacramentoStocktonSan DiegoPort Hueneme.

The larger California ports (San Francisco, Oakland, LosAngeles, Long Beach) have been formed as sub-units of citygovernment.

There are two important differences between the ports inCalifornia and Oregon. The first is that while Californiaports have taxing authority, they generally do not tax.Second, while the California ports are empowered to promoteindustrial development, this development must be water-useoriented in California. Like Oregon, port development inCalifornia is heavily influenced by environmental laws andconsiderations.

The major California ports are as large or larger thanSeattle and Tacoma. Exhibits 39 through 41 provideinstitutional and financial summaries of the ports of LosAngeles, Long Beach and Oakland.

EXHIBIT 39Profile of The Port of

Los Angeles

Date of Authorization: 1908Number of Commissioners: 5Method of Selection: Appointed by Mayor, approved

by City Council for five yearterm

Approximate Staff Size: 650

Financial Characteristics (1985)(In Millions of Dollars)


(Including Depreciation) 49.7 Total Liabilities 178.0Operating Income 42.1 Net Worth/Equity 514.0Other Income/Expenses 6.7Net Income 48.8

52



Last Five19851984198319821981Total

Years$ 79.6

78.979.432.030.5

$300.4

Next Five Years1986 $87.91987 97.61988 77.91989 17.81990 89.2

$470.4

Source: Los Angeles Harbor Department

EXHIBIT 40Profile of The Port of

Long Beach

Date of Authorization: 1911Number of Commissioners: 5Method of Selection: Appointed by City Council for

six year termsApproximate Staff Size: 320


Total Revenue iF63.7 Total Assets iF 541.0Operating Expenses Total Liabilities 107.0

(Including Depreciation) 42.9 Net Worth/Equity 434.0Operating Income 20.8Other Income/Expenses 10.5Net Income 31.3


Last Five Years Next Five Years1985 28.7 1986 $ 50.01984 24.2 1987 51.01983 63.8 1988 54.01982 47.9 1989 54.0

I1981 43.1 1990 72 .0Total $207.7 $281.0

ISource: City of Long Beach Harbor Department

53

While the California ports generally do not benefit fromtax revenue, they have, over the years, received considerablerevenue from other sources:

The Port of Long Beach developed its containerfacilities with support from tideland oil royalties.During the 1960's, the Port collected $14.5 millionfrom this source. Additionally, since 1982, the Porthas received a settlement from the state for $29million in subsistence claims. 18

The Port of Los Angeles has continuously receivedroyalty payments from oil drilling within the Portdistrict. During the early 1980's, receipts from thissource were between $3.5 and $4.0 million per year.More recently, they have fallen below $3 million peryear.

The Port of Oakland has received grants largely fromthe Federal government, primarily in connection withits airport. Over the past five years, receipts fromsuch grants have totalled $14.6 million.

The Port of San Francisco holds extensive(non-maritime) commercial property. Rents from theseproperties alone contributed $18.5 million in 1984 i or67 percent of total gross revenue during the year. 9

EXHIBIT 41Profile of ThePort of Oakland

Date of Authorization:Number of Commissioners:Method of Selection:

Approximate Staff Size:

19277Nominated by Mayor, approvedby City Council for four yearterms490

18 Subsistence refers to the sinkage of land resulting frompetroleum extraction.

19 Port ot San Francisco

54



Total Revenue $ 61.1 l'otal Assets $478.2Operating Expenses Total Liabilities 261.1

(Including Depreciation) 33.9 Net worth/Equity 217.1Operating Income 27.2Other Income/Expenses (-3.9)Net Income 23.3


Last Five Years Next Five Years1985 $ 10.3 19861984 12.1 19871983 8.2 1988 $186.41982 38.8 19891981 18.9 1990

Total $ 88.4 $186.4

Source: Port of Oakland

A further factor that differentiates these California portsfrom the ports in Oregon is their proximity to the largepopulation centers, which essentially provides them access to alarge captive market.

* * * * * * * *

In this chapter, a brief summary of the port systems inWashington and California was presented. The summary focusedon the institutional ana financial characteristics of the majorports within these neighboring states. In summary, the keyports in Washington and California are large and wellfinanced. With the exception of Tacoma, they developed aspecialized container handling capability during the earlystages of containerization.

55

From a strategic perspective, policy planners in Oregonmust consider the following as they relate to Oregon's ports.

The Washington ports have access to a larger tax basewhich has historically been used for port development

The California ports were able to underwrite theirdevelopment either through oil royalties (in SouthernCalifornia) or real estate investments and federalgrants (Bay Area)

Each state has access to a unique captive market. Inthe case of California, it is the population centersof Southern California, and the San Francisco BayArea. In Puget Sound's case, it is their proximity tothe Alaska and Western Canada Markets.

Either because of relatively large local markets and/or theextensive containerized cargo facilities in place, theprincipal ports of Washington and California have successfullyattracted a very high level and frequency of ocean carrierservices to their ports.

With this in mind, the next chapter of this report isfocused on the future opportunities for Oregon's ports.

56

V. EVALUATION OF THE FUTURE POTENTIALOF OREGON'S PORTS

V. EVALUATION OF THE FUTURE POTENTIALOF OREGON'S PORTS

In previous chapters, the economic and commercialenvironment within which the Oregon Ports function has beendescribed. In Chapter II, the role of the state's port systemas a participant in the state's international trade has beendescribed. In Chapter III, the state's port system has beencategorized and described in operational and financial terms.Finally, in the preceding chapter, the larger competitiveenvironment within which the port system participates wasdescribed.

This Chapter identifies potential opportunities for theport system. The opportunities identified in this chapter areprecisely as indicated - they are opportunities and do notnecessarily represent Booz, Allen's opinion as to capture rate,however, they suggest a prioritization for future marketing orpolicy initiativies. A reading of this chapter by stakeholdersshould be guided by this consideration as well as the factors(constraints) treated in the previous three chapters.

Having established this point, the purpose of the chapteris to identify potential opportunities in the following areasor sectors:

Agricultural business

• Forest products

Imported automobiles

Containerized cargo.

Large volume general cargo items such as iron andsteel products

Government sponsored (and particularly military) cargo

Industrial and construction activity and particularlyship repair, conversion and construction as well asmodule construction.

The question of opportunities for Oregon's ports is alsothe subject of the following studies conducted in parallel withthis study:

57

"An Assessment of The Development Potential of OregonCoastal Ports" by Phillips Cartner and Fay Associates

"An Assessment of Lower Columbia River Deep DraftSites" by Ogden Beeman and Associates

The objective of the evaluation of each of the areas ofopportunity treated here is to answer the following fourquestions:

What is the magnitude or quantity of the opportunityover the next ten years? As appropriate, magnitude isexpressed in terms of both high and low scenarios.

How does the current capacity of Oregon's portscompare with the magnitude of potential opportunities?

If the answer to the first two questions suggest apotential unmet demand or opportunity, would a publicpolicy or investment initiativies be sufficient torealize the opportunity?

What other factors or events (perhaps beyond pUblicsector control) would be required to secure theopportunity?

With this in mind, the opportunities are identified below:

1. OREGON'S POTENTIAL TO HANDLE AGRICULTURAL PRODUCTS RESTS INITS ABILITY TO DEVELOP HANDLING TECHNIQUES DESIGNED TOPROVIDE IT WITH A COMPETITIVE ADVANTAGE OVER OTHER PORTGATEWAYS

Oregon, and particularly the Columbia River Ports, has beena major exporting center of agriCUltural products, primarilywheat. In this section, Oregon's present role and futurepotential is developed in the following manner.

First, the U.S. competitive position in the worldmarket is established

Second, Oregon's past and present position in themarket is determined

Finally, Oregon's potential to expand it's role isexplored.

Each of these three areas is described below.

58

(1) The U.S. Position As A World Grain Trader Has BeenDeclining Since 1980

The United States has historically been, and continuestoday, to be the worlds largest agricultural exporter. Asshown in Exhibit 42, the U.S. produces grain substantiallyin excess of domestic requirements.

EXHIBIT 42U.S. Grain Consumption and Exports

1970 - 1984

320

METRICTONS(Millions)

280

1972 1974 1976 1978 1980 1982 1984

Source: U.S. Statistical Abstract

The port gateways used are a function of the portslocation to domestic prOducing areas and foreignconsumers. Exhibit 43 on the following page identifies themajor U.S. producing areas of the principal grain products,as well as the port gateways.

59

EXHIBIT 43Major Grain Producing States

and Port Gateways

SOYBEAN

SOURCE: USDA

CORN

SORGHUM

Oregon is situated adjacent to major wheat growingareas and thus, Oregon's ports (principally Portland) havebeen major wheat transshipment centers. More recently,Oregon's ports have exported corn. However, the Gulf coastports have been our nation's major grain exportinggateway. Specifically:

Gulf coast ports handle between 65-70 percent ofU.S. grain exports

West coast ports handle between 20-25 percent ofexports

East coast ports handle between 5-10 percent ofexports, and

Great Lakes ports typically handle less than fivepercent of U.S. grain exports.

60

The U.S. role as a grain exporter has been decliningand particularly since 1980. This is underscored inExhibit 44 which shows U.S. grain exports between 1970 and1984.

EXHIBIT 44U.S. Grain Exports Since 1970

U.S. BRAIN EXPORTS19TO· 1984

100%

U.S. BRAIN EXPORT MARKET SHARE

120

100

'0METRICTONS(MINion!) 60

'0

20

80

1910 .. 111C CAGR: UNITED 60-4.~ STATES

SHARE OFWORlD"''''m<ET(Pen:flfIlI 40

20

I

~SOY8EANSI

A......... t"·

.......... I ...... / I ••••• COARSE

I GRAINS---........./WHEAT

0l::-.....".",.......,~....., ......&..........l-..l-..l-..l-..i....J1970 11172 1974 1178 117' 1t80 1912 t9M

SOURCE: USDA•

SOURCE: USDA

Source: USDA

The exhibit also shows that the U.S. share of wheatexports (Oregon's niche) has been in decline over a longerterm. This decline has been caused by three principlefactors:

First, the worldwide recession has decreased manycountries' abilities to finance imports. Thecentrally planned economies have substantiallycurtailed import programs.

• Political relationships have become a majorfactor in the world grain trade. This hasresulted in other producers gaining access tomarkets previously dominated by the United States.

The European community, a major customer, hasbecome self sufficient in grain. This has hadmore of an impact on East coast and Great Lakesthan Oregon's ports.

61

The relatively high value of the U.S. dollar has,until 1986, been another reason behind the reduced level ofU.S. grain exports.

With this as a backdrop, it is useful to examine thesituation in Oregon more closely:

(2) From A Port Perspective, Oregon's Traditional GrainMarket Has Been Shrinking. While Attempts toDiversify Have Been Somewhat Successful, The System'sCapacity is Well In Excess of Potential Requirements

One cannot view the grain export market solely fromOregon's perspective. Oregon's participation in thismarket is in part due to the transportation attributes ofthe entire Columbia/Sna~e River System. Consequently, anyanalysis conducted of this market must be from a systemperspective (both Oregon and Washington Columbia RiverPorts) rather than from one of the states.

As previously indicated, the system has traditionallyexported wheat and, since 1982, has handled corn exports aswell. Exhibit 45 compares the Columbia River System'sperformance in these markets with that of Puget Sound andthe entire United States for the seven-year period between1979 and 1985.

EXHIBIT 45Corn and Grain Exports Via

Lower Columbia Riverand puget Sound Ports

2500

2000

~OJ%g: 1500lD

15'"a1000

:3j

500

CORN2338

WHEAT1210

'........

WHEAT1310

CORN2460

CORN2157

WHEAT1613

,..

WHEAT1513

CORN1923

WHEAT1430

CORN1862

WHEAT1537

CORN1914

CORN1717

WHEAT905

........1985

Source:

c::J OTHER PORT RANGES .. PUGET SOUNO I>SS.'SI LOWER COLUMBIA RIVER

USDA

62

As the overall wheat volumes have declined since 1981,the system became active in the corn market. The successin corn was largely due to three factors:

The opening of the modern Peavey Elevator inKalama, Washington

Aggressive unit train pricing by the BurlingtonNorthern Railroad which attracted corn from themore traditional Gulf coast and Great Lakesgateways

Increases in (ship) bunker fuel prices during theearly 1980's which tended to encourage shorterocean voyage via the Pacific Northwest, ratherthan the Gulf coast ports.

During late 1985 and 1986, certain of theseattractions have been eliminated or temporarily neutralizedwith the closing of the Kalama elevator, and the rapiddecrease in bunker fuel prices.

Exhibit 46 presents the outlook for grain exports viaColumbia River ports over the next ten years.

EXHIBIT 46Projections of Corn and Wheat Exports

Via The Lower Columbia River

1,000...----------------------,

MILLIONSOF 500

BUSHELS

1985 1990

539

1995

Source: USDA

This relatively flat projection by U.S.D.A. isprompted by the following factors:

First, many of our primary customers haveachieved (the E.E.C.) or are achieving (P.R.C.)self sufficiency in grain

63

Past U.S. government policy has caused othercustomers to diversify their sources of supply.

Competing producers and particularly Argentina,Australia and Canada, have been aggressivelymarketing their exports.

While there are indications of a more favorableadministrative position relative to U.S. exports in thissector, the current U.S.D.A. forecast for Columbia RiverFacilities is used in this study as a guide for futureplanning.

~his aemand projection is not sufficient to take upthe capacity already available on the Columbia River. In19B1, the system's capacity doubled from 750 million, to1.5 billion bushels per year. The comparison of the futureaemand projection with existing capacity is illustrated inExhibit 47.

EXHIBIT 47Capacity Utilization ofGrain Export Facilities

on The Lower Columbia River

1500 [J ElevalorCapacity

II> Grain.... EJw Tonnage:z:II>

1000::>lDII.0.,z0::i 500....:i

Source: Exhibit 46

Consequently, any opportunities available to Oregon inthis sector could be realized only through a majorbreakthrough strategy. Such a potential breakthroughstrategy is described in the next section.

64

(3) A State-of-the Art Agribusiness Facility CouldPotentially Provide One or More Oregon Ports with aCompetitive Advantage

In light of the generally flat overall grain forecast,the principal way for a port to achieve overall growth isto attract market share from other ports or port ranges.The opportunity to accomplish this through selling efforts,or legal and institutional actions, is limited. Futurecompetitive advantage can be achieved in this sectorprimarily through technological development. One potentialapplication for such development is in the market forbagged agricultural products exported from the UnitedStates under both government and commercial programs. Thecurrent method of transporting the commodities isoutmoded. Today, bags are shipped loose or on pallets inrailroad box cars from the mill to the port. It is a laborintensive and high cost operation. Traditional, breakbulkports such as Pensacola, Florida, Milwaukee, and Houstonare the leaders in this market due primarily to proximityto the major mills or supply sources, and low cost orproductive dock and transit shed or warehouse labor.Bagging is also accomplished at selected ports, but theseactivities generally require high cost labor and are notintegrated with other elements of the delivery system.

A handling concept in use in Europe (but yet to beinstalled in a U.S. port) could achieve substantialeconomies. For the purpose of the report, the concept isreferred to as, "The Automated Agribusiness MarineFacility". It is illustrated in Exhibit 48 on thefollowing page. Exhibit 48 also contrasts the currentmethod of handling bagged agricultural commodities with theautomated alternative.

The concept combines an existing (or new) grainelevator with an automated conveyance system, high speedbagging machines and gantry type ship loaders. Theeconomic characteristics are summarized below.

• The use of higher (tonnage) capacity coveredhopper cars instead of rail box cars

An 800 ton per hour bagging and ship loadingcapacity (using four bagging machines)

A seven member operating crew including those inthe ship's hold (compared to current gangs of 12to 15 men for each hold on the ship)

No requirement for covered storage of bags as thematerial moves directly from the elevator to theship

Flexibility to outload product both in bulk(directly from the elevator) or in bags (via theconveyance system)

65

EXHIBIT 48Proposed Automated

Agribusiness Facility

Traditional Agricultural ProductsHandling Facility

66

Such a system i& estimated to cost between $15-20 millionand could produce a savings in total transportation cost ofbetween 35 and 50 percent20 • The impact of such a savings isillustrated in Exhibit 49, which compares the totaltransportation cost (rail, port handling and ocean costs) ofmoving bagged products from six typical inland sources throughfive competing ports to India (a typical destination). Thearea shaded in grey, represents the competitive range. In allbut one case, Portland (the Oregon Port used in the example) isoutside of the competitive range. The black line through thecompetitive range reflects the cost associated with anautomated facility on the Columbia River. In all cases, theOregon port is either the least costly or next to lest costlyalternative after considering investing in the state-of-the-art.facility.

EXHIBIT 49Through Transportation CostFor Bagged Grains To India

SOURCE OF SUPPLY

DANVILLE MILWAUKEE MINNEAPOLIS SAGINAW SEATTLE TOPEKA WEIGHTEDAVERAGE

APPROXIMATE COMPEnnVE RANGE

5200.

5175·

z 5150·gQ

'" $125·I;;

"'"w 5100·"-

'"'""'~~8 575.

$50·

$25·

PORTLAND SEATTLEPORTLAND

SEATTLEPORTLAND

SEATTLE

PORTLAND

PENSACOLA

HOUSTON

MILWAUKEE SEATTLEPORTLAND

SEATTLE

PORTLAND

COST VIA ACOLUMBIA RIVER

FACIUTY WlTfiAN AUTOMATEDAGRIBUSINESS

FACIUTV

Source: Booz, Allen & Hamilton Shipping Cost Model

From the above, it appears that the opportunity forOregon's ports in the agricultural sector depends on the statesability to assist with the development of new, or near newtechnologies.

20 A system similar to that shown in Exhibit 48 could bedeveloped for somewhat less than the estimate here, butmay not meet the performance requirement assumed to berequired.

67

While there are no such facilities currently installed inthe United States, several firms are marketing the concept andmostly under license to European producers. It is generallybelieved that by 1990, such systems will be in place in atleast two traditional agricultural port gateways such as on thewestern Gulf of Mexico (a Texas port) and on the Columbia River.

Before the state implements such a strategy, it will benecessary to more thoroughly research the outlook for baggedagricultural products shipped from the United States and theeconomics of this technology compared to more conventionalhandling methods. The Booz, Allen study has concluded that apreliminary analysis indicated that the concept is feasible,but more detailed research was beyond the scope of thisinvestigation.

2. FOREST PRODUCTS SHIPMENTS VIA OREGON'S PORTS HAVE BEEN FLATOVER THE PAST FIVE YEARS. THE MODEST GROWTH THAT ISANTICIPATED OVER THE NEXT 10 YEARS SUGGEST THAT NOSIGNIFICANT INVESTMENTS WILL BE REQUIRED.

The forest products sector has been depressed over the pastseveral years. There are a number of reasons for thisincluding the high value of the dollar, competition fromCanadian imports and substitutions by other products. In thissection, the potential for Oregon's ports in the forestproducts sector is treated in the following way:

First, the outlook for the major product groups isdetermined

Second, the role that Oregon's ports have had, andwill have, is developed

Finally, the need for new facilities or investmentsare explored

Each of these three areas is developed below.

(1) The Outlook for U.S. Produced Wood Products Will BeSoft Into The Next Decade, While That For PaperProducts Should Be For Continuing Growth

The forest products sector is evaluated in terms ofmajor product groups including:

•

LogsSoftwood lumberPlywoodPaper products

68

Logs are shipped primarily in the export trade.Demands swings wicely from year to year. During 1985, 3.4billion board feet were exported from West coast portsincluding Alaska. This was the second highest level of logexports since 1979. The principal customers were Japan,Korea, and the P.R.C. Washington ports represent nearly 50percent of the market (Grays Harbor exported 681 millionfeet alone) while Oregon ports had a 30 percent share. 21The Port of Portland exported 236 million board feet oflogs curing 1985 which represented a three fold increaseover the prior year.

During 1986 to date, log exports have declined between30 and 40 percent over 1985. It is difficult to projectyear-to-year changes in the market due to the frequentchanges in buyer behavior. From a marine terminalperspective, this is an incrementing market that should notdrive major capacity addition decisions, and particularlyin the public sector.

Shipments of softwood lumber products are dominated bythe domestic u.s. market. Exhibit 50 presents historicalshipments of softwood lumber as well as a projection ofshipments until 1994.

EXHIBIT 50The U.S. Softwood Lumber Market

U.S. SOFTWOOD LUMBER CONSUMPTIONBILLION BOARD FEET

REAL PRICESWESTERN SOFTWOOD LUMBER

1985 DOLLARS PER MILLION BOARD FEET

55

50

45

History Fa......

..... ."""",," "".: "" ." .." ""........ ".- .....

Hhtory350

325

300

275

250

225

200

175

150

Forecast

:........ ........" " : ~" ",. ": ,." ..

:' ...•....

~7~2~·7'':'''::'7~.~·::17.~·:!:80~·~.2~·~..~·.~.~·~••~·..~·::1.2~·'o!-'.

Source: DRI

125~~~~~~~~~~~~~~o!-!-;972 '74 '78 '11 'SO '82 'Sol '88 '88 '80 '92 '94

21 Journal of Commerce, August 12, 1984

69

The exhibit underscores the wide swings in consumptionin the past, and projects consumption to fluctuate between45 and 50 billion feet until 1994. The exhibit alsoindicates prices will be depressed during much of thisperiod due to competition from Canadian imports andovercapacity in the United States.

Plywood shipments are expected to be impactea by thesubstitution of composite materials. The outlook fordomestic consumption and prices is illustrated on thefollowing page in Exhibit 51.

EXHIBIT 51U.s. Plywood Market

u.s. CONSUMPTION OF PLYWOODANO COMPOSITE PANELSBILLION SQUARE FEET

REAL PRICESPLYWOOD AND COMPOSITE PANELS

DOLLARS PER MILLION SQUARE FEET

oL..a....--===::r:.~~~~~'.7' '74 '1. '78 '80 '12 'I. ... ~'81 '90 '12. '94

1601.-........&.-11-......1.........1.....1-..........1972 '74 '7. '7. 'SO 'S2 '84 '88 'S8 '90 '92 '94

Forecast

...... •1..- ". •.......:tt-' ::••••.•::::

HiltoryS400

3150

DOLLARS300

260

200COMPOSITE

Fo.......t

... .,...·w .~.~~••".~~.

••:+.l".....

••••."••••...,....•COMPOSITE

Hiltory2"

20

18

BILLIONS12OF

FEET2

8

"

Source: DRI

Most paper products are expected to grow atsubstantially stronger rates than wood products. Exhibit52 on the following page represents historical and futuregrowth for printing paper, paperboard, tissue, newsprint,and packaging paper.

70

EXHIBIT 52U.S. Paper Products Market

u.s. ",OOUCTIOIf OF 'APERtoARDTHUUSAIIOS OF TO" ~GIII

•••••••• 1 •

H"",",", F_,'

.....·····~:::~D

,.-I.,! '1. ... ... '. '.

CAOII

•••••••••••••••••••••••• , 0.....

'M 'loll ". 'II

u.s.rfSSUE CONSUMPTIONTHOUSANDS OF TOItS

U, "EWPfIIlJ" CO""IOITHOUIAIIDIOF TO'"

14,_ .•..-....~ .-- ,-..- ..•...•............ •.-",., •.-I1JlllO •.-"...

'.-•.-,...

." 'M 'M 'M 'M "" ."

.......................". CAGII

-'•. I.OIl

u.s. COII\III'TIOII OF 'ACKAIIIS ,,,"',,THOU!WllOS Of TOIlS

.,.,

..-COIlSUlPnOI OF PtlltlTutG.W

WRIT.. 'A"" .EUCTEO IlGMEmTHOUIUOIOFTO" eMflI

~ F_ ......UIC),It,TlO •••••••

::~::.::::.;: .

Iltl'llOGl'lN'WC"2.\lOlI ••..- .

,._~....-"':"=:::l::.x::~~~~1m ..,. ...... 'W ".

•.-

Source: DRI

The only non-growing item in the paper family ispackaging paper, which is being displaced by plastics.

The no-growth prognosis for wood products, and thecontinued growth for paper products could have substantialimplications for future port strategies as wood productstend to employ traditional breakbulk port facilities, whilepaper products require faster containerized cargo services.

(2) It Is Expected That The Exports of Forest Products ViaOregon's Ports will Grow Only Modestly Over The NextTen Years

Oregon's ports have traditionally handled about 30percent of forest products handled by all West coastports. This is illustrated in Exhibit 53 on the followingpage.

71

EXHIBIT 53Forest Products Export Tonnage

Via West Coast Ports

."25,000

22,500

20,000

'" 17.500

gu 15.000

E== 12,500..~ 10,000

7,500

5,000

2.500

3'"

3"

I."

3'"

."."

3"."

."7"

'"7"

.."

7%

.."

, .

o OREGON

• WASHINGTON

1979

~ S. CALIFORNIA

mea N. CALIFORNIf<

1980 1981 1982 1983 198. 1985

Source: Bureau of Census

As presented on the below in Exhibit 54, nearlytwo-thirds of shipments via Oregon's ports are handled atthe Port of Coos Bay. The Port of Portland handles about25 percent of shipments handled by Oregon's ports with thelumber exported over Terminals One and Two, and the logs

EXHIBIT 54Forest Products Exports via Oregon's Ports

Source:

',000 < ..

7,200

e,400

I,eoo

.,*,o

.,000

:1,200

2,.00

t,lOO

to.

Bureau of Census72

uas

o He..PORt

~ AtlTORIA

_ POR7UMO

_ coos BAY

shipped primarily from Terminal Four. Astoria isresponsible for approximately 10 percent of totalshipments, while Newport is responsible for less than 2percent.

Exhibit 54 also shows, however, that the tonnagehandled by all Oregon ports during 1985 is 20 percent lessthan the level achieved during 1979.

Two studies, conducted in 1980 and 1986, projectedfuture flows of forest products via Oregon's ports over thenext ten years. These studies were:

The Oregon Public Ports Study of 1980

An Assessment of Deep Draft Sites on The LowerColumbia River in 1986.

The projections developed in those studies arepresented below in Exhibit 55.

EXHIBI'I' 55Projections of Forest Products Exports

Via Oregon Ports

7200

uoo

5800

"~800~

~ooot;~200o~400!'l~lliOO~

•••

8080 5317

l!ilIO

67221::;·;:::;:;:;:1 EXISTING TONNAOE

I:S.'Sl li80 STUDY

III llila6 STUDY

Source: Oregon Public Ports Study, 1980. An Assessment ofDeep Draft Sites of the Lower Columbia River, 1986

The 1980 study reflects the lower of the two scenariosand projects that:

• Columbia River ports will achieve an overallgrowth rate or one percent

Coastal ports will realize no growth.

73

•

While this particular study is six years old, itcomports somewhat with the trends of the past five years.The 1986 study projects a somewhat higher growth rate of:

2-3 percent growth for Columbia River portsContinued no-growth for coastal ports •

These two projections suggest that between 1980 to1986, the prognosis, while still projecting only modestgrowth, has become somewhat more optimistic for the exportof Pacific Northwest forest products.

(3) There Does Not Appear To Be A Need For AdditionalForest Products Facilities In The State. However,More Modern Cargo Handling Techniques Could ImproveOregon's Future Market Share And Thus, Stimulate TheNeed For Additional Capacity

Most of the forest products in Oregon are handled atprivate terminals. The terminals in Coos Bay are allprivately owned and operated. Exhibit 56 below, presentsan estimate of marine terminal capacity in Oregon by typeof facility.

EXHIBIT 56Capacity of Oregon's Forest Products Terminals

Annual 'l'otal AnnualFacilityl Number of Capacity

Facility Type (In Thousands of Facilities2 (In 'l'housand ofMetr ic Tons) Metric Tons)

Wood Chips 800 7 5,600Logs 200 6 1,200Lumber 100 4 400Total Annual

Capacity -- -- 7,200

Notes: 12

From Oregon Public Ports Study, 1980From U.S. Army Corps of Engineers, PortSeries No. 28

The market projection presented previously inExhibit 55 is overlayed on this capacity estimate inExhibit 57.

74

EXHIBIT 57Comparison of Potential Demand For And

Supply of Forest Product CapacityAmong Oregon's Ports

Source:

1200

uoo

sto•.~ 4101•9 4000

i sno

:; it"'"I 'IGO...

• L--"')i

Exhibits 55 and 56

o fACIUTY CAPACITY

lSI FOREST PRODUCT.TOMMAGIi

The exhibit suggests that forest products capacity isapproximately 500,000 tons greater than potential demand by1995. This suggest that the development of additionalforest products capacity (particularly by the publicsector) should not be a major priority.

It could be however, that the development of moreautomated materials handling techniques, and particularlyfor logs, could improve the competitive position ofOregon's ports. While this may not have the broad marketappeal that may be achieved by the agricultural terminalimprovements referred to in the previous section (becausethe forest products are more of a local market, while thatfor bagged cargo is more national in scope), thedevelopment of such techniques to improve terminalproductivity should be encouraged. The technology may besimilar to that shown previously in Exhibit 47 for thebagged agricultural products. Logs, however, may require amore unitized approach similar to containerization.

3. THE PORT OF PORTLAND HAS EMERGED AS THE LEADING AUTOMOBILEIMPORT FACILITY ON THE U.S. WEST COAST. FUTURE PORTSTRATEGIES SHOULD BE GUIDED BY THE DECISION OF PACIFIC RIMMANUFACTURERS TO ASSEMBLE AUTOMOBILES IN THE UNITED STATES.

Imported automobiles have captured an increasing share ofwhat has, over the long term, been a sluggish U.S. market. Assuggested in Exhibit 58 on the following page, imports havegrown from 15 percent of the total domestic market in 1975, toover 25 percent by 1985.

75

EXHIBIT 58U.S. Automobile Retail Sales

12

10

8

UNITS(Millions) 6

4

2

Source: Motor Vehicle Manufactures Association

As shown in Exhibit 59, over half of the u.s. imports havecome from Pacific rim nations.

EXHIBIT 59Passenger Car Imports By Country of Origin

(1984)

MVMA

~~f_827 M Unlu117'1,1

Ul92MUnIts166%'

Source:76

The Pacific coast ports have been the major beneficiary ofthis volume of imports from the Pacific rim. The port ofPortland (Oregon's only port handling automobiles) has been amajor participant in this trade. The growth in Portland'sautomobile imports since 1978 is depicted in Exhibit 60.

.00

EXHIBIT 60Automobiles Imported Via

The Port of Portland1978 - 1985

'.0

120

80

40

1111l 1011· 1no 1tta1 '012 UU UUl4 UUYU",'

'40

.00

Port of Portland

AUTOMOBILESIMPORTED VIATHE PORT OF

PORTLAND(In Thouaand. Of Units) ,.0

o

320

.80

Source:

. (1) The Outlook For Imported Automobiles Will Largely BeDetermined By The Manner In WHich pacific RimManufactures Serve The U.S. Domestic Market

Several Japanese and Korean automobile manufacturershave begun construction or are planning to constructassembly plants in the United States. It is estimated thatthe capacity of these plants will be approximately 1.7million units by the period between 1988 and 1990. Thiscould have a profound impact on the importation of completeautomobile units.

The implications of the foreign manufacturingstrategies on the overall volume of automobile imports intothe United States by 1990 are illustrated on the followingpage in Exhibit 61.

The exhibit shows that in 1985 total domestic saleswere approximately 11.3 million units. Domestic units(entirely from traditional U.S. Automaker) represented 8.3million units. Thus, imports represented 27 percent oftotal sales. By 1990, total sales will vary between 11.3and 12 million units. However, domestic units areprojected to vary between 8.2 and 9.2 million units with

77

EXHIBIT 61Projection of U.S. Automobile Retail Sales

12

10

8UNITS(Millions)

6

4

2

01960 1965 1970 1975 1980

' ...... r\lATiONS l ::

,., i ~ARGELY TO

cHJCERTAIN PRODUCTiCN

cROM FOREIGN OWNED

nOMESTIC.Fl<CILITI ~ c

1985 1990

Source: MVMA, Financial Times, Booz, Allen & HamiltonAnalysis

the major difference being the amount produced by foreignowned facilities in the United States. Thus, by 1990imports could be as high as 3.8 million units (12.0 - 8.2),or nearly 20 percent higher than current levels or theycould be as low as 2.1 million units (11.3 - 9.2), or onlytwo-thirds of current levels. This has major implicationsfor ports expanding to handle imported automobiles.

(2) There Would Appear To Be Little Or No Requirement ToExpand Oregon's Capacity To Handle Imported WholeAutomobiles. However, The Change In ManufacturingStrategy Could Substantially Increase The Movement ofAutomotive Parts In Marine Containers.

In light of the above, it is appropriate to developtwo scenarios for future automobile imports via Oregon'sports. Exhibit 62 on the following page presents the highimport scenario.

78

EXHIBI'l' 62Potential Automobile Imports

Oregon's Ports(High Scenario)

Via

1,000

900

Ul 800w:::!IX! 7000:i!0 600~:::l«u. 5000.. 400<>0e.

300

200

100

0

~ NEW ACCOUNT

P'77.::I GROWTH OF EXISTING TONNAGE~ WITH THE REMOVAL OF QUOTAS

•

GROWTH OF EXISTING TONNAGEWITH QUOTAS

• EXISTING TONNAGE

1985 1990

740

1995

Source: Booz, Allen & Hamilton

The Exhibit is based on multiple regression analysisbased on the historical relationship between populationgrowth, per capita income, import quotas, and automobileimport levels. A high level of correlation was achievedand the projection of future imports was based on thesehistorical relationships. A number of subscenarios weredeveloped within this high scenario.

Projections were developed for 1990 and 1995,both with and without import quotas.

• -The 1995 projection also assumed that Portlandwould secure a new automobile import accountafter 1990.

This high scenario indicates that automobile importsvia Oregon ports could more than double in ten years time.

It must be recalled that the projections developed inExhibit 62 is dependent on past relationships between theeconomic variables referred to above.

79

Exhibit 63 presents the low scenario, and assumingthat future import levels will be reduced to 67 percent of1985 levels by 1990 and will continue at that rate through1995.

EXHIBIT 63Potential Automobile Imports

Via Oregon's Ports(Low Scenario)

Booz, Allen & Hamilton

1,000

900

(/)800

w..J 700III0 600::E0t- 500:::l«u. 4000~ 300~0 2000-

100

0

Source:

1985

The low scenario assumes that the Japanese and Koreanautomakers will assemble substantial quantities in u.S.domestic plants and that these units will displace foreignimports rather than other domestic production. In anyevent, it will cause a proliferation of parts to beimported from throughout the world, but particularly fromth original equipment manufacturers in the Pacific rim. Itis estimated that each vehicle produced in the u.S. willrequire from 875 to 1,000 pounds of parts to be imported.At full capacity of 1.7 million units, this suggests arequirement to import from 745,000 to 850,000 tons of partsannually. Nearly all imports are shipped in marinecontainers. Using a rule of thumb of 15 tons percontainer, this suggests that from 50,000 to 57,000containers per year of additional imports will be imposedon u.S. West coast ports by 1990. This has implications onfuture Oregon Port policy.

From a capacity perspective, Oregon's ports would notrequire additional import facilities until 1995, and thenonly if the most optimistic element of the high scenario isachieved (no import quotas plus a new importer secured).This is illustrated graphically in Exhibit 64 on thefollowing page.

80

EXHIBIT 64Demand and Supply Comparison

of Automobile ImportFacilities in Oregon

HIGHDEMAND

SCENARIO

LOW44- DEMAND

SCENARIO

800

700

600

500

400

300

200

100

oI--'-~";>1985 1990 1995'

'ASSUMES NEW AUTO TERMINAL NOT ON LINE

o FACILITIES Cl AUTOMOBILECAPACITY UNITS

'"W..Jiiio:l!g:::>.....o

Source: Booz, Allen & Hamilton

4. THE HANDLING OF CONTAINERIZED CARGO REPRESENTS SUBSTANTIALGROWTH OPPORTUNITIES FOR ONE OR MORE OREGON PORTS. INORDER TO ACHIEVE SUBSTANTIAL GROWTH, ONE OREGON PORT WOULDHAVE TO BE DEVELOPED AS A LOAD CENTER

The handling of containerized cargo has been among thefastest growing elements of the worldwide port industry.containerization has grown for two reasons; first, the overallgeneral cargo market has grown, and secondly, containerizationhas, over time, penetrated more and more of the traditionalgeneral cargo markets. This latter reason was referred toseveral times during the discussion of earlier businesssegments and particularly in the discussion of forest productsand automobile parts. In this section, the container potentialof Oregon's ports is evaluated in the following manner.

First, trends in containerization on the West coastare developed

• Second, Oregon's role in the handling of containerizedcargo is evaluated

• Third, future scenarios for Oregon's participation inthe handling of containerized cargo are developed

Fourth, alternative container port developmentstrategies are considered.

Each of these is treated, in turn, in the following pages.

81

(1) Oregon's Ports Have Been a Minor Participant In Thewest Coast Container Market

The emergence of the Pacific rim as the United State'smajor trade area, coupled with the continued development onintermodal transportation system within the United States,have contributed to the unprecedented growth of the Westcoast ports, principally, in the area of containerizedcargo. Exhibit 65 underscores the growth in containerizedcargo handled by West coast ports between 1979 and 1985.

EXHIBIT 65Containerized Revenue

Tonnage Handled at West Coast Ports

U1Zo...UJ::>zUJ

i;ja;:

QUJNa;:UJZ

~Zoo

~U1Zo:3S!

60

50

40

30

20

10

[::JOREGON

c:::J WASHINGTON

f222I NORTHERN CALIFORNIA

1:11 SOUTHERN CALIFORNIA

54.9 3%

57.83"/0

1979 1980 1981 1982 1983 1984 1985

Source: Pacific Maritime Association

The exhibit indicates that containerized cargo hasgrown at an annual rate of 11 percent over the seven yearperiod. The exhibit also highlights the dominance of theSouthern California ports as well as the small sharehandled by Oregon's ports. As was the case with importedautomobiles, Portland is the only Oregon port currentlyhandling marine containers.

82

There are a number of factors behind the relativelylow share of containerized cargo held by Oregon's ports.

The development of containerized cargo facilitiesis highly capital intensive. Oregon's ports donot have the financing capacity that is availableto ports in California and Washington

Consequently, Oregon entered the business laterthan the other ports, and on a considerablysmaller scale

By the time that the Port of Portland completedTerminal Six, the service patterns of theprincipal ocean carriers had already beenestablished. At that time, nearly all majorcontainer lines had based their pacific northwestservices at either Seattle or Vancouver, BritishColumbia.

A U.S. Flag Container Service has never servedPortland on a routine basis, thus preventingOregon's ports from participating in any U.S.military and large blocks of other governmentsponsored cargoes.

Despite these barriers or constraints, the Port ofPortland has developed a niche that is different from theother West coast container ports. Portland's uniqueposition is based on the following unique factors:

• As an operating port at T-6, the Port of Portlandhas been able to offer specialized services tokey shippers and receivers22

Over time, the port has become a base ofoperations for container ship operators that arenot a member of ocean shipping conferences (acartel legally allowed to fix prices). This typeof carrier generally offers lower prices toshippers than would generally be availableelsewhere.

22 The term operating port indicates that port staffoperate the container yard and container freightstation. The port even manages the stevedoringoperation at T-6. This is unique among both Pacificcoast and all U.S. ports.

83

The port has a unique linkage with upper Columbiaand Snake River terminals. This has resulted ina logistics system of container barge services onthe upper Columbia River. 23

This latter point is illustrated in Exhibit 66 whichidentifies the mode of inland transport to and from thecontainer facility at the principal Pacific Northwestcontainer terminals.

EXHIBIT 66Inland Modal Distribution of

Containerized cargo

•

IMPORt BOUND CONTAtNEA[2EQ CARGO

7'

..

".

" 50

PORTLAND

EXpoRT ROUND CONUtNEBIZED CARGO

IIEY:

D·"wOE......~RAIL

•..

'"

" 50

The exhibit contrasts the high level of raildependency of the puget Sound ports with the relativelyhigh level of barge dependency at Portland.

While the unique features referred to abovecharacterize the strength of the Port of Portland, the lackof a rail orientation has been a major reason why the Portdoes not operate on a scale similar to Seattle, theCalifornia ports, and more recently, Tacoma. Portland'sstrategy has been to focus on the regional market. Due tothe distances involved, this market is served moreefficiently by truck and barge than by rail. Greateremphasis on rail wo~lu be required if Portland were tofocus on the longer distance imports and distributionoriented markets.

23 The Columbia River is the only river in the United Stateswhere container barge lines have operated on a sustainedbasis. Puget Sound based oriented carriers have attemptedto penetrate this market with competitive truckingservices. In that barge transportation is inherentlylower cost than truck, (particularly for cargo thatoriginates at/or is destined for near river locations) thebarge service should prevail over the long run.

84

(2) Nearly One-Half Million Tons of containerized CargoAccessible To The Port of Portland Are Transshippedvia The Puget Sound Ports

Between 400,000 and 500,000 tons of containerizedcargo that is arguably closer to Portland is moved overlandvia Puget Sound ports. Of this total, 200,000 tonsoriginate within or are destined for the Portland area,while the balance moves to, or originates within, thePasco/Eastern Oregon/Idaho region.

competing ports and carriers have developed efficient,low cost transport systems to move the freight betweenPortland and the Puget Sound ports.

America President Line's double stack trainbetween Seattle and Chicago stops in Portland.The cost to move a container between Seattle andPortland is between $250 and $300 per unitdepending on the volume.

More recently, the Union Pacific has started anovernight shuttle service between Seattle andPortland. The capacity is 50 containers pertrain, and the rates are $150 per 40 footcontainer and $100 per 20 foot container.

With this level of service coupled with the volume ofocean carrier service via the puget Sound ports, it can beargued that containerized shippers and receivers in Oregonreceive a high level of service via Puget Sound ports at areasonable price.

(3) The Potential Exists for Oregon Ports To SubstantiallYIncrease Both The Share And volume Of ContainerizedCargo Shipments

The outlook for containerized cargo shipments at Westcoast ports continues to be strong. Exhibit 67 presents aset of projections to the turn of the century.

EXHIBIT 67Projected West Coast Container Tonnage

(In Million Revenue Tons)

200 9'\ GROWTH _n,GROWTH_S'QROWTH _

19&.&

Source:

83'~:72.6 81.7

L_......rt!!.~5,~3·'C:.-._= __-:::::::-_45.41983" 1990 1995 2000

Pacific Maritime Association85

While these projections do not mirror the double digitgrowth of the recent past, the outlook remains strong.With this as a backdrop, a series of projections weredeveloped for Oregon's ports.

Exhibit 68 presents the most conservative projectionand assumes that Oregon's ports will grow at a rate of onlyfive percent per year.

EXHIBIT 68Conservative Containerized Cargo Projections

for Oregon Ports

3.5

Source:

til

~...II:oili...o

~::liii

II EXPECTED GROWTH OFEXISTING TONNAGE

3.0

I~I EXISTING TONNAGE

2.5

2.0

1.5

1.0

0.5

01--__

1985·

Port of Portland1990 1995

Exhibit 69 on the following page;presents a moderateprojection that is based on Oregon either recapturing400,000 tons of nearby cargo that now moves via Puget Soundports by 1990 (and then growing that base also at fivepercent annually) or growing at an annual rate of sevenpercent until 1995 and thus reflecting the mid-point ofPMA's projections.

86

EXHIBIT 69~oderate Containerized Ca:go Projections

For Oregon Ports

1995

2.2MILLION

EXPECTED GROWTH OFEXISTING TONNAGE

POTENTIAL NEW TONNAGE

1985' 1990

Booz, Allen & Hamilton

1\~!:\\iI~:\\\j~:~:\\\\1 EXISTING TONNAGE

~

•2500

1500

2000

3000

500

OL--__

3500

4000

~gli:oillII.o~o:3iii 1,000

Source:

An optimistic scenario could include the following setof assumptions:

Pacific Northwest ports would increase theirshare of total West Coast containerized cargofrom 30 percent to 40 percent by 1985. Thus, theregion would handle nearly 38 million revenuetons by 1995.24

Oregon ports would maintain their ten percentshare of PNW containerized cargo held in 1985 orwould handle 3.8 million tons of U.S. imports andexports moving in containers by 1995

The efficiency of the U.S. intermodal transportsystem (resulting from double stack trains and afourth generation marine terminal) is costeffective enough to attract 50 percent of thecontainerized cargo market between Europe and

24 The Pacific Northwest ports handled 16.8 million revenuetons in 1985. The 38 million tons by 1995 reflects anannual growth rate of 8.5 percent.

87

the Far East. The Europe/Far East market is a 14million ton market that currently moves via theSuez Canal or the Transsiberian Railroad. Thiswould add seven million tons of new business toboth O.S. coasts as the O.S. land mass is used asan alternative route.

Because this is totally new business, oceancarriers would be seeking additional facilitiesto handle this cargo. If Oregon were to capture20 percent of this business, it would representan additional 1.4 million tons.

While this is admittedly an optimistic scenario, thiswould result in a total volume of 5.2 million revenue tonsof containerized cargo by 1995.

This scenario assumes that these events would occurbetween the 1990 and 1995 time frame, and thus would notchange the moderate demand estimate for 1990.

Exhibit 70 compares the demand projections under thesescenarios with the capacity of the Port of Portland'sTerminal Six.

EXHIBIT 70Supply and Demand Comparison of

Containerized Cargo in Oregon

1185

OPTIMISTIC..... DEMAND SCENARIO

MODERATE..... DEMAND SCENARIO

CONSERVATIVE.- DEMAND -$CENARIO

19'0·

o FACILITY CAPACITY

lSI CONTAINERIZED CARGO DEMAND

5250

15000

3000

(I) 27$0e 25002250

~ 2000! 17501500

12501000

750500250

o L..._.L..C-

-ASSUMES 20% OF T·2 CAPACITY WILL BE USED FOR CONTAINERS, INCREASINGCAPACITY BY 150.000 TONS

Source: Booz, Allen & Hamilton, Port of Portland

88

The capacity estimate used in Exhibit 70 assumes thatthe existing capacity of Terminal Six at Portland isapproximately 1.75 million tons per year.

Using Exhibit 70 as a guide, the State of Oregon wouldrequire:

Up to one new container berth by 1995 under theconservative scenario

Between one and two new container berths by 1995under the moderate scenario.

Between four and five new container berths by1995 under the optimistic scenario.

The optimistic scenario has significant policyimplications as it suggest a need for a facility that isconsiderably larger than the eXisting Terminal Six. Theinvestment in marine terminal facilities alone could exceed$200 million.

(4) The Location Of A New Container Facility In OregonCould Have Serious Competitive Implications onExisting Facilities

In the event that the state elects to adapt anaggressive container facility development strategy, the

. issue of terminal location needs to be addressed. Thecontainer shipping system is capital intensive both forland side and marine assets. The daily charge (per diem)of a first generation container ship in the early 1970'swas probably less than $10,000. Today the very large thirdgeneration container ship have per diems in excess of$50,000. Thus, they are very sensitive to transit time. Atime worn debate has centered around the location ofcontainer terminals and the economics associated withTidewater versus up river location. This issue is exploredin the following sections.

1. Container Facilities at Tide water Ports HaveExperienced More Growth in Recent Years Than HaveTerminals Requiring Additional Transit Time

The deregulation of ocean shipping since 1984 hascaused a rationalization or consolidation of oceancarriers. This consolidation impacts ports as well,as the carriers tend to focus on fewer ports. Oceantransit time, while not the only factor, is a majorfactorbehind port consolidation decisions. On theEast coast, there has been an apparent trend toconsolidate at Tidewater, rather than at up riverlocations. Exhibit 71 compares growth trends of theTidewater ports of Hampton Roads, Charleston, and

89

Savannah with the more inland ports of Philadelphiaand Baltimore.

EXHIBIT 71Container Tonnage At

Five Atlantic Coast Ports(in Millions of Tons)

Philadelphia BaltimoreYear Tidewater Ports

Hampton Roads Savannah CharlestonInland Ports

1980 2.0 1.4 1.8 1.2 4.61981 1.9 1.5 1.7 1.2 4.41982 1.7 1.5 1.9 1.3 4.31983 1.9 2.0 2.5 1.1 4.71984 2.2 2.6 2.8 1.4 5.51985 3.0 3.3 2.9 1.3 5.1

CAGR80-85 8.4% 18.7% 10.0% 1.6% 2.1%81-84 5.0% 20.1% 18.1% 5.3% 7.782-85 20.8% 30.0% 15.1% 0.0% 5.0%

Source: Maryland Port Administration

In the Gulf it appears that the containerterminal in Houston (approximately 20 miles up toHouston ship channel) has also grown faster than thecontainer facilities in New Orleans (approximately 100miles up the Mississippi River).

Additional study will be required to analyzeother reasons that are causal factors behind thesedifferent growth rates, but it appears that locationon the waterway has become an important factor overthe past two years.

2. A New Container Facility Constructed At or NearThe Mouth of The Columbia river Would ProbablyCompete More With The Port of Portland Than WithPuget Sound Ports

Under the high scenario, it is likely that Oregonwould require an additional four to five container

90

berths. In oraer to understand the economicimplications of alternative locations of thistacility, it is necessary to develop a model toevaluate a new facility at Portland or at a newdownriver site; say Astoria. For comparativepurposes, the economics of a new facility in PugetSound was also evaluated. The evaluation is driven byfour factors.

The location of shippers and consigneesOcean transit time and costInland transportation costsTerminal related costs.

Concerning shipper and consignee location, asurvey was conducted of several large container linesto determine the location of shippers and consigneesserved via Puget Sound Ports. The survey results arepresented in Exhibit 72.

EXHIBIT 72Location of Shippers and ConsigneesServed by Carriers at Puget Sound

(In Percent of Total)

Percent of Shippers and Consianees LocationEastern

The Pacific Western Eastern UnitedDirection Northwest Canada Canada States

Eastbound( imports) 16% 7% 13% 64%

Westbound(exports) 72% 6% 4% 18%

Source: Propriety

From the exhibit it is clear that inlandtransport costs are very important for imports andperhaps less so for exports.

The next step is to determine the (ocean only)cost characteristics. The cost implications, of eachof the port alternatives are illustrated on thefollowing page in Exhibit 73.

91

EXHIBIT 73Ocean Transportation CostBetween The Far East andPacific Northwest Ports

ROUTE TOTAl VOYAGEcosr'

COST OF ALTERNATIVEfTINERARIES

85 NAUTICAl MILES22 HOURS'

$ 19,425 PER DIEM COST

oPORTLAND

$ 210,433$ 208,467$ 221,243

ASAC·AD···

PUGETSOUNDB

c

LOWERCOLUMBIA

RIVER

4505 NAUTICAl MILES212 HOURS·

$ 23,600 PER DIEM

A

FAR EAST

• SAILINGllME INCLUDES 112 DAY IN PORT OF DESllNAllON FOR CARGO HANDUNG•• TOTAl VOYAGE COST IS FOR THE VESSEL ONLY, DOES NOT INCLUDE PORT AND STEVEDORING CHARGES~. THIS IS DIRECT SERVICE BETWEEN A AND DWITH NO STOP AT C ALSO THE VOYAGE BETWEEN C AND D

IS AT A SLOWER SPEED TO AlJ,.OW FOR A 10~OUR SAlLII>IG llME

Source: BOOZ, Allen & Hamilton Shipping Cost Model

Clearly the route labeled AC (to the mouth of thecolumbia) is the lowest cost route, but onlymarginally so over the Puget Sound route.

The next step is to estimate inland transportcosts. It was determined not to use rail or truckrates as they reflect only a short term competitiveenvironment. Consequently, a rail cost model wasdeveloped. Port costs were based on existing terminaland Stevedoring experience in Puget Sound andPortland. For convenience purposes, the portassociated costs at the Astoria terminal were assumedto be equal to that in Portland.

On the following page, Exhibit 74 identifies thekey cost elements of the three alternatives.

92

EXHIBIT 74Through Transportation Cost

Elements for Marine Containers(In Dollars Per Forty Foot Equivalent Unit [FEU])

ROUTING OCEAN COSTS 1 PORT COSTS INLAND COSTSLOCAL W. CANADA E. CANADA E. U.S.A.

FAR EAST TOPUGET SOUND

FAR EAST TOPORTLAND

FAR EAST TOASTORIA

$352

$372

$349

$125

$135

$139

$ 50 $252

$ 50 $345

$100 2 $389

$1.695

$1.725

$1.773

$1.731

$1.763

$1.816

1 The ocean costs per FEU uses the total voyage cost fromExhibit 73, adds pilotage costs, and assumes 80 percenttwo-way utilization of a 750 FEU vessel.

2 In that Astoria has no significant local market, anadditional charge to serve the Portland market was added.

Source: BOOZ, Allen Shipping Cost Model

A weighed average transportation cost based onthe distribution of shipper and consignee location(from Exhibit 72) indicates that:

The total cost via Puget Sound is $1,376 perFEU

The total cost via Portland is $1,428 per FEU

The total cost via Astoria is $1,455 per FEU.

These costs' should be evaluated with theknowledge that no capital charges were applied to anyof the three alternatives. Further, the costsreflected different rail costs from each inlandlocation to each port.

In the event that an ocean carrier moves to a newterminal at the mouth of the Columbia River andsecures equalized rail rates to that terminal(compared to Puget Sound and Portland) it would belogical to conclude that the economics of the terminalwould be similar to that at Puget Sound and perhaps an

93

improvement over Portland. In that event, Portlandwould be more negatively impacted than Puget Sound bya new terminal at the mouth of the Columbia River.

The impact would be more negative to Portland because:

A down river terminal with door to door costcharacteristics equivalent to Puget Sound wouldprobably be characterized by a lower cost servicethan would be available at Portland (because themarine related costs would be higher)

The objective of the down river facility would beto offer services and incentives to carriers thatare entrenched at Puget Sound. It would bedifficult to avoid attracting ocean carriers thathad been calling Terminal 6 at Portland as thesecarriers would be less integrated into a Portlandservice than those in Puget Sound are tied toSeattle and Tacoma.

To summarize this section:

• Under certain optimistic conditions, Oregon wouldhave the opportunity to add four to five newberths which represents a larger terminal thanexists at Terminal Six in Portland

Which raises the question as to the appropriatelocation of the facility

History and the recent trend toward loadcenter ports suggests that building theterminal at Portland could result in Oregonnot realizing the potential suggested by theoptimistic scenario

constructing the facility at or near Astoriawould appear not to measurably improveOregon's economic position vis a vis pugetSound on a total transportation cost basis

However if a major carrier supported theterminal and were granted equalized railrates, then the terminal could represent aviable alternative to the Puget Sound Ports

But would probably place the containerterminal at Portland at a furthercompetitive disadvantage.

94

It should be understood that this facility iswarranted only by the optimistic market conditions setforth earlier. The likelihood of this occurrence isunknown, but the state should monitor internationalintermodel developments particularly as they relate tothe trade between Europe and the Far East. Further,the cost of the facility (which will be addressed inChapter VI) will be very high. Conversely, a new downriver facility will provide advantages even greaterthan those associated with attracting a load centercontainer carrier. These relate to the size of theocean going vessel of the twenty first Century,particularly under the navigation improvementlegislation approved by Congress in October, 1986. Inan age of non-Panamax container and non containervessels, a down river location offers navigation,safety and economic advantages over up riverlocations, assuming other factors and conditions areequal between the down river and up river sites.

5. THE ONLY POTENTIAL FOR OREGON PORTS TO PENETRATE THE LONGERDISTANCE, LARGE VOLUME GENERAL CARGO IS TO ASSIST IN THEDEVELOPMENT OF TWO WAY CONTINUOUS RAIL MOVEMENTS

A number of commodities are not well suited tocontainerization. Examples are iron and steel products andsome forest products. An area of potential growth for Oregon'sports is to participate in the handling of those commoditiesthat move significant distances inland. This assumes that theU.S. trading partner is located in the Pacific rim. Theprincipal competition for these movements are the Gulf costports such as Houston and New Orleans, rather than other Westcost ports.

As shown in Exhibit 75, Oregon has a substantial ocean costadvantage, but a more significant inland transportation costdisadvantage.

EXHIBIT 75Through Transportation Cost For A

Consignment of Steel ProductsJapan to Chicago

(In Dollars Per Metric Ton)

StevedoringOcean Transport and Terminal Inland Total

Via The Port of Costs Cost Cost Cost

Houston ~21 ~16 t35 ~72Portland 10 23 60 93

Source: BooZ, Allen & Hamilton Shipping Cost Model

95

The difference shown in Exhibit 75 is significant. Twoadditional factors tend to further improve the competitingposition of the Gulf ports:

The inland costs used in the exhibit reflects railrates. Barge rates are even cheaper particularly whenNew Orleans is used as the Port of entry.

The West Gulf Maritime Association has recentlynegotiated a collective bargaining agreement with theGulf and South Atlantic section of the InternationalLongshoremen's Association lILA). The effect of thisagreement should be to reduce stevedoring and terminalcosts a further $.50 per ton after October 1, 1986.

Oregon on the other hand, has considerable leverage withinland transport costs. The $60 inland cost reflected inExhibit 75 reflects no significant backhaul cargo. The natureof cargo either exported or imported via Oregon's ports orproduced in Oregon for domestic shipment suggest an opportunityto reduce total transportation costs by generatingcomplimentary backhaul cargoes. Examples include:

The import of automobiles via Portland. Thisentails over 100 ship calls per year. Most shipsreturn to their loading areas empty.

Forest products shipped east and south east fromsouthwest Oregon via rail. These rail carsreturn empty.

The most immediate opportunity for Oregon's ports isthe potential to penetrate a share of the midwest iron andsteel market. Currently 500,000 tons of coiled steel isshipped from Japan to the U.S. midwest automotive industry.Gulf coast ports are used and both rail and bargetransportation are used for on carriage to the midwest.

It is necessary to secure a complimentary backhaul ofeither domestic cargo destined for the Pacific Northwest orexport agricultural commodities that could employ the samerail cars that would move the steel, autos or domesticlumber to the midwest.

6. THERE IS LITTLE POTENTIAL TO INCREASE THE MOVEMENT OFGOVERNMENT SPONSORED CARGO VIA OREGON'S PORTS

The government sponsored market includes commodities thatare shipped or underwritten by the U.S. Government. Twosegments of this market have potential applicability to Oregonsports:

Bagged agricultural commodities shipped under theauspices of Public Law 480Military cargo.

96

Exhibit 76 presents a seven year history of public law 480,cargo that is shipped via u.s. Gulf and West coast ports.

EXHIBIT 76Title II Exports Via

The u.s. Gulf Coast and West Coast(1,000 Metric Tons)

12624%

1980

14%

1074

16%

1979

1101

DpNW PORTS

l&mw;1 CALIFORNIA PORTS 1816

~EAST GULF

IIIWEST GULF

2,000

1,800

1,600

1,400

en 1,200z0...9 1,000a:...w::!

800

~0e 600

400

200

Source: USDA

The exhibit shows the loss in market share by PacificNorthwest ports over the past several years. Port selection isdriven by a complex pricing formula that is heavily influencedby inland transport costs. Consequently proximity to the millslocation is important. The major mills are located in Iowa,Minnesota, Arkansas, and Kansas or points closer to Gulf andGreat Lakes Ports.

what little volume Oregon Ports previously handled hasvirtually vanished over the past several years. This is shownin Exhibit 77.

EXHIBIT 77Title II Bagged Agricultural Exports

Via Pacific Northwest PortsBetween 1978 and 1985

1878 1980 1981 1882 1983 U84 1985PACIFIC NORTHWESTPORT TONS SHARE TONS SHARE TONS SHARE TONS SHARE rONS SHARE TONS SHARE TONS SHARE

PORTL.AND 16,446 ... 18,SGe " .. 16,446 14.. 5,008 ... 2,699 ,.. 1,652: ... 39' ,..VANCOUVER/LONGVIEW 5,G4S ,.. 3,au ,.. 1,2125 ,.. • 0 • ·0.% 1,14' ,.. '55 ,.. • 0 • ·O·'lfoPUGET SOUND 15l5,871 ".. 133,178 .... 96,739 ".. 52,IU " .. 42,096 " .. 44,446 ".. 136,728 ....TOTAL 177,970 177,970 114,1415 57,181 45,936 45,936 177,no

Source: U.S.D.A.97

Oregon's potential to recover market share in this marketwill be based on it's ability to invest in the "automated"agribusiness facility referred to earlier in section two ofthis chapter or their ability to coordinate rail servicehandling domestic wood products shipments from Southwest Oregonto the midwest and perhaps ship bagged Title II products inreturn using the same rail equipment.

Similarly military shipments represent limited or noopportunities for Oregon ports. Exhibit 78 shows that whilemilitary shipments via West coast ports have grown over thepast several years, there has been no growth in shipments viaPacific Northwest ports.

EXHIBIT 78Military Shipments (Outbound) Moving

Via West Coast PortsSince 1981

3000

2000 1885..zgu.0

~Q

e1000

2109 21512217

2293

o WEST COAST EXPORTS

m PACIFIC NORTHWESTIII EXPORTS

350414

~.0

Wili.W4~~

1981 1982 1983 1984 1985

Source: Military Sealift Command

The exhibit also shows that:

More than 80 percent of the West coast exports movevia California ports due primarily to the militaryconsolidation center located in Oakland

All of the military cargo moving via the Pacificnorthwest ports are shipped via Puget Sound ports dueto:

98

The transportation links between Seattle/Tacomaand Alaska. Nearly 60 percent of PNW shipmentsare destined for Alaska. (The balance aredestined for Japan, Korea, and the Phi11ipines).

The availability of U.S. flag service at thePuget Sound Ports

The location of a military distribution center inSeattle.

Lacking the nearby location of a military depot ordistribution center as well as U.S. Flag ocean carrier service,Oregon's potential in this market is severely limited.

7. OREGON'S PORTS HAVE ENJOYED RECENT SUCCESS IN THE SHIPREPAIR AND OIL MODULE CONSTRUCTION MARKETS. CHANGES BOTHIN MARKET CONDITIONS AND GOVERNMENT POLICY COULD JEOPARDIZEOREGON'S POSITION IN THESE MARKETS.

The State of Oregon has an unusual role in the shipwork andmarine construction sectors in that public agencies ownshipwork assets. The Port of Portland is the beneficial ownerof the Swan Island Shipyard on the Wi11amette River.Currently, three private contractors operate at this facility.

Northwest marine specializes in both commercial andgovernment conversion and repair

Dillingham focus is primarily on commercial shipconversion and repair

Lockport (an affiliate of Lockheed) specializes inGovernment related conversion and repair work.

While these firms specialize in specific markets, there isno prohibition from participating in other market segments.The Port of Portland receives user fees for any ship workactivities at its facilities.

The Port of Coos Bay owns a 1,000 ton dock that is used forthe repair of smaller craft - mostly fishing boats. Theoperator of the facility, Midcoast Marine, as well as the Portof Coos Bay, is interested in expanding ship work activity inCoos Bay. By the end of 1986, Coos Bay expects to operate asecond larger dry dock. Until 1985, no other ports in theUnited states owned shipwork faci1ities. 25

25 In late 1985, the Massachusetts Port Authority purchasedat auction, the former Bethlehem East Boston Ship RepairFacility.

99

•

In this section, the analysis of opportunities andconstraints in the shipwork and marine construction sectors isorganized as follows:

First, the navy shipwork market is analyzedSecond, commercial opportunities are identifiedThird, marine construction opportunities are identified

Each of these is elaborated upon further below.

(1) Oregon's Success in The Navy Market will Depend on TheIndustries' Ability to Be Price Competitive and TheState's Ability to Promote Navy Policies That EnhanceThe Competitive Position of Oregon's Shipyards

From Oregon's perspective (and principally, the Portof portland), the relevant government market includes;

Repair and overhaul of naval vessels which at anational level is projected to be a $6.4 billionmarket during FY 87

• Conversion of naval vessels which representroughly a $1 billion market per year for the nextthree years

• Construction of small craft which represents anannual market of between $100 and $200 million.

The Coast Guard, Military Sealift Command, and theU.S. Maritime Administration conversion and repair marketalso represent smaller elements of a government marketdominated by Navy work.

By far, the largest market is the repair and overhaulmarket. The rules are changing in this market and some keyterms and definitions are necessary for the reader tounderstand the implications of these changes.

Regular Overhauls (ROHS) - Which includemiscellaneous alterations, repairs, drydocking,and modernization projects. The overhauls rangein duration from 8 to 12 months, with shipyardcosts ranging between $10 and $50 million pership. These are generally available to allshipyards on a specific coast. However,interport cost differentials may be required tobe included in bids from shipyards not within ornear homeport area.

100

Selected Restricted Availabilities (SRAS) - Whichinclude miscellaneous repairs and modernizationwork performed pier side. The availabilitiesusually last 2 to 4 months and range in cost upto $15 million. These work efforts are oftenperformed in Navy home port areas and are servedby both government and private repair yards.

Phased-Maintenance Availabilities (PMAs) - whichinclude planning support and miscellaneousrepairs and modernization work performed pierside. The availabilities are usually performedas part of mUltiship phased-maintenanceprograms. They usually last 2 to 4 months, rangeup to $8 million in cost, and sometimes involvedrydockings. These availabilities are performedat shipyards, nearly always within the home portarea.

Restricted Availabilities (RAs) or TechnicalAvailabilities (TAs) - Which involve neededunscheduled repairs. The duration and cost ofthese availabilities vary considerably dependingon the nature of the work.

The Navy has adapted a policy to replace the longerterm ROH's with more frequent SRA's and PMA's. The essenceof this policy is shown in Exhibit 79 which identifies workdurations as well as intervals between work periods under"both the old and new approaches to navy ship repair.

10-14 MO.

EXHIBIT 79Typical Maintenance Cycles

CURRENT

COMBATANTS I37 MONTHS 37 MONTHS

PREVIOUS ,.-----...;;.;.===------.1[ fR~(OJIHH r----------...;.....1-_';;:8_-1;;:9..::M::.:O;;;N~TH;;;S::--(-::!,5R~A:r --Qi5RA::::===-- -r~DH~

..: I ROH

AUX/AMPHIB.

PREVIOUS48 MONTHS

7-8 MONTHS

ROH I4 MONTHS

CURRENT L.:.::12~M;;;O:::.N~T~HS=....( I I,.. PMA:>_---<!Z-~M~A>----<_~PM~A:>_-----_il DSRA

I I I

12 24 36

MONTHS

48 60

This policy shift tends to work toward the advantageof home port areas such as, San Diego and San Pedro, and tothe disadvantage of non-home port areas such as the Oregon

101

ports. Exhibit 80 identifies the principal home port ofthe navy's West coast based fleet.

EXHIBIT 80Home Port Fleets

(Numbers of Ships)

NAVSEASource:

Homeport Area

Vessel'l'ype San Diego Long Beach San Francisco Portland Seattle

SSBN/SSN 21 0 4 0 8CV/CVN 3 0 2 0 0G-Ships (DDG,

FFG, etc) 35 19 2 0 0Combatants 26 4 0 0 0Auxiliaries 15 6 16 0 7

Amphibious 22 7 0 0 0- - -122 36 24 0 15

,

The exhibit shows no Navy vessels are home ported inOregon and underscores Oregon's disadvantage.Nevertheless, Oregon yards can compete for coast wiserepair and overhaul work. Exhibit 81 identifies the ROHwork planned for the period FY 87, to FY 90 (along with theplan for FY 86 for comparative purposes).

EXHIBIT 81Heavy Coastwide ROH Work

FY '86 - E'Y' 90

FY 86 FY 87 FY 88 FY 89 FY 90

AE 29 AOE 1 AD 37 AFDM 14 AD 42ARD 30 ARS 39 ARS 38 ARD 30 ASR 9ASR 9 DD 964 ARS 40 DD 973 FF 1041DD 985 DD 965 DD 967 LKA 114 FF 1055DD 986 DD 966 FF 1037 LKA 115DD 990 DD 991 FF 1065 MSO 427E'F 1053 DD 992 LSD 36LPD 6 FF 1050LPD 7 LPD 2LPH 10 MSO 489LSD 40MSO 427MSO 464

Source: NAVSEA

102

The exhibit suggests that the ROH work is shrinking atleast when compared to the volume let during FY 86 (whenNorthwest Marine won the PD6 and DD985 overhauls).26 Thecompetition for this shrinking work load is intense.Exhibit 82 indicates that 17 private shipyards compete forthis work as well as the naval shipyards at puget Sound andLong Beach.

EXHIBIT 82West Coast Shipyards

Specializing in the Navy Repair Industry(By Port)

! Amphibious, Aux.Nuclear Combatants & Service

Shipyard ROH SRA ROH SRA ROH SRA/PMA

Northwest

Lockheed/Lockport - - • - • -Todd - - • - • •Northwest Marine - - • - • -

San Francisco

CMSF - • - - • •TODD - - - - • •AAA - • - - • •Service Engineer - - - - • •SWM - - - - • •Long Beach

TODD - - • • • -SWM - - • • • •

San Diego

CMSD - - • • • •NASSCO - - • • • •SWM - - • • • •AAA - - - - • •Arcweld - - - - • •Campbell - - - • - -RMI - - • • • -

Source: Booz, Allen & Ham~lton Inc.

26 Exhibit 81 should be evaluated with an understanding thatthe workload projected for 1990 probably understates thatwork that will occur in that year. As the planningprocess progresses toward 1990, additional work willprobably be identified for that year. For the same reasonthe work load for 1986 is probably not understated.

103

Source:

Exhibit 82 also indicates a lack of competition in thenuclear submarine overhaul category and suggests apotential opportunity for one or more West coast privateyaros.

The Oregon yaros could also compete for conversions oflarge vessels and construction of small navy craft. Overthe next three years, the following major conversion arescheduled:

One carrier service life extension program @ $900millionOne battleship reactivation @ $500 millionSeven LPD service life expansions @ $2.1 billionThree AO jumboizations @ $20 millionPerhaps one additional crane ship conversion @$20 million.

In addition, as shown in Exhibit 83, the Navy plans tospend over $700 million over a five-year period buildingsmall craft.

EXHIBIT 83Planned Navy Small Craft Program Spending

(In Millions of Dollars)

F'ive. Year

Vessel Type FY 86 FY 87 FY 88 FY 89 FY 90 'l.'otal

Landing Craft $ 34.4 $ 62.4 $ 64.5 $ 33.6 $ 47.2 $242.1Service Craft 37.7 84.0 87.3 89.3 140.3 480.6

'I'otal 113.9 146.4 151.8 123.1 187.5 722.7

NAVSEA

Competition for conversion and small craftconstruction will be between a number of national shipyardsrather than simply on a coast wide basis. Exhibit 84 onthe following page identifies the shipyards that areinterested in these segments of the market.

104

EXHIBIT 84Yards Competing for Conversion of

Large Naval Vessels and Construction ofSpecialty/Smaller Craft

SHIPWORKtil .... -Ii:0: tilW ::> < ><> til 0 > (j ... 0:

SHIPYARDS til 0 w iii0: 0: .... u... 0: ... < w :!i ....:c ... < :c ::i ::e u ....

til til " ... >< ::e w<.; w i:C ::e ::> 0 ... ::e

Q II. < < U til til

BATH IRON • 0 0 0 0 0 ·INGALLS • 0 0 • 0 0 ·TODD (SEATTLE AND SAN PEDRO) • · 0 · • 0 0

LOCKHEED · · 0 • 0 0 •AVONDALE · · 0 • • 0 ·NASSCO · · · 0 • • ·QUINCY' · · · 0 • 0 ·BETHSHIP (SPARROWS POINn · · · · • 0 ·PENNSHIP · · · · • 0 ·BAY SHIPBUILLDING · · · · • • ·TACOMA · · · · • • •TODD (GALVESTON) · · · · • 0 ·NORSHIPCO · · · · · • ·TAMPA · · · · • 0 ·ALABAMA · · · · · • ·

BELL·HALTER · · · · · · •DIRECTOR · · · · · · •EASTERN MARINE · · · · · · •HALTER MARINE · · · · · · •MARINETTA · · · · · · •MARINE POWER AND EQUIPMENT · · · · · · •PETERSON · · · · · · •SWIFT SHIP · · · · · · •HAS GONE OUT OF BUSINESS

o • ACTIVE PROGRAMSCURRENTLY UNDERWAY

105

•• WORK PREViOUSLYACCOMPLISHED BY

SHIPYARD

public investment in shipyard facilities in Oregon issubstantial. For that reason, both the ports of Portland,and Coos Bay, as well as the state of Oregon, must bekeenly aware of, and then attempt to influence thosefactors that could determine the yards' success in the navyship market.

First Oregon's wage rates are marginally competitive.Exhibit 85 compares the range of shipyard hourly wage ratesin Oregon with those at other yards.

EXHIBIT 85Hourly Production Labor Rates

At Selected Locations(Private Shipyards)

$13·14 ~.;-----------............,

$13-14

Source: BOOZ, Allen and Hamilton Inc.

The hourly rates in the North Pacific ports are notcompetitive with East and Gulf coast yards, and aresomewhat disadvantaged to yards in Southern California.The need to add interport differentials on bids fornon-home port vessels (meaning nearly all bids in Oregon'scase), further exacerbates Oregon's price differential. Inorder for Oregon's yards to effectively compete withshipyards in home port areas, labor costs in Oregon wouldhave to be significantly less than those experienced by theshipyards based in the home ports.

106

While price will be a major (and perhaps overriding)factor in determining future work allocation, Oregon muststrive to influence as many non-cost considerations aspossible. Specifically:

Oregon should continue to attempt to bedesignated as home port for as many naval reserveand Coast Guard vessels as possible. Further,the State should support the Navy's plans to homeport a carrier group in Everett, Washington,provided Oregon's yards have equal access to therepair of these vessels on an equal basis withpuget Sound shipyards. 27

The State should continue to work to eliminateinterport differentials

Oregon should continue to support the shift toperforming repairs in private, rather than navalshipyards. Over the past several years this hasshifted from a 60 to 70 percent advantage fornaval shipyards to a more even 50/50 split.

The State should continue to support thegovernments policy of small business set asides.As indicated in Exhibit 86, they have worked tothe advantage of the smaller West Coast yardsover the past several years.

EXHIBIT 86Percentage of Small Business Set Asides

on Navy Repair Work During1981 and 1985

All Overhauls SRA's OnlvCoastal Range 1981 1985 1981 1985

East Coast 13% 17% 0% 16%

West Coast 12% 54% 1% 64%

27 Recently, Secretaries Dole and Lehman have designatedPortland as being in the home port area for Coast Guardand Navy vessels based in Puget Sound, thus makingPortland shipyards eligible to bid on repair contracts.

107

These imperatives suggest that Oregon maintain astrong presence and representation in Washington tocarefully monitor Navy shipwork policy and assist with thedevelopment of action and resource plans by the State.

In the next section of this chapter, the commercial shipmarket is treated.

(2) The Commercial Repair Potential of Oregon's Shipyards,Is Limited By Federal Policy That Has Been DetrimentalTo The U.S. Shipwork Industry

Government policy over the past five or six years hasdecoupled the longstanding relationship between defensereadiness and the maintenance of a strong merchant marine.Construction subsidy programs were discountinued in 1981and U.S. owners have been authorized to purchase vesselsoversees. Even the Military Sealift Command has been buyingsecond hand vessels abroad. The most recent blow has beenaction by the Senate Armed Services Committee to cut a $895million commercial build and charter program from thedefense budget. Consequently, the U.S. commercial shipconstruction market has all but disappeared.

The impact on the repair sector is certainly not asdirect, but over the long run, this sector should declineas it is almost totally dependent upon a declining U.S.flag merchant fleet. The commercial repair opportunitiesavailable to Oregon's ports are limited to:

Fleets of probably smaller vessels that are homeported at, or near Oregon ports. These wouldinclude processing or industrial fleets.

Fleets that regularly trade into or by theColumbia River or Oregon coast as part of acontinuing, long term itinerary.

While there have been several recent opportunities inthe first category, there are no strong near term prospectsin the second category, involving the trading fleets. Thecategory consists of three different segments.

The first segment includes foreign registeredcommercial ships that call at Columbia Riverports. Due to the availability of lower cost,foreign repair yards on the other end of theiritineraries, these operators would not normallyschedule planned maintenance or surveys in a U.S.yard. Consequently, Oregon's yards could onlyserve this segment for occasional emergencyvoyage repairs which from a planning perspective,is not significant

108

The second segment includes the cruise lines thatserve the Alaska trade from Pacific Northwestports. Eleven operators operate 23 vessels inthis market on a seasonal basis. All but one areforeign flag and consequently, most operate outof Vancouver, British Columbia to avoid u.s.cabotage laws. Ships in this segment schedulemajor repairs either every year, or every secondyear, and employ shipyards that are near theirtrade area. Unfortunately, most of these shipsserve a second or third itinerary that areconvenient to lower cost shipyards than those inthe Pacific Northwest. Consequently, Oregon'spotential here is with a limited set of cruiseoperators (one or two) where a strong, continuingrelationship can be developed. This wouldprobably result in less than two or three repairsper year, of less than ten days duration, andthus represents a small market.

The tanker trade between Prudhoe Bay, Alaska andmainland destinations. This has been a naturalmarket for the Swan Island facility for threereasons:

The vessels (with the exception of thoseserving the virgin Islands) must be U.S.registered and thus are required to performrepairs in the United States

The route is dedicated to U.S. ports.Portland is well positioned relative toevery tanker transit (while other U.S. yardsmay be on or near the route for only afraction of the transits). Portland isparticularly well positioned for those shipswith Pacific Northwest destinations whichrepresented 25 percent of the 871 transitsby tankers transporting the Alaska Northslope crude during 1985.

The new drydock in Portland is unique inthat is was purpose built for the VLCC'sthat are customary for this trade. Theopening of the Trans panama Pipelineincreased the use of such large size crudecarriers.

As shown on the following page in Exhibit 87,this market has been growing at about 7% per year interms of overall transits, and should represent acontinuing opportunity for Portland until the Northslope oil resources begin to be depleated.

109

EXHIBIT 87Tanker Transits From Valdez

To Lower 48 Markets

,Year Number of Tansists Percent Increase

1978 542 ---1979 621 14.6%1980 637 2.6%1981 653 2.5%1982 705 8.0%1983 749 6.2%

I 1984 859 14.7%I, 1985 871 1.4%II

Source: U.S. Maritime Administration

The only risk to Portland's position in thismarket is through periodic attempts by theadministration to allow the export of North slopecrude to Japan. If successful, the portion that wouldbe exported would be available to foreign flag vesselsand thus not likely to use a Portland facility forrepair services. The state of Oregon should monitorthis closely.

From the above, it is concluded that the commercialrepair market would represent an incremental and perhapsdeclining supplement to the far stronger navy market.

(3) Several Oregon Ports Are Well positioned To Serve TheOffshore Construction Market. The Strength of ThisMarket is Governed by Petroleum Prices

The ports of Astoria, Coos Bay, and Portland, havebeen active over the past several years in the constructionof modules or subassemblies for offshore oil and gasprocessing units. These have been used exclusively forpetroleum production fields off Alaska. Thus Oregon isstrategically located. The Port of St. Helens has joinedthe three ports to form the Oregon Ports Group, which is amarketing association supporting oil industry projects.Success in this market is driven by four factors.

Location relative to the end use point

A labor force receiving below union scale wages

Flexible work rules

110

supportive state and local government policies.

While the outlook for this market has not been strongdue to the decline in world petroleum prices. There are,nevertheless, several projects planned over the next yearor two. These are identified in Exhibit 88.

EXHIBIT 88Near Term Oil Module Projects

Number Estimated Job ImpactsProject Name of Modules Total Value Per Module

Eileen West End Project 1 $ 10 Million 300-500 Jobs(Prudhoe Bay)

Harmony & Heritage Topworks 2 $ 40 Million 800-1,000 Jobs(Offshore California)

Cominco Red Dog Kine 9 $100 Million 800-1,200 Jobs

The opportunities shown in Exhibit 88 could beexpected to be augmented by smaller projects should theprice of petroleum stabilize during the latter part of 1986or during 1987.

After 1990 the major project planned is the North Starproject by Amerada Hess. This multi billion dollar projectentails the fabrication and assembly of a 24,000 tonfacility that would require a work force of 10,000.

In this chapter potential opportunities for Oregon's portswere identified. The focus of the chapter was on internationaltransportation and marine industrial opportunities in keepingwith the Governor's directive to the task force, to considerways and means to improve Oregon's position in internationaltrade. Opportunities not directly involved with internationaltrade, such as recreational activities, were not specificallytreated.

The strategic implications of these opportunities aretreated in the next and final chapter of this report.

111

VI. ALTERNATIVE PORT DEVELOPMENT ANDMANAGEMENT STRATEGIES

VI. ALTERNATIVE PORT DEVELOPMENT ANDMANAGEMENT STRATEGIES

In the earlier chapters of the report, findings weredeveloped concerning the role of Oregon's ports in the contextof Oregon's overall international trade programs, key economicand financial characteristics of Oregon's 23 port districts,the economic and financial condition of competing ports inCalifornia and Washington, and lastly, the opportunities facingOregon's ports in the future.

In this chapter conclusions and recommendations aredeveloped and are based on the findings in each of the aboveareas. Due to the linkage between the previous findings andthese conclusions, it is useful to develop a short summary ofthe principal findings developed in the previous chapters. InChapter II, it was found that:

The State of Oregon is more dependent on internationaltrade than most other states in our country

The economy of the State is not well diversified, andfrom an international trade perspective, is overlyconcentrated among two or three commodities or tradesectors

• Except for the handling of marine containers, theState's ports have been able to meet the needs ofOregon's key import and export sectors

However, the state's ports are losing market share toports in California and Washington.

In Chapter III, the principal findings were:

The Port of Portland stands apart from the other 22Oregon ports in terms of facilities, cargo base,professional staff and financial position

The other traditional deepwater ports (Coos Bay,Newport and Astoria) have been in decline in terms oftrade levels. The facilities at Astoria and Newporthave been neglected and two of the three ports are inperilous financial condition.

The other Oregon ports are not involved ininternational trade, but are involved to varyingdegrees in industrial development and recreationalactivities

112

None of the Group II, III, and IV ports arefinancially self sufficient. Nearly all are poorlystaffed in terms of number or qualifications ofmanagement personnel

The Groups II, III, and IV ports will likely beincapable or coping with future financial, technical,and administrative requirements in light of emergingfederal programs and actions.

In Chapter IV, it was determined that the major ports inthe surrounding states are large, well financed and probablycapable of meeting the requirements of all of Oregon's exportsand imports although at some cost, should the Oregon portssystem prove incapable to meet the future international tradeneeds of the state.

In Chapter V, a number of potential opportunities forOregon's ports were evaluated.

The outlook for the export of agricultural commoditiesis flat. The existing capacity of the port system iswell in excess of potential future requirements.However, improved terminal handling technologies forboth bulk and bagged agricultural products couldsUbstantially improve the port's competitive position.

• The outlook for forest products is similarly flat •While the port system's capacity to handle futurecommerce is adequate, there is a need for improvedterminal handling techniques, and particularly forlogs. Also, the higher valued paper products areincreasingly moving in marine containers.

Imported automobiles have been a growing business atthe Port of Portland. If historical relationshipscontinue to hold, this business could continue to growat an annual rate of eight percent per year. However,the manufacturing strategy of foreign producers ischanging. By 1990, they will have the capacity toproduce 1.7 million units in the United States. Thiswill represent approximately 15 percent of domesticsales. Under one scenario, the volume of automobilesimported through Oregon ports could decline byone-third within four or five years. However, thesewill be replaced by over 50,000 marine containers ofautomobile parts being imported via West coast ports.

113

Oregon's ports handle only three percent ofcontainerized freight moving via West coast ports.This sector will continue to grow. At a minimum, oneadditional single berth container terminal will berequired. If the ports' facilities were aggressivelymarketed, the requirement for additional single berthterminals could approach five.

There is a major question as to where these terminalsshould be located. Location of a terminal furtherdown river may only be marginally competitive withPuget Sound ports, and depending on the magnitude ofrail improvements, would substantially compete withTerminal Six at Portland.

The opportunities in moving additional quantities ofbreakbulk cargo that originates in or are destined forareas beyond the state is limited. However, the useof ships (such as automobile carriers) and rail cars(carrying lumber eastward) in a backhaul (or two-way)service, could improve Oregon's potential in this area.

The opportunity to carry militarY cargo is limited bythe lack of government storage facilities in the stateand the availability of U.S. flag ocean carrierservice to Oregon's ports.

In a parallel study, a survey of shippers and receiversindicated that both Coos Bay, and Astoria had significant, orgood potential to develop further as international gateways(ports) or industrial sites. Most respondents believe thatNewport has substantially less potential as a port gateway orindustrial site. However, most respondents indicated a needfor improved highway or rail connections to these coastalareas. The net benefits of providing these improvements aremarginal. 28

A second study suggested the potential requirement foradditional port facilities on the Lower columbia River. Thesites that were evaluated and their associated developmentcosts include: 29

28 Coastal Ports Study by Phillips Cartner and Gordon FayAssociates

29 For additional information on the sites and the costestimates, refer to a report entitled "Lower ColumbiaRiver Assessment of Oregon Deep Draft Sites" by OgdenBeeman and Associates (Draft dated March, 1986)

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East AstoriaTongue PointLower WestportPort WestwardRainierHayden Island

36.5 million31.8 million2.3 million

13.0 million5.6 million

23.6 million

The principal findings referred to above are key to therecommendations forwarded in this chapter. The balance of thischapter is organized such, that the facilities development andfinancial implications of the previous key findings areidentified. This is an important step because the sUbsequentorganizational recommendations will be driven by whateverfinancial commitment the state chooses to make.

1. THE EXISTING SITUATION WITH OREGON'S PORTS REQUIRES THATTHE STATE HAVE AN EXPANDED ROLE IN PORT PLANNING ANDDEVELOPMENT ACTIVITIES. SUCH AN EXPANDED ROLE COULD TAKESEVERAL DIRECTIONS AND COULD RE UIRE AN INVESTMENT BY THEPRIVATE AND PUBLIC SECTOR OF OVER 250 MILLION OVER THENEXT TEN YEARS.

At this point, the State of Oregon is left with fourchoices.

It could chose to do nothing

It could elect a minimum level of involvement, whichwould provide financial support to ports in tenuousfinancial condition, as well as support deferredmaintenance on ports that have been previouslyidentified (in Chapter 777) as strategically importantports e.g., Astoria

It could act to moderately enhance the currentposition of Oregon's ports

It could elect to follow an aggressive developmentstrategy.

The first option appears impractical. It carriessubstantial risk of financial failure of several ports,deterioration of the tax position in certain counties and overthe long run, potential increased transportation costs, andthus reduced international trade volumes of major Oregonshippers and receivers. Thus, this option will not beconsidered further. The three remaining options are consideredon the following pages.

115

(1) The Minimum Involvement StrateOne-Time Public Investment of

A

This can be referred to as a banding wire strategy.It is designed to shore up the existing port system as itcurrently exists. No detailed cost estimates weredeveloped for this strategy, but for planning purposes, itwould include approximately:

$5 million to assist financially troubled ports.It is l,ikely that this amount would be in theform of a gift or grant with no payback provision.

$15 million to repair and maintain those portsthat have been cited as an economic goal of highpriority (ORS 777.065) and have fallen into astate of despair. This pertains principally toAstoria and Newport.

This strategy would perhaps not arrest the decline inmarket share and financial performance of the maritimeproperties of the Group I and II ports, and perhaps wouldonly represent a short term financial salvage of the GroupIII and IV ports. Whether these problems could be resolvedby the economic recovery of basic industries and worldtrade activity (or stated another way--market forces) isproblematical.

(2) A Strategy to Moderately Enhance The Current Positionof Ore on's Ports Could Re uire An Investment of AnAdditional 70 and 80 Million of Public and PrivateFun s

The essence of this strategy is to respond to theopportunities, but perhaps not the high scenarios,identified in Chapter V. In addition to the minimuminvestment strategy, this includes:

Incremental expansion of container facilities,probably at Terminal Six in Portland. This wouldrequire not less than one, nor more than two,berth expansions over the next ten years. Inthat infrastructure is already in place atTerminal Six, the estimate used for planningpurposes is approximately $50 million.

Development of an automated agribusiness facilitysimilar to that shown in Exhibit 48 in ChapterV. This should occur on the Lower Columbia (andagain probably at Portland); this has beenestimated at up to $20 million, and could likelybe underwritten with private funds.

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Development of improved forest products porthandling techniques. This could occur at acoastal port and should probably focus onimproved handling of dry logs. For planning~urposes, this investment is estimated at between~5-10 million, and could also be underwrittenwith private funds.

Depending on market conditions, these investments mayneed to be backed or guaranteed by the State of Oregon, butothers (port of portland, private industry) would beresponsible for capital recovery.

This strategy is designed to maintain (particularly inthe container sector) or moderately enhance Oregon'sposition in their principal international markets.

(3) An Aggressive Development Strategy Would Require TheAdditional EX enditure of Predominatel Public FundsTotallin 160 Million. Such An Investment Su estsThe Need For New Port Facilities, Probably in TheLower Columbia River.

This strategy would be in response to a goal to handleSUbstantially all of Oregon's containerized exports andimports as well as the development of a world scaleinternational transportation center. It is responsive tothe high container demand scenario set forth in Exhibit 70

. in Chapter V. It is highly speculative because, whilethere is little doubt that such additional capacity will berequired in the Pacific Northwest over the next ten years,transportation patterns are more developed to and at PugetSound, than via Oregon Ports. This strategy indicates adesire by the people of Oregon to develop containerizedcargo facilities on a scale approaching those in PugetSound and California. The strategy is high risk becausethere will be no short term financial payback, and even thelong term financial and socieconomic return would bedependent on factors beyond the control of the state ofOregon.

Specifically, in order to ensure success, the facilitywould have to attract one or more world class containershipping lines who in turn would require an inland (rail)pricing package comparable or equal to, other PacificNorthwest ports.

Under the high container scenario, a four of fiveberth facility would be required. This is larger than theexisting facility at Terminal Six.

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Should the state elect to pursue this strategy, thefacility should probably be located on the lower 50 milesof the Columbia River. Such a location is suggestedbecause the success of the project is entirely dependant onattracting a major ocean carrier. A strategy designed toreduce total cargo transit time is essential. A keyelement in this equation is the ocean carriers' transittime, particularly at a time when a third generationcontainer ship requires up to $50,000 per day to operate.The investment required to construct a three berth terminalat a down river location includes the following:

Approximately $35 million for new sitepreparation and development

Approximately $100 million for terminalconstruction and improvement

Approximately $25 million for railroadinfrastructure improvements.

An investment of this magnitude ($135 million net ofrail improvements) suggest that facility location is animportant factor. Further, as this is not an incrementalinvestment in container facilities (unlike the moderateenhancement strategy which is a single berth incrementalexpansion), there is little value, other than avoiding therail infrastructure improvements, to co-locating theterminal adjacent to Terminal Six in Portland.

In this section, several development scenarios weredescribed. In addition, the financial implications of eachscenario were identified. Benefits, which represent the otherside of the equation, cannot be estimated with any certainty,however, they would include:

Net transportation cost savings to shippers andreceivers

• Downstream industrial development stimulated by theport improvements

Creation of new jobs in sectors such as vessel agents,longshore activity, pilots, ship assist activities,banking, etc.

No precise estimates can be developed for the first twocategories. Concerning creation of new service jobs, Booz,Allen has developed a model that indicates that each onethousand tons of containerized cargo creates 1.15 new jobs inthe marine cargo, financial and other service sectors.Similarly, each thousand tons of breakbulk cargo creates 1.26new jobs in these sectors.

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Exhibit 89 compares the investment costs with the benefits(at least in terms of new service sector jobs) with eachscenario. It should be emphasized that these new jobs assumefull utilization of the capacity of each marine terminal.

EXHIBIT 89Benefit Cost Comparison of

Alternative Scenarios

4000

3150

3500

3250

3000

21$0

2$00

22S0 HUMBEROF JOBS

2000

1750

1500

1250

1000,..."...•

/UN _LION

",-usMODERATE

ENtiAHCEMENT

"',------------------,."............

.cos~'"CONfAltER

INVESTMENT OEWiLOPWENT

REQUUIEM:~E.::T:... ---::--t~--I{~~~

$100 MILLION

...

no MILLIONS

Booz, Allen forwards no recommendation concerning whichscenario or alternative is more appropriate for Oregon. Ourresponsibility rests in the identification and evaluation ofalternatives. Selection of the appropriate alternative is,more properly, the responsibility of the Governor and the Statelegislature.

2. THE STATE OF OREGON SHOULD UPGRADE AND EXPAND ITS SPAN OFINTEREST AND INFLUENCE OVER OREGON'S PORTS

In this final section of the report, the organizationalimplications of the findings and conclusions are presented. Inadvance of that it is well to present, in summary form, theorganizational imperatives suggested by previous findings aswell as a profile of existing port management resourcesavailable to the State. These are treated below:

(1) The Situation in Oregon Suggests A Need For A StrongerState Role In Port Matters

The situation existing in Oregon during 1986 andpresented in this report can be best described by asimplified illustration contrasting Oregon's ports marketshare position with their degree of financial selfsufficiency. This illustration is shown on the followingpage in Exhibit 90.

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EXHIBIT 90Port Situation Matrix

NEEDS TO BUYMARKET SHAREWITH RETAINED

EARNINGS

NliEDS ANANCIAL8UOOE'T1NG AND

SUPPORT SYSTEMSLOW

HIGH

DEGREE OFFINANCIAL

SELFSUFFICIENCY MEDIUM 1i1I1YYI161 ..+-_

HIGH MEDIUM LOW

MARKET SHARE

In the exhibit, a port or port system that is not ineither the low financial or low market share axis (meaningit is medium or better in each category), would requirelittle or no support or assistance. Each of the rectangleson the two low axis has a "needs assessment". Our view ofthe.c:urrent situation in Oregon suggest that Oregon's needslies in one of the three rectangles within the shaded areasin Exhibit 90.

There is, and will be, considerable debate as to whichof the three rectangles best describes Oregon's needs.This will be treated later - after a brief description ofthe port management and assistance resources currentlyavailable to the State.

(2) As Currently Structured, The State Is Not Able To MeetThe Current and Future Management, Technical, andFinancial Reguirements of the State's Port System

The State is not currently organized and staffed tomeet the requirements set forth in this report and outlinedin the previous exhibit. The Department of EconomicDevelopment (DED) is the state agency responsible formaritime and port matters. The DED organization chart ispresented in Exhibit 91.

The port division is responsible for statewidecoordination, planning, and research for Oregon's ports andport activities. The Division's activities incluaeresearch, direct loans, marketing, and technical assistanceas individual components of its overall program. TheDivision includes a permanent staff of three people, andfrom time to time, employs consultants for specialpurposes. The Division administers a revolving loan fund

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for the benefit of the public ports of Oregon. In the eightyear period between 1978 and 1985, the Division hasadministrated over ~8 million from this fund. Of this total,60 percent were adm~nistered to Groups III and IV ports withthe balance ($3.2 million) loaned to the Group II ports ofAstoria, Coos Bay, and Newport. The port of Portland haselected not to benefit from this fund.

The typical annual operating budget for the divisionis approximately $143,000 and it is funded by interestincome from the port revolving fund.

The Department of Economic Development also includes a24 member Governors Advisory Commission for maritimeaffairs. This is an interim commission whose dutiesinclude advising the Governor on statewide maritime policyand the oversight of this study. It is, however, atemporary commission.

Other agencies of the state includes the Marine pilotsBoard within The Department of Commerce, and theIndependent Marine Board. The functions of theseorganization are only tangentially related to the economicdevelopment of ports and the subject of this report.

It is clear from this review of existing stateorganizational resources, that maritime and port matters donot receive continuing attention at a sufficiently high

. level within the state organization, and the organizationthat is responsible for port issues is inadequately staffedto handle an expanded mandate.

(3) As A Minimum, The States Role in providing TechnicalAssistance, Marketing Services and Funding to Oregon'sPorts Should Be Expanded. The Extent to Which theRole Should Be Expanded is Dependant on Which of TheDevelopment Scenarios The State Believes AppropriateFor Long Term Port and International Trade policy

There is little question among any interest group inOregon, that the State should expand its role and activitylevel in the port sector. In fact, one view holds thatsuch expansion should have occurred twenty years ago, orperhaps even earlier.

Had this report been issued twenty years ago, and withthe obvious benefit or hindsight - Booz, Allen would haverecommended the establishment of a statewide portauthority. From a facilities perspective, it was timely todevelop a statewide resource allocation plan. A review of

121

those multiple port states managed by autonomous portauthorities suggested that while it might have beenaWkward, and perhaps not totally justified by eXistingmarket requirements, there would have been a more evendistribution of financial resources between coastal andColumbia River ports. Further, under an authority form,there would probably not have been the proliferation ofpublic port districts that exists in Oregon today.

While this view is somewhat speculative, theexperience in strong port authority states (Georgia, SouthCarolina, Alabama, New York) tends to support this view.

The ability to gain wide public support for thisorganization form in 1986 is far less certain. Investmentshave been made and strategies developed by specific portdistricts that could be suboptimized by a more regional orstate wide approach to governance. Nevertheless, astronger, more centralized governance structure appearswarranted by the condition prevailing in the state portsystem today. The degree of strength or centralizationvaries depending on the growth scenario consideredappropriate by state policy makers. The organizationalimplications of each of these growth scenarios is treatedbelow.

1. The Minimum Investment Strategy Suggests AModerate Upgrading/Enhancement of The Division ofports

It will be recalled that this strategy entails aone-time grant to financially troubled ports, or tomaintain facilities where such maintence has beendeferred at type II ports. This requirement poses nounusual continuing demand on the division of ports orany other agency of state government that may have aninterest. However, as indicated previously in ChapterIII, the emerging changes in federal navigation anddredging policy will have substantial impact on thesmaller Groups III and IV ports in Oregon. TheDivision of Ports (or alternative agency) should bepositioned to provide an enhanced level of technicalassistance to the Group III and IV ports. It may wellbe that the Division of Ports may also have to assistwith continued financial support, particularly iflocal agencies will be required to provide costsharing of federal dredging projects. In Chapter II,it was estimated that local share of maintenancedredging, alone, (excluding emergencies) could total$5 million per year in Oregon.

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If the people of Oregon elect to adapt thisscenario as state policy, there would be little or norequirements to expand the role or charter of theDivision of Ports beyond that of enhancing it'sability to deliver an increased level of technicalassistance.

(2) The Moderate Enhancement Strategy Increases TheFinancial Exposure of The State and suggests anExpanded Role of A Statewide Port Agency

It will be recalled that the moderate enhancementstrategy included:

Incremental expansion of Terminal Six by oneto two berths at a cost of up to ~50 million

Development of an automated agribusinessfacility (probably at portland) for a costof up to $20 million, and an automatedforest products handling technique (probablyat Coos Bay) for between $5 and $10 million).

The first investment would likely be borne by thePort of Portland while the latter two would appear tobe appropriate for private interests. Depending oncommodity and money market conditions, as well as thefinancial condition of one or more of the individualports, the State could be required to guarantee thesedebt obligations or investments. This suggests acontinuing financial responsibility and commitment bythe State. Due to both the magnitude, as well as thegeographic scope of the financial exposure, the stateshould consider expanding its role in portadministrative matters. While there are a number offorms that such expansion could take, a Commissionform appears most appropriate for Oregon. 30 Therole of the Commission would include the overseeing ofstate investment in port facilities as well as themarketing of the newly developed facilities. TheCommission could also administer the sales andmarketing activities in Washington, D.C. that focus onboth national port issues, as well as, ship repair andmarine construction activities. A substantial portionof the Commissions efforts could be to promote therevitalization of Group II ports, and of course wouldprovide the enhanced technical assistance to the GroupIII and IV ports referred to earlier in the discussionof the minimum investment strategy.

30 In April, 1986, the Oregon Public Ports Association·voted to ratify the concept of an Oregon PortsDevelopment Commission per O.P.P.A. adopted resultion.

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(3) The Aggressive Development Strategy Would ReguireThe Establishment of a Hybird Organization ThatBalances A Recognition of Past Investments andCurrent Resources Available At The Port ofPortland with The Substantial Investments ThatWould Be Reguired of The State

The aggressive development strategy combines allof the components of the two more conservativestrategies with the development of a multiberthcontainer facility on the lower 50 miles of theColumbia River. 31 Combined, the states cumulativeexposure under this scenario would be approximately$260 million over ten years. This is compounded bythe environmental and permitting process that would berequired by a facility of this type in Oregon. It isimpossible to predict whether this scenario would evercome to pass. In the event that it did, it wouldimpose a substantial burden on the port administratorsof the Port of Portland and the State of Oregon.

The organizational implications associated withthis strategy should be guided by the followingpostulates:

The economic and financial performance ofTerminal Six in Portland should become anintegral element of the overall performanceof the new down river container terminal

The considerable resources and expertise ofthe Port of Portland in the container areashould be considered and, as appropriate,exploited

Both terminals should be managed by the sameorganization to ensure efficient utilization

The investment by the State approaching $300million must also be considered. Thisconsideration dictates a broader and moreproactive port program by the State.

Again, the port commission (if appropriate portauthority) concept appears to be a suitable remedy tothis management and administrative need. Thisscenario creates a potential conflict between the Portof Portland and the new state port commission that isnot as obvious under the "moderate enhancement"scenario.

31 Three sites were nominated in the Beeman report belowmile pOint 54. This includes East Astoria, TonguePoint, and Port Westward.

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The organizational concept (unaer the agressivedevelopment scenario) is illustrated in Exhibit 91.

EXHIBIT 91Organizational Concept Under TheAggressive Development Strategy

I GOVERNOR

•I I

II OREGON

•IPORT OF PORTLAND I

PORTS COMMISSION COMMISSION

I I I II COASTAL PORT UPPER COLUMBIA LOWER COLUMBIA I

DISTRICTS RIVER DISTRICTS RIVER DISTRICTS

The essence of the concept is a strong Governorand General Assembly deeply committed to projectingOregon's ports more forcefully into internationaltrade and willing and able to reconcile conflicts anddifferences that arise. Over time, a more acceptableor comfortable solution might logically follow fromthis structure.

Under this scenario, the commission's powers willinclude the following:

It must be provided access to the capitaland operation funds to discharge the powersand responsibilities suggested by thisscenario32

• It should not disrupt the autonomy grantedto local port districts, but at the sametime, should recognize that the source offunds (statewide) would often override localconsiderations

It should focus on international trade,navigation and industrial development issueswhich are the primary missions of the GroupsI and II ports

32 The availability of capital is a key constraint underthis scenario. A new source of either one-time orcontinuing funding will be required to underwrite orguarantee the investment planned under this scenario.

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It should provide technical assistance ondredging and navigation issues to all portsand particularly, Groups III and IV ports,but should not be involved in activitiesdealing with strictly local or non-tradeissues such as recreational boating,marinas, etc.

It is an unusual organization form withoutprecedent in other states, but it is in response to anunusual set of economic, financial and politicalconditions that exist in Oregon. The finalorganization form that is selected will depend, inlarge measure, on the development scenario ultimatelyadapted by the State as a blue print for long termstrategy for Oregon's ports.

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