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4-8-2016

The Myth of Oregon's "Freight Dependent" Economy The Myth of Oregon's "Freight Dependent" Economy

Joe Cortright Impreza Consulting

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The Myth of a Freight-Dependent Economy

Joe Cortright April 2016

CityObservatory.org

Synopsis

• What drives our economy? • Freight facts • Containers: A case study • What about just-in-time? • A cluster case-study • Academic evidence

Freight dependent

Widmer in ItalyWhy?

Great Beer.

Not Transportation Prowess.

Backwards Logic

We export things because we’re good at making them

We don’t make things because we’re good at exporting them

We’re dependent on a lot of things:

• Caffeine Dependent • Electricity Dependent • Oxygen Dependent • Water Dependent • Internet Dependent

Freight Facts

Fact 1: Most freight is heavy, low-value and local

Growing, High value industries ship trivial amounts of freight

Industry Pounds/Worker/Day Minerals 10,000 Wood/Paper 7,348 Food Processing 3,794 Metals 2,243 Apparel 554 Machinery 510 Electronics 50 Software/Prof. Svcs. 0 Source: 2002 Commodity Flow Survey for Portland-Vancouver

Most freight is low value bulk

Commodity Share of Freight Gravel & Stone 32.8% Wood Products 17.4% Non-Metallic Minerals 11.5% Coal & Oil Products 5.6% Total, these bulks 67.3%

High value, low weight

Electronics

Machinery

Wood Products

Wheat

Value per pound of shipment (gross)

0 12.5 25 37.5 50

$0.11

$0.24

$6.46

$40.47

Source: 2012 Commodity Flow Survey, US Census

Most freight is purely local

Destination of Outbound Shipments: Oregon - 73.6%

Origin of Inbound Shipments: Oregon - 62.1%

Shipments Traveling less than 50 miles: 67.5%

Source: 2002 Commodity Flow Survey for Portland-Vancouer, US Census

Portland-Area Freight Movements by Destination, Origin & Distance Traveled

Fact 2: Oregon’s economy has shifted to lighter, high value products, and tonnage is down sharply

Electronics & machinery drive Oregon economy

0

12,500

25,000

37,500

50,000

2007 20120

30,000

60,000

90,000

120,000

2007 2012

Value, Millions. Source: 2012 Commodity Flow Survey, US Census

Everything ElseElectronics & Machinery

Up 51% Down 12%

Creating just as much value moving 42% fewer tons

0

40,000

80,000

120,000

160,000

2007 20120

50,000

100,000

150,000

200,000

2007 2012

Source: 2012 Commodity Flow Survey, US Census

Tons (Thousands)Value (Millions)

Down 42%

Oregon exports: Value up; tonnage down

0

10,000

20,000

30,000

40,000

2007 20120

5,000

10,000

15,000

20,000

2007 2012

Source: 2012 Commodity Flow Survey, US Census

Tons (Thousands)Value (Millions)

Up 55% Down 44%

Oregon: Trucking ton miles down 40%

0

7,500

15,000

22,500

30,000

2007 2012

Source: 2012 Commodity Flow Survey, US Census

Fact 3: The economy is up; freight is down.

National: Freight intensity of GDP down

Oregon: Freight intensity down 40%

Oregon Truck traffic still below year 2000 levels

Trucks crossing Columbia down 20%

12,000

15,000

18,000

21,000

24,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: ODOT, Class 6 and higher trucks crossing I-5 and I-205, AADT

Flawed Freight Plans

2010 Metro Regional Freight Plan

Trade volumes in Portland are expected to double by 2035, to 600 million tons annually.

The region’s goods movement system will need to absorb a doubling of freight volumes by 2035, with approximately 75 percent of that dependent on trucks . . .

REGIONAL FREIGHT PLAN

2035June 2010

June 2010

Containers: Case Study

Feb. 2015: Hanjin leaves

Apr. 2015: Hapag-Lloyd leaves

Portland’s Decline

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Pacific Maritime Assn. (2015-16 estd.)

Portland Share of West Coast Container Traffic

Always a bit player

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0% 19

95

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

Source: Pacific Maritime Assn. (2015-16 estd.)

Portland Share of West Coast Container Traffic

Port in declinePortland Business Journal, Feb. 2016: “The port's other businesses are also struggling mightily.”

Containers

Grain

Bulk Minerals

Break Bulk

Cars

Change in Cargo Volume, 2014-2015, Port of Portland

-90% -67.5% -45% -22.5% 0% 22.5%

2.3%

-85%

-9%

-41%

-86%

After Hanjin left

• Portland job growth accelerated from 3.2 percent to 3.8 percent

• Portland metro area added 38,000 jobs

• Unemployment dropped to 4.4%—the lowest level in 15 years

• Change: February to December 2015, compared to previous year.

Portland: 2nd fastest growing metro in 2015

Oregon Employment Department

High Tech on HanjinWhile the imminent departure of Hanjin Shipping Co. puts a severe dent in the Port of Portland's containerized trade, it won't affect companies that ship some of the state's most valuable products. Semiconductors, computer equipment, medical devices and other high-value items move primarily by air these days.

"At a high level, will it really affect us? No," said Jason Willey, investor relations director at Hillsboro's FEI Corp.

The company doesn't expect a customer to wait three or four weeks for a focused ion-beam system to cross the ocean and clear customs.

The port says the most valuable things that come to or go from Portland by sea are autos and agricultural products, from wheat to logs. But highly engineered computer product and other technical equipment flies in and out of the region's airports.

Athletic & Outdoor Cluster

Athletic & Outdoor

• 14,000 Jobs

• Hundreds of firms

• Very high wages

• Global leadership

• Fast-growing

Athletics & Outdoor Specializations

Portland specializes in these steps in the value chain

A&O Supply Chain

Donguan Memphis

Rail to Memphis

Portland

Ship to LA

Portland: High End of the Global Value Chain

AcFunction Location Wage Activity Location Avg. Pay

Production China $2 to $3/hour

Distribution Midwest $12-14/hour

Design, Finance Marketing, Mgt. Portland $40/hour

Academic Evidence

Does Freight MatterThe 90% reduction in freight transportation costs in the past century, and the declining importance of the good-producing sector of the economy, means that in our view, it is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.”

Ed Glaeser, Harvard, July 2003 “Cities, Regions and the Decline of Transport Costs”

Diminishing Returns

• Highway Investment has strong diminishing returns

• Building the first roads has a big impact; later roads have successively smaller impact

• New roads today have almost no impact

Shirley & Winston, 2004

Rate of return on highway investments, by decade

0

4.5

9

13.5

18

1970s 1980s 1990s

Eberts, 2014

Figure 5. Gross Rate of Return of Highways to Consumers and Producers

Figure 6. Net Rate of Return of Highways and Interest Rates

Source: Author’s calculations of Mamuneas’s data.

-0.100

0.000

0.100

0.200

0.300

0.400

0.500

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Producer

Consumer

0.000

0.100

0.200

0.300

0.400

0.500

0.600

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

total net rate of return

interest rate

57

Randall Eberts, White Paper on Valuing Transportation Infrastructure, Upjohn Institute, 2014

Duranton, Morrow & Turner, 2014

More highways = Heavier, but less valuable exports

A 10% increase in a city’s stock of highways causes about a 5% increase in the weight of exports, but does not cause a measurable change in the value of exports. . . . a 10% increase in within city highways . . . cause about a 5% decrease in the unit value of the city’s exports.

. . . city highways do not increase the value of exports . . . changes in trade caused by city highways probably do not have large welfare effects. . . . this suggests planners should not give much consideration to trade effects when planning a city’s highway network

Duranton, Morrow & Turner, “Roads & Trade: Evidence from the US,” Review of Economic Statistics, 2014

18-wheel welfare Cadillac

CBO:

Truck subsidies = $57 and $128 billion annually social costs, over what trucks pay in taxes,

Subsidy = 21 to 46 cents per truck mile.