Understanding and Critically Analyzing the Port Economy and Jaxport Channel Deepening
GLOBALIZATION AND PORT
LOGISTICS
The process of globalization over the past thirty years has
entailed the offshoring of US manufacturing and the increasing separation of
the point of production (e.g. Asia) from the point of consumption (the U.S.)
for most of the mass consumer merchandise purchased in the United States. In
order to maintain the profitability of goods produced/manufactured in low wage
and less regulated nations far from consumer markets, the cost of moving the
goods back to these consumer markets must be kept as low as possible. These two
factors – the separation of production and consumption and the need to avoid
losing that low-cost advantage in the transportation of the goods – have fueled
the expansion of the logistics industry and the prominence of maritime ports
(and container terminals). Therefore, one should understand that the primary
objective of the intermodal logistics supply chain -- in which Jaxport is
simply one of many nodes/gateways into the US market -- is to move the goods as
quickly and cheaply as possible from the point of production to the point of
consumption. Two corollary points to
keep in mind:
· As
long as transportation and logistics costs can be kept low, the advantage of shifting
production offshore will be retained and there will be no economic incentive to
produce these goods domestically.
· If
consumer goods were actually produced in the United States, the ports would be
far less important.
DISCRETIONARY CARGO
The majority of cargo entering US ports is what is termed “discretionary
cargo”. This means that shippers have the discretion to bring the cargo through
almost any port in the United States because the cargo is not bound to any
particular location. It can be moved to final destinations across the country
using the intermodal transportation system (rail, truck). So, for example, most
of the containerized cargo that enters through Jaxport is bound for
destinations far beyond Jacksonville and north Florida. The port is not
selected because goods will be consumed in Jacksonville nor because there are
goods produced in Jacksonville that need the port for export purposes. Rather,
ports are selected on the basis of the costs and the speed at which the goods can
be moved to their final destination.
There are two important
implications from the fact that most port cargo is discretionary. First, ports
must compete with each other for the containerized cargo. There is little guaranteed
cargo that must enter through any particular port. This places the shippers and
carriers in the stronger bargaining position vis-à-vis the ports as all the ports
compete with each other for their cargo business. Second, many of the economic benefits
associated with the cargo that moves through any port are felt far away from
the port city/community because the cargo has no necessary relationship to the
local economy. This contributes to the widely cited container port phenomenon --
costs tend to be geographically concentrated (infrastructure, pollution,
maintenance, congestion) while the economic benefits are geographically
dispersed.
THE PANAMA CANAL
Currently most of the
cargo from East Asia that reaches US consumer markets is brought through the
West coast ports of LA and Long Beach. It is then placed on rail in order to
reach consumer markets in the mid-west and east coast. This is because the
largest container vessels – post-Panamax – cannot fit through the Panama Canal.
The widening of the canal, which is anticipated for completion in 2014, will
allow these large container vessels to travel through the canal and therefore
reach East coast ports (the ”all-water” route). But the largest vessels can only use the
port and reach their container terminals if the depth of the channels and
harbors are close to 50 feet. Therefore, any East cost port with a channel
draught less than 45 feet is seeking federal funds to deepen their channels. The Jacksonville channel is currently 40 feet
deep and Jaxport has requested a deepening to 47 feet.
NARROWLY DEFINED BENEFITS OF
CHANNEL DEEPENING
The Army Corp
Jacksonville Harbor Deepening Study -- which has recommended dredging the St.
Johns River to a particular depth (45 feet) and has approved the “Local
Preferred Plan” of 47 feet -- is purportedly based on a cost-benefit analysis.
However, one must be aware that the only costs factored into the calculation
are financial costs associated with
the deepening project and the only benefits are the savings in transportation costs as a consequence of larger
vessels having access to the port terminals. Transportation cost saving accrues
primarily to shippers and carriers. There
is no necessary or automatic relationship between the reduction in
transportation costs and economic benefits to the city or region. The Army Corp
report provides no calculations of the broader economic benefits to the
Jacksonville community and NE Florida region resulting from the project. Also
absent is any calculation of the non-project costs such as additional necessary
infrastructure (roads), pollution (water and air), ongoing maintenance (retaining
the channel depth), and general congestion (traffic from trucks moving
containers). In short, public interest
considerations are entirely ignored in the cost-benefit equation used by the
Army Corp.
In addition to a
reduction in transportation costs, shippers and carriers benefit from these
projects in another important way. While shippers and carriers do not
necessarily need more than one deep-water port on the East coast through which
to move their discretionary cargo, it would be to their great advantage to have
every port capable of receiving the largest vessels. This would severely weaken
the bargaining position of any single port, increase the competition between
ports, maximize shipper/carrier flexibility, and allow shipper/carriers to
engage in “port arbitrage” playing one port against another for the best terms
and concessions.
DREDGING AND JOBS
Jaxport and other
proponents of port expansion and dredging/deepening have repeatedly emphasized
jobs and job creation as a primary benefit of the port. As noted above this is not a factor included
in the technical analysis conducted by the Army Corp in recommending, and
approving, the deepening of the St Johns River to 45 and 47 feet,
respectively. However, the report does
make reference to “Regional Economic Benefits” but this topic consumes a meager
one page of a 338 page report. On this single page the all-important matter of
jobs is addressed. This is the only place in the entire report that makes
reference to what Jaxport officials claim is the best reason to support the
port expansion project.
The report states the
following: “The increased traffic with
deepening at JAXPORT is expected to provide RED [regional economic development]
benefits as follows: Create 22,748 for the 45 foot NED [national economic
development] plan or 34,508 for the 47 foot LPP [local preferred plan] new
private sector port jobs in Jacksonville”
As
noted, these numbers are not based on an independent analysis conducted by the
Army Corp. Rather the Army Corp relies on numbers produced by Martin
Associates, a port consulting firm hired by Jaxport. More specifically, these
numbers are taken from a table included in a Powerpoint presentation to Jaxport
by Martin Associates. As stated and presented
above, these figures are a gross misrepresentation of the data included in the
tables. They would suggest that the deepening to 45 feet will generate 22,748
new private sector port jobs while the deepening to 47 feet will generate
34,508 new private sector port jobs. But, in fact, the accurate figures based
on the Martin Associates data are 841 and 5587, respectively. This colossal discrepancy
between the reported and actual numbers is due to either inexcusable unprofessional
carelessness or deliberate deception.
Further,
the Army Corp use chooses estimates for 2035 rather than 2020. Obviously, the
shorter time frame would represent a more credible estimate than the highly
uncertain 22-year projection. Again, the only possible explanation is that the 2035
figures would communicate a more significant, though highly exaggerated, employment
gain designed to convince the public of the wisdom of the project.
Finally,
the job numbers provided by Martin Associates that are cited in the Army Corp
report have not been subjected to any peer review or independent assessment as
to their validity. As it turns out, there is no information available on the
procedures used by Martin Associates that would allow one to evaluate the
economic impact methodology. Therefore,
even the “corrected” figures of 841 and 5587 jobs could be highly questionable
or based on questionable assumptions. But thus far no one has seen any report
providing the techniques used to derive these estimates. Again, under such conditions, why would the
Army Corp accept these figures and include them in a section under Regional
Economic Benefits?
JAXPORT AND JOBS
As it turns out, the
pattern of misrepresentation on the economic impact of the port has been an
ongoing practice by both Jaxport, and those promoting port expansions. Ever since Martin Associates completed an
economic impact study in 2009, port proponents have claimed that the port
supports 65,000 jobs. This number is not
manufactured. It is, in fact, included in the economic impact study but it
includes not just direct jobs, induced jobs, and indirect jobs but also what
are called “related jobs”. The related jobs should not be included and the Martin
Associates study even includes the following admonition: “It is to be further emphasized that when the impact models are used for
planning purposes, related jobs should not be used to measure the economic
benefits of a particular project. Related jobs are not estimated with the same
degree of defensibility as direct, induced and indirect jobs. Therefore, only
these three types of job impacts should be used in evaluating port investments.”
But
Jaxport has consistently included the related jobs in its claims about the economic
impact of the port, as have others who champion the port such as the Mayor of
Jacksonville. One reason Jaxport has probably been reluctant to remove related
jobs is that they account for wholly 66% or 42,647 of the 65,000 total. The
number that should have been used is 22,353. (Again, I hesitate to label this
the “correct” figure because there is good reason to believe that these job numbers,
as calculated by Martin Associates, are based on assumptions that may inflate
their level)
JOB QUALITY
In addition to the number of jobs
generated by the port and port expansion, there is also the question of the
quality of jobs that are generated by the port. An analysis of the Bureau of
Labor Statistics’ Occupational Employment Statistics (OES) for occupations most
closely associated with the port logistics sector allow some assessment on this
question. For the 18 occupational categories most closely associated with the
logistics industry there is wide variation in compensation levels ranging from
high mean annual incomes of $83,101 for Ship Engineers and $74,320 for
Captains, Mates, and Pilots of Water Vessels to a low of $20,000 for Packer and
Packagers. Overall, for all workers in
these 18 logistics occupations the mean income is $30,393.If we look at the
single occupational position -- Laborers and Freight, Stock, and Material
Movers -- that accounts for the greatest proportion of jobs in the logistics
sector (22%), mean income is $26,290.
One lesson to take
from the analysis of these OES data is that the lion share of employment
opportunities in the logistics industry involves work carried out in and around
warehouses/distribution centers. Warehouse/distribution center-related
occupational positions account for 61% of logistics employment. The mean income
for workers in this large segment of the logistics labor market is
$25,460. Median hourly wage levels range
from a low of $8.94 (for Packers and Packagers) to a high of $13.78 (Industrial
Truck and Tractor Operators).
The one area of the
logistics labor market that does provide higher paying jobs and that also
stands to grow in numbers alongside the expansion of warehousing/distribution
centers is first-line supervisors/managers.
These employees manage and supervise warehouse/distribution center
workers. The mean income for workers in these positions is $49,788; but these
jobs account for only 4.1% of total jobs in this sector.
Overall, the
occupational data suggest that the logistics industry -- while perhaps
generating new and expanding regional employment opportunities and potential
avenues of upward mobility for some low-skilled workers -- is not an engine of
high-wage job growth and is unlikely to contribute significantly to raising the
region’s per capita income.
DON’T TRUST THE NUMBERS
Points about job numbers above should caution
one to a common pattern reported in the research literature on “megaprojects”
(large scale infrastructure and public works projects that require significant
infusions of taxpayer funds). The
dredging and deepening of the St Johns River channel, at an estimated cost of
$800 million, qualifies as such a project. Therefore, we should expect that
those who seek government approval as well as public support for the project
will employ the following proven formula (based on work of Bent Flyvbjerg):
(underestimated costs)
+ (overestimated revenues) + (undervalued environmental impacts) + (overvalued
economic development effects) = (PROJECT
APPROVAL)
Citizens should reserve
a high measure of healthy skepticism regarding any claims made by private and
public officials promoting the port, or by local business interests that stand
to gain directly from publicly funded and approved megaprojects.
EAST COAST PORT COMPETITION
A final point to consider as
Jacksonville seeks federal and local funds to support a potentially $1 billion
project is whether it will have the expected payoff in catapulting Jaxport to the
top tier of East coast ports. One can think of this as a highly speculative
investment. This is especially the case given the fact that there are other
East coast ports (most notably Miami, Savannah, Charleston, Norfolk, and NY/NJ)
vying for the same position and the same cargo. Each of these ports is already receiving
more cargo than Jacksonville, two (Norfolk and NY/J) already have channels of
50 feet, and the port in closest proximity (Savannah, less than 150 miles away)
is far ahead of Jacksonville in progress toward channel deepening to 47 feet.
Further, it remains
unclear exactly how much cargo will actually be rerouted to the East coast
after the widening of the Panama Canal. Therefore, some of the logical
questions are: how many deep-water ports does the East coast need? How many can
be economically sustained based on a finite amount of cargo? Is it a
responsible use of federal funds to support every port mega infrastructure project
requested by every East coast port? Will funding of redundant infrastructure
projects result in a misallocation of scarce federal resources for ports
operating far below full capacity?
In the competitive
frenzy among the ports for infrastructure investment, few of these questions
have been answered.
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