Thursday, December 11, 2014

Destructive port competition is coming at public expense

Destructive port competition is coming at public expense


Jacksonville Business Journal: Nov 28, 2014, 6:00am EST

We are witnessing the full-blown spectacle of East Coast interport competition. Every port on the Atlantic coast, Jacksonville included, is determined to obtain the public resources enabling it to deepen channels, raise bridges, and build infrastructure to attract the largest container vessels.

Unfortunately for taxpayers and the environment, this frenzied race to capture containerized cargo is a fool's errand. While it may be individually rational for each port to request and lobby for hundreds of millions from public coffers, it is collectively irrational, environmentally destructive, and fiscally irresponsible.

If the Jacksonville channel deepening project is ever funded, it will represent a monumental waste of taxpayer dollars. While the current cost estimate is roughly $800 million, there is no doubt that once the sediment settles, and the additional pieces deemed necessary are added to the cost, it will be closer to $1 billion.
In the history of such public megaprojects, projected costs are never overestimated. And this $1 billion figure excludes the incalculable cost to the St. Johns River estuary.

On the other hand, economic impacts in jobs and revenue are routinely overestimated in order to gain the support of the public and decision-making bodies.

It is for these reasons that the Jacksonville Mayor's Port Task Force has wisely decided to commission an independent comprehensive cost-benefit analysis.

The Jacksonville Port Authority and the project proponents claim that the dredging and blasting to 47 feet will yield a logistics bonanza and cargo avalanche that, in turn, will generate jobs and revenue. But there is no guarantee that this outcome will be realized. In the language of economics, "supply does not create its own demand."

There are several reasons to be highly skeptical. First, the largest container vessels — the "first-in/last-out" — will require at least 50 feet of water draft. Therefore, 47 feet is not deep enough. Second, in the competition with East Coast ports, Jacksonville is already behind at least five other ports that move more container cargo. Third, if we just focus on the immediate competitors in the southeast Atlantic region, Savannah moves three times more cargo and has started deepening to 47 feet, Charleston moves three-quarters more cargo and has just been approved for 52 feet. Therefore, among the immediate competitors, this project produces no net competitive gain.

Fourth, based on the revealed (not wished for) preferences of major shipping lines for future port rotations, Jacksonville is far behind Norfolk, Savannah and Charleston.

So, after a potentially $1 billion investment, if we build it, they still may not come.

Even John Martin, the Jaxport consultant who has produced the highly optimistic economic impact numbers, and a tireless partisan of port investment, admitted to the Mayor's Port Task Force that: "If you go to 47 feet you can compete for this market, but that means you have to aggressively market, that means carriers have to be marketed to, the beneficial cargo owners have to be marketed to. This is not a slam dunk, but without it you can't market it."

Yes, if you don't have 47 feet, you can't market 47 feet; that should be obvious. What this really suggests is that deepening is only a necessary, but hardly sufficient, condition for success; just as buying a lottery ticket is a necessary but insufficient condition for capturing the jackpot.

But there is one significant difference: This dredging gamble is being paid for with other people's money.
Does competing with other ports for a finite amount of containerized cargo make sense? Would it be more rational to develop an East Coast plan that identifies the primary (deepest water) and secondary (shallower channels) ports, and then provide each port with the resources required to play their respective role in a division of labor?

This would replace destructive competition with constructive cooperation. Under such a system Jacksonville, Savannah and Charleston might also form an alliance in negotiations with the shipping lines, who form their own alliances. This would strengthen their bargaining position, save hundreds of millions of dollars in scarce public resources, while ensuring the economic vitality of each port community.

It is time to consider such alternatives; otherwise, this river deepening project will give new meaning to the term "sunk costs."

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