The economic impact of freight and moving goods. Presenter: Joe Cortright

1. The Cargo Cult
The Myth of a Freight-
Dependent Economy
!
Joe Cortright
March 2016

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

3. Freight Dependent

4. Widmer in
Italy
Why?
Great Beer.
Not Transportation Prowess.

5. Backwards Logic
We export things because
we’re good at making them
We don’t make things
because we’re good at
exporting them

6. We’re dependent on a lot
of things:
• Caffeine Dependent
• Electricity Dependent
• Oxygen Dependent
• Water Dependent
• Internet Dependent

7. Freight Facts

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

9. 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. 0Source: 2002 Commodity Flow Survey for Portland-Vancouver

10. 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%

11. 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

12. 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

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

14. Electronics & Machinery
Drive Oregon Economy
0
12,500
25,000
37,500
50,000
2007 2012
0
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%

15. Creating just as much value
moving 42% fewer tons
0
40,000
80,000
120,000
160,000
2007 2012
0
50,000
100,000
150,000
200,000
2007 2012
Source: 2012 Commodity Flow Survey, US Census
Tons (Thouands)Value (Millions)
Down 42%

16. Oregon Exports: Value
Up; Tonnage Down
0
10,000
20,000
30,000
40,000
2007 2012
0
5,000
10,000
15,000
20,000
2007 2012
Source: 2012 Commodity Flow Survey, US Census
Tons (Thouands)Value (Millions)
Up 55% Down 44%

17. Oregon: Trucking Ton
Miles Down 40%
0
7,500
15,000
22,500
30,000
2007 2012
Source: 2012 Commodity Flow Survey, US Census

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

19. National: Freight
intensity of GDP down

20. Oregon: Freight intensity
down 40%

21. Oregon Truck traffic still
below year 2000 levels

22. 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

23. Flawed Freight Plans

24. 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
2035
June 2010
June 2010

25. Containers: Case Study

26. Feb. 2015: Hanjin Leaves
Apr. 2015: Hapag Lloyd Leaves

27. Portland’s Decline
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1995
1996
1997
1998
19992000
200120022003200420052006200720082009
2010
20112012
2013
2014
2015
2016
Source: Pacific Maritime Assn. (2015-16 estd.)
Portland Share of West Coast Container Traffic

28. 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% 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

29. Port in decline
Portland 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%

30. 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.

31. Portland: 2nd Fastest
Growing Metro in 2015
Oregon Employment Department

32. High Tech on Hanjin
While 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.

33. High-Value Just-in-Time
Deliveries

34. 2005: Intel changed
cutoff by 2 hours
move intermediate products, partial assemblies and raw materials. In many cases,
especially where older manufacturing sites are located along waterways or in
older industrial areas, introduction of new, mixed use development has combined
with traffic congestion to compound delays in routine shipment patterns.
Earlier Scheduled Deliveries/Shipments. Most firms are involved in on-going
eview of routings and have developed methods for “on-the-fly” rerouting or
egular adjustment of departure times, loading and preparation of loads for
delivery and other measures. However, some
irms – particularly those with large, heavy
oads moving between established manu-
acturing operations – do not have the
lexibility to make these adjustments. Slower
urn-around between plants requires either
adding more vehicles to sustain production,
adding shifts, or cutbacks in production
schedules.
Increased Inventory. Throughout the 1990s, reductions in inventories increased
efficiencies in the manufacturing and transportation sectors. These efficiencies
are beginning to erode due to roadway congestion (highways) and reduced levels
of service (primarily attributable to poor service from Class I railroads and a
eduction in ocean shipping services). Increased variation in delivery times
attributable to congestion, more missed deliveries, and other uncertainties related
“Last Call” for Outbound
Shipments
Intel has moved their last shipment
departure time from 5:30PM to
3:30PM for outbound shipments
through PDX in response to
increased congestion. A missed
flight means loss of inventory and
production at the receiving location.
The Cost of Congestion to the
Economy of the Portland Region
Prepared for:
Prepared by:
Revised December 5, 2005

35. High tech to PDX
10/1/13
SUMMARY | Page 2
terminal, is home to several firms that support international and domestic service by handling and combinin
C&E goods before trucking them north or south of the Portland region for consolidation at other airports. Fo
the purposes of this study, Westside C&E firms are assumed to be clustered south of US 26 in the vicinity of
Brookwood Parkway.
Figure 2: Study Area

36. 2013: Most electronics are
trucked to Seattle & SFO
Key Findings
PDX is a crucial location along the supply chain,
but most Computer & Electronic freight
moves out of PDX on a truck. Firms involved
in freight movement and logistics currently
use PDX as a freight consolidation hub, but
they generally find it is most efficient to
truck, rather than fly, goods to
airports that have better links to
overseas destinations.
!
!
October 1, 2013
Prepared by DKS Associates
Local
Production
Regional
Movement
Global
Market
Greater Portland Export Initiative
Portland Region Westside Freight
Access and Logistics Analysis

37. Get valuable cargo to PDX
in a hurry?
$7,800 Flight Hour,
including fuel and pilots
10,000 lb. Cargo Capacity
!
Cruising Speed: 105 MPH
Erickson Air-Crane,
an Oregon Company
Daily Flights
Hillsboro to PDX
15 minutes flying time
5 tons per day
$3.7 million per year

38. Feeder Flight: Not worth
time savings.
Use of Feeder Flights. Because manufacturers
showed a strong willingness to pay for speed
in delivery, they expressed significant
support for the possibility of short flights
(Hillsboro Airport [HIO] to PDX, for
example) to replace truck trips. However,
forwarders, integrators, and carriers were
skeptical that this type of service would be
competitive with current ground services.
From their perspective, a feeder flight from
HIO to PDX would not yield a
significant velocity gain, if any, due to
added logistical complexities. These
firms also indicated that manufacturers
are unlikely to pay the higher cost for
an additional air cargo trip in the supply
chain.
October 1, 2013
Prepared by DKS Associates
Local
Production
Regional
Movement
Global
Market
Greater Portland Export Initiative
Portland Region Westside Freight
Access and Logistics Analysis

39. What if we valued
people?
Total Value of Human Capital (BEA, 2010)
$738 Trillion
Per Capita: $2.5 million
1 million people go to work every day in Portland
That’s $2.5 trillion worth of human capital on the
roads, buses, and bikes of the region, every day
And the places they work depend on just-in-time
delivery: No employees—no work gets done.

40. Value Moved Daily in Portland
BillionsofDollarsMovedperDay
0
750
1,500
2,250
3,000
Human Capital Freight
40.3
2,500

41. Air Intel: For high value
cargo: People

42. AirIntel: Hillsboro-San Jose
Four Flights Daily, Round-Trip
Intel has 6 Embraer ERJ145XR Jets
Each seats 50 passengers
Cost of operation is approximately
$2.5 million annually, each aircraft.
Connects facilities in Oregon, California,
Arizona, New Mexico

43. Port $10 million in
subsidies to containers
2012: $2.7 million (ICTSI)
2013: $3.4 million (ICTSI)
2014: $4.0 million (Hanjin)
!
Source: Oregonian, “Port of Portland plans to subsidize Hanjin Shipping and
other cargo carriers to keep them calling,” February 7, 2014; 2012 & 2013 are
amounts spent, 2014 is amount budgeted for subsidies.

44. Athletic & Outdoor
Cluster

45. Athletic & Outdoor
• 14,000 Jobs
• Hundreds of firms
• Very high wages
• Global leadership
• Fast-growing

46. Athletics & Outdoor
Specializations
Portland specializes in these
steps in the value chain

47. A&O Supply Chain
Dong
uan Memphis
Rail to Memphis
Portland
Ship to LA

48. 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

49. Academic Evidence

50. Does Freight Matter
The 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”

51. 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

52. Shirley & Winston, 2004
Rate of return on highway investments, by decade
0
4.5
9
13.5
18
1970s 1980s 1990s

53. Eberts, 2014Figure 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
0.600
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
total net rate of return
interest rate
Randall Eberts, White Paper on Valuing Transportation Infrastructure, Upjohn Institute, 2014

54. 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

55. 18 Wheeler 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.

57. “Validating” 1997 & 2002
Forecasts
Portland/Vancouver International and Domestic
Trade Capacity Analysis
Task 1
PORT OF PORTLAND
by:
Global Insight, Inc.
1850 M Street, NW, Suite 1100
Washington DC 20036
Paul Bingham
July 28, 2006
The work of the commodity flow
forecast validation was to review the
growth rate assumptions used in the
commodity flow forecast completed in
2002. Using the 1997 baseline from
that forecast, Global Insight has
validated that forecast. . . . The
forecast completed in 2002 was that
freight volumes for the Portland/
Vancouver region will double between
1997 and 2030.

58. Trade Capacity Analysis,
2006
Task 4. Assess of adequacy of land supply and transportation infrastructure to meet
forecasted trade volume.
Task 5. Validate results by review of national expert on trade, transportation, and related
land use issues.
Key Findings
Trade Growth
The study forecasts a doubling of trade volume by 2035 in the Portland region, consistent
with the last forecast in 1997. The project growth in trade, at approximately 2% per year,
is also consistent with the region’s projected population growth over the same time
period.
2000 2010 2020 2030 2035
Source: Global Insight, Inc.; 2006
Growth is likely to alternate between periods of slow to moderate growth and rapid
growth, because our relatively small market size is more impacted by external forces in
the national and international economies than in larger domestic markets.
Trade growth is also influenced by a market area that extends well beyond the
0
100
200
300
400
500
600
700
AnnualTons(Millions)

59. Ed Glaeser
“At the local
level,
fundamentally
the most
important
economic
development
strategy is to
attract and train
smart people.”

60. Talent determines prosperity

61. 3,100 I-5 Through Trucks