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The Myth of Oregon's "Freight Dependent" Economy

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Joe Cortright, President, Impreza Consulting

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The Myth of Oregon's "Freight Dependent" Economy

  1. 1. The Myth of a Freight- Dependent Economy Joe Cortright April 2016
  2. 2. CityObservatory.org
  3. 3. Synopsis • What drives our economy? • Freight facts • Containers: A case study • What about just-in-time? • A cluster case-study • Academic evidence
  4. 4. Freight dependent
  5. 5. Widmer in Italy Why? Great Beer. Not Transportation Prowess.
  6. 6. Backwards Logic We export things because we’re good at making them
 We don’t make things because we’re good at exporting them
  7. 7. We’re dependent on a lot of things: • Caffeine Dependent • Electricity Dependent • Oxygen Dependent • Water Dependent • Internet Dependent
  8. 8. Freight Facts
  9. 9. Fact 1: Most freight is heavy, low-value and local
  10. 10. 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
  11. 11. 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%
  12. 12. 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
  13. 13. 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
  14. 14. Fact 2: Oregon’s economy has shifted to lighter, high value products, and tonnage is down sharply
  15. 15. 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%
  16. 16. 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 (Thousands)Value (Millions) Down 42%
  17. 17. 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 (Thousands)Value (Millions) Up 55% Down 44%
  18. 18. Oregon: Trucking ton miles down 40% 0 7,500 15,000 22,500 30,000 2007 2012 Source: 2012 Commodity Flow Survey, US Census
  19. 19. Fact 3: The economy is up; freight is down.
  20. 20. National: Freight intensity of GDP down
  21. 21. Oregon: Freight intensity down 40%
  22. 22. Oregon Truck traffic still below year 2000 levels
  23. 23. 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
  24. 24. Flawed Freight Plans
  25. 25. 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
  26. 26. Containers: Case Study
  27. 27. Feb. 2015: Hanjin leaves Apr. 2015: Hapag-Lloyd leaves
  28. 28. 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
  29. 29. 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
  30. 30. 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%
  31. 31. 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.
  32. 32. Portland: 2nd fastest growing metro in 2015 Oregon Employment Department
  33. 33. 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.
  34. 34. Athletic & Outdoor Cluster
  35. 35. Athletic & Outdoor • 14,000 Jobs • Hundreds of firms • Very high wages • Global leadership • Fast-growing
  36. 36. Athletics & Outdoor Specializations Portland specializes in these steps in the value chain
  37. 37. A&O Supply Chain Dong uan Memphis Rail to Memphis Portland Ship to LA
  38. 38. 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
  39. 39. Academic Evidence
  40. 40. 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”
  41. 41. 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
  42. 42. Shirley & Winston, 2004 Rate of return on highway investments, by decade 0 4.5 9 13.5 18 1970s 1980s 1990s
  43. 43. 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
  44. 44. 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
  45. 45. 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.

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