BY JOE CORTRIGHT | OB CONTRIBUTOR
"Shipping containers to Portland is like waiting for a bus that travels once a day."
BY JOE CORTRIGHT | OB CONTRIBUTOR
For a city whose first name is “port,” the loss of container service seems like an economic body blow. We are constantly being told that Oregon has a “trade-dependent” economy. How will we survive without this iconic connection to the global marketplace?
The answer will surprise you: Just fine.
The reasons have a lot to do with the changing nature of trade and the global economy. Success in the global marketplace is less about cheaply moving physical stuff than it is creating new and ever more valuable — and generally lightweight or intangible — products and services. Long established economic and technological changes have been driving this trend.
It is tempting to blame labor relations at the port. Clearly the longshoremen overplayed their hand, and Hanjin made the prudent business decision to route its Asian container traffic through ports with less strife.
But the truth is that the Port of Portland is a long time bit player in West Coast container trade. The Port’s share of west coast containers peaked at less than 3% nearly two decades ago, and has been falling ever since. Last year, the Port of Portland accounted for less than 1% of West Coast container traffic — 151,000 of 15.6 million containers, according the Pacific Maritime Association.
As it turns out, local dockside container service isn’t indispensable to Oregon shippers. Several large local firms have long abandoned the port, and other shippers regularly use faster, more convenient connections through Puget Sound and California. Local transshipment company Northwest Container Services provides regular six days per week service using railcars to move containers from Portland to the docks in Tacoma and Seattle. The firm has the capacity to handle 15,000 containers.
It makes sense to use ports with more frequent service. Not only does it take 36 days to reach Portland from Hong Kong — vs. 27 to reach Los Angeles or Long Beach — but more frequent sailings to “load center ports” also mean less time waiting.
Shipping containers to Portland is like waiting for a bus that travels once a day, compared to once an hour for Los Angeles and Long Beach. For time-sensitive deliveries, the once or twice weekly arrival of Hanjin ships from Asia compares poorly with twice daily departures to Southern California. Products shipped to Los Angeles and trucked to Portland typically arrive at least a week earlier than containers unloaded in Portland.
Today and going forward, success in the container business is all about scale and volume. High volume “load center” ports offer huge economies of scale. Volume produces competition that lowers rates. Long Beach and L.A. handle more containers in ten days than Portland sees in a year. The industry is also moving to ever-larger “post-Panamax” ships that are only economical on high volume routes (like Hong Kong-Los Angeles) and which are too large in any case to ever navigate the Willamette River.
And while Oregon is deeply enmeshed in the global economy, it turns out a small and declining portion of our global value-added moves over Portland’s docks.
Most of the growth in our economy and exports is in high value goods like electronics that move by air. High tech manufacturer FEI told the Oregonian that the loss of Hanjin really wouldn’t affect them because they ship by air, rather than much slower containers. Portland’s largest export commodity is computer and electronic products, accounting for $6.6 billion in exports in 2013.
That’s why big local companies will be largely unaffected by the loss of container service: They long ago recognized that Portland was a container traffic backwater.
Consider the case of Oregon’s quintessential global company — Nike. It closed its Oregon distribution centers more than a decade ago. Its shoes and apparel, produced overwhelmingly in Asia, arrive by container in Southern California where they are transferred by rail to the company’s massive, and much more centrally located U.S. distribution center in Memphis.
The common refrain about the importance of ports to trade gets the calculus of global competition exactly backwards. We don’t make things because this is a great place to ship from; we ship from here because we’re really good at designing and making some world class products, including shoes, electronics, beer and trucks, to name a few.
If anything, Harvard business guru Michael Porter’s doctrine of “selective factor disadvantages” applies to Portland: Because we’re so remote from world markets and population centers, we have to design and produce especially good products for which transportation costs are irrelevant in order to be competitive exporters.
Increasingly, the character of international trade is lightweight or intangible. Nike and Adidas anchor global production networks and sell globally while moving almost none of their physical product through Portland. Software companies like Tripwire and Elemental Technologies move product at the speed of light via the Internet. Success in these global markets hinges on being best in class, not cheap local container freight service.
To be sure, some businesses will suffer economic loss from the loss of container service.
The longshoremen, the port operator, ICTSI and the Port of Portland will all experience a decline in revenue. Some businesses, which depended on the cheap backhauls afforded by the imbalance of in-bound containers to Portland, will likely find it more expensive to ship their goods to Asia. But businesses that produce high value and time sensitive commodities will do what they’ve been doing for some time now: ship through high volume, high service load center ports.
The dwindling trickle of containers across Portland docks has served as a reassuring totem to those who need physical evidence of our connections to the global economy. But the time has long past when we can indulge this “cargo cult” view of what drives our economy.
Joe Cortright is a principal economist for Impresa, a Portland consulting firm.