In the wake of the COVID-19 pandemic, the traditional “counting” approaches to the economic contribution of ports are no longer sufficient to communicate the story of how a port supports a local, regional, or state economy.
Clearly, we have seen in recent months how port delays have exposed significant bottlenecks in the supply chain, both in terms of time and reliability, and thus have become primary lynchpins in strategies to help solve these problems. In this blog, we highlight expanded approaches to economic impact analysis of ports, to better reflect their critical role in local, regional, state, and in the national economy, and review some key methods and data to support such expanded analysis.
What Port Bottlenecks are Telling Us About Economic Impact Analysis
For decades, coastal and inland port authorities have calculated the economic contributions of their facilities on local, regional, and state economies. Typically, these assessments include jobs, payroll and budget supported by an authority, an accounting of tonnage moved through the port, and a calculation of impacts of those commodities on industries in the ports’ respective service regions. While there are varying definitions of a port’s direct, indirect, and induced impacts, the sum of these components comprises the calculation of total impacts. This calculation typically provides the numbers of jobs, labor income, output, and contribution to GDP to represent the value of ports to policy makers (e.g., city councils, state legislators, executive agencies, business interests) and public interest advocates.
The chaotic conditions currently seen in global supply chains underscore the role of the COVID-19 pandemic in changing how to define the economic importance of ports. The upheaval in the supply chain has led to shortages of many goods, including intermediate products that are part of an integrated manufacturing supply chain (e.g., computer chip shortages critical to many electronic products), as well as final consumer products. Long waits for imports, from cars to furniture, as well as supermarket shortages of some products, are now common. Moreover, when limited amounts of goods are available, their prices frequently increase. In fact, over the past year, inflation has risen by over six percent, according to the most recent federal government data.
The specific causes for supply chain upheaval are complex, and have been exacerbated, if not triggered, by COVID-19. Certain factors seem clear – COVID-19 resulted in a huge, and possibly permanent, shift in how consumers shop in developed economies. E-commerce has risen dramatically, while truck driver and rail car shortages have stressed inland transportation. The bottlenecks in inland networks have caused many major US ports to become de facto warehouses, as receivers cannot (or will not) move their shipments out to distribution in a timely manner, leaving enormous queues of ships at anchor outside major ports. Moreover, COVID-19 has also exposed the dangers of just-in-time (JIT) supply chains and has triggered a global shakeout affecting international shipping, where container shipping rates have skyrocketed. At this time, it is not clear if the push for 24/7 operations and other emergency measures at key US ports will be implemented or effective, at least in the short run.
The new reality requires a different take on port economic impacts, to better account for steps ports are taking to address global supply chain hardships. Economic impact studies will greatly benefit from more dynamic assessments that consider not just the static metrics based on how much cargo a port distributes out to its service region, but how quickly and efficiently it is able to reduce bottleneck delay and improve reliability. Scenario testing should be more fully incorporated into impact analysis, so it becomes a way to test investment scenarios, and not just a public relations tool. How well ports do their job, eliminating delays as much as possible, can have enormous consequences for local and regional hinterland areas, affecting consumer satisfaction with timely delivery, and its impacts on production costs and prices as well.
New Approaches to Port Economic Impact Analysis
Updating the traditional port impact methodology to look at delay and reliability on a scenario basis is about incorporating additional measures meant to encapsulate the logistics costs surrounding goods movement. A body of generalizable literature is already in place on the topic of freight reliability that can directly support quantitative exercises in communicating the impacts of delay, including work led or supported by EBP Senior Economist, Ira Hirschman:
- NCHRP 07-24 Report 925 – Estimating the Value of Truck Travel Time Reliability
- NCHRP 08-99 Report 824 – Methodology for Estimating the Value of Travel Time Reliability for Truck Freight System Users
Integrating impacts of delay with detailed bill of lading data describing the markets, commodities, and modes provides a direct means of identifying what movements, where, and during what time periods shipments are explicitly affected. An example of this would be the Port of Long Beach’s Impact Analysis Toolkit, in which EBP incorporated a live version of the PIERS dataset with estimates of spoilage/stockout costs. The Toolkit produced a monetized cost of delay that could be fed into an economic model. Users are enabled to analyze associated supply chain impacts, including both delay and the additional economic penalties associated with low reliability. Among those impacts are the direct costs of lost or spoiled cargo, late delivery to markets for time sensitive shipments, and potential price effects of supply chain related shortages.
The costs of delay can be integrated with models of the freight-economy to look at both the supply chains directly affected, as well as broader ripple effects cropping up within the economy. One such example would be the recurring series of “Failure to Act” reports developed by EBP for the American Society of Civil Engineers (ASCE). Other work done on behalf of transit organizations seeking to understand the effects of tariffs, to impacts of lock and dam congestion on the Illinois waterways, and mapping value added supply chains in the Michigan LRTP highlight the wide-range applications of addressing the effects of delay and inventory shortage, both at a network level and from a regional economy perspective.
Now, more than ever, understanding how economies rely on freight to function is of critical importance for identifying strategies of freight investment to support regional growth. At the heart of this work lies the ability to communicate how changes at a commodity, or industry level alter freight needs. EBP has great experience in mapping how infrastructure and economy can work together as a system, through our models. Understanding the linkages can allow for ‘future testing’ investments to understand how changes in regional behavior and patterns can test infrastructure adequacy. An example of future testing may be found in recent NCHRP research involving EBP, which sets forth consistent approaches to “right-sizing” transportation networks under changing conditions.
At a time when Ports are feeling the brunt of the global supply chain disruption, the Bipartisan Infrastructure Investment and Jobs Act significantly increases funding for ports over ten years, as well as for inland transportation improvements to enhance port access. Existing competitive grants funding has been increased dramatically, new grant programs have been created, and the need for rigorous Benefit Cost Analysis (BCA) and more advanced economic impact analysis to support things such as Port Infrastructure Development (PIDP) Grants will be much greater.
On both counts – economic impact analysis and BCA to support PIDP and other competitive grant programs – EBP has the experience, skills, and staff to assist ports and other transportation agencies to conduct the economic assessments that will become ever more critical going forward.