Latest In Focus

 

Above is the latest episode of our In Focus podcast. In it, Kriss and I talk about:

You may subscribe to our In Focus and Policy Today podcasts here.

The impacts of a bad reputation

U.S. Labor Secretary Tom Perez talked recently about how a good reputation can trump a good location when it comes to trade. Washington’s ports had enjoyed an advantage due to their location as a good access point to and from Asia, but the result of the West Coast ports work slowdown may be that that they are seen as unreliable.

Indeed, the Puget Sound Business Journal writes that

The biggest East Coast ports had 10.2 percent more growth than the biggest West Coast ports in the fourth quarter of 2014, compared to a 1.6 percent difference from the year before. . . .

Some of that diverted cargo will never come back.

“With each labor event, some diverted cargo has not returned, and this seems to be the case for some West Coast ports coming out of this most recent contract negotiation,” according to Fitch [Ratings].

Additionally, the story notes,

The Port of Seattle is mostly just a pit stop as goods make their way around the country.

While the Port of Seattle doesn’t track exactly how much cargo shipped through the harbor moves outside the state, most of it is shipped elsewhere, said spokesman Perry Cooper.

When cargo isn’t staying in Washington state, shippers have less incentive to use Washington state ports when others are more reliable.

In a 2013 report, we looked at the competition faced by our ports and noted that

31 percent by value and 13 percent by weight of all goods exported through Washington ports originated outside of the state of Washington.

On the question of how long it will take for port activity to get back to normal, the PSBJ story says, “it will take no more than three weeks to clear backlog at the ports of Seattle and Tacoma.”

The Wall Street Journal writes about one way to get freight moving:

Port terminals are developing new ways to organize cargo at the docks and systems for getting that cargo moving off the docks as quickly as possible. Software developed by a local technology startup called Cargomatic, a sort of Uber for moving cargo around the Los Angeles region, serves as one creative solution.

Reputational damage at the ports

As an addendum to my earlier post on the deal at the ports, NPR has a good interview with U.S. Labor Secretary Tom Perez. On the impacts of the slowdown, he says,

There is so much collateral damage occurring. . . . You are playing with fire because, yes, the West Coast ports have the advantage of location, location, location. But you know what — location, location, location is not enough if you have a bad reputation, reputation, reputation. . . . In 2015 businesses have options.

Streamlined Permitting for Transportation Projects

The transportation package before the state Senate includes several elements designed to speed the completion of new construction and maintenance projects, including adding a 90 day processing requirement for new construction permits, limiting permit appeals to Superior Court, and exempting maintenance from state and local permits.

This initiative to increase efficiency and reduce costs is mirrored by legislation moving forward out of the transportation committee on the house side. A bipartisan effort spearheaded by Reps. Dave Hayes and Hans Zeiger, working with committee chair Judy Clibborn, has yielded three bills. HB 1219, sponsored by Zeiger and Clibborn, would expedite permitting by exempting the repair or replacement of structurally deficient state bridges from SEPA (State Environmental Policy Act), as well as expediting the bidding process to implement the work. Hayes and Rep. Steve Bergquist have brought forth a related bill, HB 1851, which applies to bridges owned by local governments.  HB 1850,  from Hayes and Clibborn, would exempt certain WSDOT maintenance activities, as well as construction actions undertaken for safety, from local review or permit processes under the Shoreline Management Act.

These efforts to reduce process friction and costs associated with transportation projects are encouraging, as legislators contemplate asking the voters for new tax funds.

The Senate legislation:

http://lawfilesext.leg.wa.gov/biennium/2015-16/Pdf/Bill%20Reports/Senate/5994%20SBA%20TRAN%2015.pdf

The House bills:

http://apps.leg.wa.gov/billinfo/summary.aspx?bill=1219&year=2015

bill=1850&year=2015#documentshttp://apps.leg.wa.gov/billinfo/summary.aspx?bill=1851&year=2015

Deal reached at the ports, but normalcy may be a long way off

On Friday, the Pacific Maritime Association and the International Longshore and Warehouse Union came to an agreement on a new contract, averting a full shutdown of West Coast ports. A major slowdown had been ongoing for the past several months, which we have written about previously. According to the Los Angeles Times,

The agreement, which still needs approval from union members and individual employers, should start easing severe congestion that’s been building for months at the nation’s busiest ports, in Los Angeles and Long Beach, along with other major gateways.

Details of the proposed five-year contract for about 20,000 West Coast dockworkers were not released. The dockworkers have been without a contract since July. The two sides had been negotiating since May.

The dispute caused businesses across the nation to lose money because imports were trapped on boats and exports trapped on land.

“We heard from small-business owners, large-business owners, farmers who couldn’t get their produce or their meat to market,” U.S. Labor Secretary Thomas Perez told reporters in San Francisco, where he joined contract talks this week to push for a settlement.

“This is now in the rear-view mirror,” Perez said. “A significant potential head wind for this economic recovery has been removed.”

When will things be back to normal? According to the Ports of Seattle and Tacoma,

Operations at our terminals resumed Saturday evening. We are uncertain how long it will take to move the remaining cargo on our docks and awaiting vessels, and to assess the effects this has had on our gateway.

The Seattle Times notes that

It will take six to eight weeks for West Coast ports to recover from the cargo backlog, according to the Port of Oakland and the National Retail Federation, which represents stores that resorted to stockpiling seasonal merchandise in warehouses and shifting to East and Gulf Coast ports. The backlog swelled as the two sides quarreled over a new deal.

KUOW has a good interview on the impacts of the slowdown, including the importance of the ports to keeping Seattle and Tacoma competitive.

Policy Today episode on transportation

 

Above is the latest episode of our Policy Today podcast (recorded February 16). Lew and Kriss talk about the transportation package proposed in the Legislature.

Congestion hurts port competitiveness

Some news this week on the port slowdown: Monday the AP reported that

Negotiators working on a new contract for dockworkers at West Coast seaports, which handle about $1 trillion worth of cargo annually, have resolved a key dispute in their difficult talks, an association representing employers said Monday. . . .

The new agreement addresses neither wages nor pensions, but what would seem an ancillary issue: who maintains and repairs the truck beds used to haul containers of cargo from dockside yards to distribution warehouses. Chassis repair became a big stumbling block, however, because automation at seaports is expected to take jobs — and the International Longshore and Warehouse Union wants to find new members where it can.

But even with this progress, as the Wall Street Journal notes,

it will take months to end the widespread pain, freight disruptions, and losses caused by the massive cargo traffic jam.

The near-paralysis at the ports is rippling through the economy. Railroads are reducing service to the West Coast. Cargo ships have slowed down—and even turned around—as containers have stacked up at the ports. . . .

The Economist, under the striking title “Watching fruit rot,” writes about the impact this is having on West Coast port competitiveness:

Meanwhile, frustrated exporters and importers will find other routes. In a recent survey by the Journal of Commerce, 60% of shippers said they had begun redirecting cargoes away from America’s West Coast ports. Once that business leaves, it may never return. Western ports have already lost market share to the East Coast since 2002, when failed labour talks led to an 11-day lockout and a total shutdown.

More ominously, the Panama Canal is being widened to accommodate larger ships. That task will soon be completed, allowing ships from Asia to bypass the West Coast entirely and deliver goods directly to the Eastern seaboard. Jacksonville, Florida opened a new container terminal in 2009; traffic from Asia is already booming, even before the new-look Panama canal opens.

Indeed, the Journal of Commerce has an example of cargo moving elsewhere:

Labor disputes on the West Coast and a recovering national economy sent record-breaking cargo volumes to Georgia ports in 2014. . . .

While disputes on the West Coast continue to snarl traffic in and out of Los Angeles-Long Beach, Oakland and the Pacific Northwest, Foltz said strategic investments on his end have been able to entice shippers to Georgia’s congestion-free seaports.

As a result, December, usually one of the slowest months of the year, marked Georgia’s second-busiest month on record, moving 277,633 TEUs.

Meanwhile, in a broader note about trade, Peter Tirschwell writes in the Journal of Commerce about the problem of port congestion:

[Moffat & Nichol economist Walter] Kemmsies said the biggest threat to global trade isn’t protectionism, war, terrorism, disease or natural disaster. Instead, it’s mounting congestion at ports around the world, a phenomenon that’s been building for years and burst out into the open in 2014.

“That’s my big fear for global trade,” Kemmsies said.

With a growing middle class throughout the developing world demanding a greater quantity and variety of consumer goods, the pressures are growing. The United Nations projects the middle class globally will more than double in size in the next 15 years, rising from about 2 billion today to 4.9 billion in 2030. “If we actually get that many people — almost 5 billion — in the global middle class, our industry is going to completely collapse. The congestion will be that severe,” Kemmsies said.

The idea that port congestion isn’t just temporary is gaining currency, despite the counterintuitive reality that global trade is likely to slow this year. There is a lengthy list of reasons for this, but they all add up to the same conclusion: The hardships U.S. shippers are experiencing at West Coast ports, even if it’s partly the result of longshore labor slowdowns, is just one example of a phenomenon playing out globally. No matter where you’re importing or exporting, if it’s moving in a marine container, you should be planning potentially weeks of additional lead time into your supply chain.

That the middle class is growing globally seems like an excellent problem to have.

Port delays could mean long-term damage for businesses

Yesterday the Senate Commerce & Labor and Trade & Economic Development Committees held a joint work session on the slowdown at the ports (which we have written about previously).

Several Washington businesses affected testified. Marc Spears of Chelan Fresh Marketing said that they’re losing $1.2 million in sales per week. He noted that they are missing a lot of the Chinese New Year business, and they “can’t make those sales up.” Dan Coyne of Darigold said the slowdown has cost them $30 million in lost sales. David Burroughs of Cascade Designs said that their snowshoes, like apples and milk, are “also in some ways a perishable product.” He said there was “a lot of snow on the east coast pre-Christmas” that they missed out on. Not being able to get their products out through the ports “creates reputational damage” and “a risk of long-term lost shelf space.” Mike Dodds of Basic American Foods similarly said that they are “starting to worry about market share.”

There was also a lot of talk about permitting, rail capacity and the need for a transportation package. Dan McKisson of the ILWU said that the “permitting process in this state must be streamlined.” Eric Johnson of the Washington Public Ports Association said, “permitting decisions on the waterfront are very, very slow.”

More coverage on the work session: AWB, Austin Jenkins, and TVW’s The Capitol Record.

2014 remainders: workers’ comp, freight plan, and the ports

Some end-of-year housekeeping — the following are some items I didn’t get around to blogging about over the past month:

  • The Department of Labor and Industries announced that workers’ compensation premiums will increase by an average of 0.8 percent. In September, L&I had proposed an increase of 1.8 percent.
  • The Washington State Department of Transportation released the 2014 Freight Mobility Plan. According to the plan, “In 2012, freight-dependent industries accounted for 44 percent of the state’s jobs.”
  • Regarding the labor dispute at the ports, Diana Furchtgott-Roth writes, “Currently, ports are governed by the National Labor Relations Act (NLRA), while airlines and railroads are required to abide by the 1934 Railroad Labor Act (RLA). The disruptions at the ports that are being used as a tactic of negotiation are allowed under the NLRA, but would not be permitted under the RLA.” Further, “Labor contracts under the RLA do not expire like the current West Coast contracts, but remain in force until a new agreement is reached.” (See also Douglas Holtz-Eakin in the Wall Street Journal.)

Seattle Times on education, transportation, and Inslee’s budget proposal

Education and transportation look to be main areas of work for the Legislature in the upcoming session. Over the weekend, the Seattle Times had a few interesting items on these topics, in light of Gov. Inslee’s 2015-17 budget proposal.

First, regarding the governor’s transportation plan, the paper points to a letter from state Treasurer Jim McIntire (written before the governor released his plan) that outlines some principles for transportation funding projects. They include:

  • “No more than 50 percent of MVFT revenues should be pledged to bond finance.”
  • “Maintenance and preservation activities should receive first priority for new funds not obligated to bond finance projects. Credit markets do pay attention to how we maintain existing assets.”
  • “Maximize the use of tolls and other user fees. At a minimum, the Legislature should adopt legislation as soon as possible to toll the I-90 bridge to pay for $1.1 billion of the $1.4 billion cost of the west side of the 520 Corridor Project.”
  • “Any new revenue source should be 18th amendment protected so that it can backstop new MVFT-bonds over time and help finance new projects as MVFT revenues decline.”

The Times article notes that

As of 2016, a full 70 percent of the state’s gas-tax proceeds, or close to $700 million yearly, will be paying off Washington State Department of Transportation’s current projects. Various proposals in Olympia this year have suggested using 80, 90, even 100 percent of the gas tax to finance more construction bonds.

Additionally,

McIntire said gas taxes have become so unreliable that they’re hard to forecast for more than two quarters into the future — so there had better be a big cushion in a 25-year bond term.

The second notable item is an editorial: “Inslee’s budget goals are good; approach is risky.” While saying Inslee “shows leadership in not fully funding Initiative 1351,” the editorial board writes that

Inslee’s budget proposal also does not remedy the Supreme Court’s fundamental objection in the McCleary ruling: The state is off-loading its paramount duty to basic education onto local school levies. . . .

New education investments — from birth to post-doctorate level — also must come with strings requiring better outcomes for students. There is not enough of that in Inslee’s budget.

And, on the governor’s cap-and-trade proposal:

But linking revenue from a new cap-and-trade regime to education funding is risky. If it falls apart, or is delayed, education investments would be threatened.

It is also unclear what impact his cap-and-trade plan would have on a still-recovering state economy, one that is humming for citizens who live and work within sight of the Space Needle, but sputtering elsewhere.