U.S. Department of Commerce, Maritime Administration U.S. DEPARTMENT OF COMMERCE Juanita M. Kreps, Secretary Sidney Harman, Under Secretary MARITIME ADMINISTRATION Robert J. Blackwell, Assistant Secretary for Maritime Affairs Marvin Pitkin, Assistant Administrator for Commercial Development Armour S. Armstrong, Director, Office of Port and Intermodal Development September, 1978 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20-102 Stock Number 003-007-000'Jl-O -WHAT U,S. PORTS MEAN TO THE ECONOMY i'^artP'^*''* ■>^^J0 >* :^ < 7* : ' *,...** -. i'*„ * ***•*■ «Jb( CONTENTS PORTS ARE GROWTH CENTERS 4 THE MEASURING ROD 9 PORTS ARE ECONOMIC ASSETS 10 PORTS ARE MORE THAN PIERS 12 PORTS ARE SERVANTS 14 PORTS ARE CUSTOMERS 19 PORTS PROVIDE INCOME 22 PORTS PROVIDE JOBS 27 PORTS PAY TAXES 28 PORTS ARE INVESTORS 31 PORTS AND GOVERNMENT 33 PORTS' LIFEBLOOD: FOREIGN TRADE 36 WHAT WOULD HAPPEN IN THE PORTS IF .... Consumer Spending Increases Certain Industry Sales Levels Go Up There Is A Two-Months Dock Strike IMPACT TABLES 52 4mH H: L _.; ■ / / a • I \ m *'™*.--,. ... . 7 THE MEASURING ROD Each dollar of sales to the port industry in the base year of the study produced $1.60 in sales within the economy. The input-output model is an economic tool that is used by in- dustrial and government econo- mists throughout the world for measuring and forecasting eco- nomic phenomena. In this country it consists of more than 8,000 items of data on the Nation's industries arranged in input columns and output rows. This part of the model measures in dollars the production of all goods and services in the United States. In short, it depicts the entire economy. With the assistance of the computer and by a complicated mathematical procedure, the model's data can be used to derive multipliers that measure the chain reactions that occur in the transactions depicted by the model. This enables the analyst to determine not only the direct economic impact of a transaction, but also its ripple effects throughout the economy. For example: The purchase of a crane by the port industry directly affects the company that manu- factured and sold that crane. But it also affects the manufacturer and supplier of parts for the crane; the manufacturer of the steel used in making the parts; the mining company that produces ore for the steel; and the trans- portation companies that move each component, from the mine to the crane's final position on the port's waterfront. That chain of event produces the indirect impact. The ability to produce multipliers is a property peculiar to l-O models. Analysts have known about economic chain reactions for a long time, but until Nobel Prize Winner Wassily Leontief devised the l-O model technique, no reliable means existed for measuring it. Multipliers differ substantially from one industry to another, de- pending on the complexity of the chain relationships that are initi- ated in the production processes of the various industries. The model gave a multiplier of 1.6 for the chain reactions initiated by all purchases for port industry operations throughout the Nation. This meant that each dollar of sales to the port industry in the base year of the study produced $1.60 in sales within the economy. This consisted of $1 of direct sales plus 60 cents of indirect sales. PORTS ARE ECONOMIC Gross sales (revenue) of $28 billion within the economy. A $15.0 billion contribution to the gross national product (GNP). Since GNP has doubled from base year (1970) of study, all dollar impact totals in 1977 would be nearly double 1970's. Application of the port industry multiplier to the model's data proved conclusively that the ports are indeed the valuable economic assets to the Nation that they had been believed to be. This analysis showed that in 1970, the data year of the study, the port industry was directly and indirectly responsible for: • Gross sales (revenues) of $28 billion within the economy. • A $15 billion contribution to the gross national product (GNP). • 1,046,800 jobs. • Personal income of $9.6 billion. • Business income of $3.7 billion. • Federal taxes of $5.2 billion. • State and local taxes of $2 billion. The base year for the model was 1970 because it was the latest year for which complete official figures were available. GNP is known to have doubled to $1,890 billion — from 1970 to 1977. Thus it can be assumed that 1977 dollar figures for the port industry would be approximately double those of 1970. It must be remembered in making such an adjustment that nondollar figures such as those for employ- ment and tonnage may not be doubled since they are not as re- sponsive to inflationary trends and other economic forces that have acted recently on the American dollar. The analysis also revealed the following: • Port industry handling of U.S. waterborne exports and imports in 1970 was respons- ible for $16.2 billion of revenues in the Nation's economy. • The movement of each ton of waterborne cargo in U.S. foreign trade, therefore, generated port revenues of $34. Application of the 1.6 multiplier meant that each ton of waterborne foreign trade contributed direct and indirect revenues of $55 to the U.S. economy in 1970. • The port industry's handling of each 600 tons of foreign trade in 1970 was responsible for one job in the national economy. • Every million dollar increase in U.S. exports brought about an average increase of $160,000 in demand for port services. • Every one million dollar in- crease in imports required an average $229,000 increase in demand for port services. • Direct purchases of goods and services by the port industry from other industries in 1970 totaled $8.9 billion. • The direct and indirect im- pact on the economy of port investments in 1970 totaled $2.1 billion. 10 f- ft '• • ^ PORTS ARE MORE THAN PIERS No definition or classifica- tion of port industry en- compassing all port func- tions had ever been established. Port industry is any economic activity that is directly needed in the movement of waterborne cargo. What is a port? This simple question can evoke many answers because the con- cept of a port seems to differ with individual interests. To those who love to watch the vessels come and go, the port means arrivals and departures. To the employees of stevedore com- panies, international banks, freight forwarding companies, marine insurance underwriters, and the U.S. Customs Service it means much more. The diversity of port concepts encountered presented a problem to the analysts in creating the 1-0 model for this study. An 1-0 model requires a precise defini- tion of an industry or group of industries, since the data used in constructing it must be pertinent, complete, and accurate. The data research showed that no definition or classification of port industry encompassing all port functions had ever been estab- lished. As a result, much per- tinent data was buried in other classifications and had to be traced and routed out. This was a meticulous and time consuming process. Examination of the many regional and local port economic studies that have been made from time to time was of little help. They showed almost as many different port concepts as there were studies. None of them integrated the broad activities of the port industry that truly represent a port's scope and purpose. Some definitions limited port industry to waterfront activities of loading and discharging vessels. But this definition was too narrow. It excluded many func- tions that are part of what ports actually do. Other definitions included produc- tion activities that took place in a port area but which had nothing to do with the basic function of serving waterborne shipping. The production of soap, wigs, coffee, sandwiches, or candy at estab- lishments near the waterfront would fit into such a classification. The broadest definition included activities producing all goods that move by water. The growing of wheat 1,000 miles from a port would be included as port in- dustry if the wheat was exported. The analysts discarded such defi- nitions as unrealistic, and estab- lished the following criteria for a definition that would truly de- scribe port functions and be economically measurable. • The definition must reflect the port industry's unique mission to move waterborne cargo. • The definition must be consistent with the true contribution of ports to the national economy. • The definition must include only direct activities of port industry. • The definition must be formulated in terms of the port industry's output. Use of these criteria led to a con- cise definition that would be accurate for any port economic study: Port Industry is any economic activity that is directly needed in the movement of waterborne cargo. 12 This definition not only includes the loading and discharging of ships but also the many port acti- vities that take place beyond the piers. It includes such activities as cargo documentation, freight forwarding of waterborne cargo, marine insurance, international banking, warehousing, land feeder services, and all water carrier services. The definition does not include as part of port industry services (output) the activities of port suppliers and users such as ship repair services, fuel, port machinery, and export products. While such activities are part of a port's economic impact, they are not part of its output. However, the 1-0 model is a flexible tool and it was used in this study to measure such activi- ties as part of the port industry's input. This will be shown in the following pages. This definition not only in- cludes the loading and dis- charging of ships but also the many port activities that take place beyond the piers. 13 Chart 1 MAJOR USERS OF PORT INDUSTRY SERVICES - 1970 ($ Billions) PORTS ARE SERVANTS Industrial Users $6.7 Total Output $17.2 Final Users $10.5 Allother industries $1.65 Fabrics .20 New construction .21 Chemicals .22 Rubber .24 Lumber & wood .25 Non-ferrous metal mfg. .48 Petroleum refining .67 Iron & steel mfg. .71 Every day of the study year, Food .75 the Nation's port industry provided an average of $41 Within port industry 1.22 million in services to its users. Other $ .09 Investment .16 Federal Gov't. .76 Consumption 3.78 Revenue from intermediate sales was 39 percent of the port industry's total output during 1970. Exports 5.71 14 The Nation's port industry pro- vides water transportation serv- ices for cargo and passengers. The services include stevedoring; underwriting marine insurance; issuing export licenses; cargo and baggage inspection; warehousing; bank financing of letters of credit; inland feeder services by railroads and trucks; docking and towing; pilotage; freight forwarding; and water carriage by ship, river or lake boats, barges or tankers. The U.S. port industry in 1970 grossed $17.2 billion from the sales of its services. Every day of the study year, the Nation's port industry provided an average of $41 million in services to its users— domestic and foreign shippers and passengers, and private and Government customers. In the study's input-output model those services were sorted into two output classifications called intermediate and final sales. The intermediate sales are port services purchased by industries for the movement of goods destined for further processing by the buyers. Moving of crude oil to refineries; shipping ore to steel mills; transporting sand and traprock for road construction, are examples of intermediate sales services performed by the port industry. Final sales are classified as final demand in the input-output study procedures. They are for pur- chases of port services by pas- sengers and by shippers for moving cargo destined for final consumption. All exports are rated as final demand because they are moved outside the national economy. Some imports are final demand; many are for further processing and therefore are listed as intermediate sales. The port industry's intermediate sales are a very significant part of its contribution to the national economy. They represent the delivery of raw materials and parts to a large number of U.S. industries some of which could not function without this type of port industry service. The intermediate sales (output) of the port industry in 1970 amounted to $6.7 billion. This was the revenue from sales to users who required the movement of nearly every type of raw material to their factories, processing plants, and refineries. Revenue from intermediate sales was 39 percent of the port indus- try's total output during 1970, and is about the same today. Several key U.S. industries rely more heavily than others on port services for the transportation of their inputs. They are principally heavy industries such as iron and steel, lumber, rubber, chemical, oil refining, and food processing. The biggest consumer of port services is the port industry itself. In 1970, it paid $1,220 million for such services. These payments were for pilot- age, tugboat and towboat ser- vices; stevedoring; hull insurance; and many other internal trans- actions in the port industry. Purchases of $749 million worth of port services by the Nation's food and kindred products in- dustry made it the second major intermediate user of the port industry during 1970. Purchases of $749 million worth of port services by the Nation's food and kindred products industry made it the second major in- termediate user. 15 The petroleum industry paid $672 million to the port in- dustry. Exports were by far the largest component of the port industry's final demand category. The Government spent $756 million for port services. The food industry's expenditures were mainly for waterborne trans- portation and cargo handling serv- ices required in bringing wheat, corn, rice, sugar, coffee, and other agricultural products by inland and sea transportation to processing and packaging plants throughout the United States. Port services for shipments of processed food products for final consumption were not included in this category. The huge volume of ore moved by water transport between mines and metal mills provided a large part of port industry revenue. Pri- mary iron and steel manufacturers paid $705 million for such serv- ices in 1970; primary nonferrous metal manufacturers paid out another $484 million. The petroleum industry paid $672 million to the port industry in 1970 for delivery of crude products to refineries. This figure has probably more than doubled for 1977 due to sharply increased demand and inflation since 1970. The lumber and wood products industry's payments for port industry services in moving logs and unfinished wood to lumber mills and other plants totaled $253 million during the base study year. The rubber and miscellaneous plastics industry paid $237 million for port services; the chemical in- dustry, $223 million; and the con- struction industry, $205 million. While it is apparent from the above sales that payments for intermediate port services have an important impact on the national economy, none of those expenditures was directly entered into gross national product (GNP) accounts in 1970. This was because GNP accounts are limited to final sales; intermediate sales are excluded to avoid duplicate counting of products and services. Table I in the back of this book lists the 20 leading intermediate users of the Nation's port in- dustry and their expenditures in 1970 for port services. The sales of port services throughout the Nation in 1970 to final demand (final consumers) were $10.5 billion or 61 percent of the industry's direct revenues for that year. Final sales are by definition GNP components. They were broken down in this study's l-O model into traditional economic classifi- cations: consumption, invest- ment, inventory changes, exports, and Government expenditures. Waterborne exports were by far the largest component of the port industry's final demand category. In 1970, they accounted for $5,706 million of the port industry's sales. This was one-third of the industry's gross revenues that year. The remaining two-thirds came from services to domestic trade and to imports. The port industry's export re- venues included payments for cargo handling, for carriage of ex- ports on U.S. merchant vessels and on domestic ocean and inland vessels, and payments for financing export letters of credit and cargo insurance. 16 The port industry's next highest amount of revenues from final de- mand services in 1970 was $3,783 million for handling freight and in- surance of imported consumer products and the waterborne movement of domestically pro- duced goods headed for final consumer markets. The private consumption category of imports included thousands of specific commodities — from automobiles and television sets to fruit and meat products. These imports required all kinds of cargo handling, including con- tainer, pallet, sling, and roll-on roll-off techniques. The Federal Government was the port industry's third major provider of final demand reven- ues. In 1970, the Government spent $756 million for port ser- vices to move materials and inputs including military goods. State and local governments spent an additional $36 million in 1970 for port services. The private investment sector of the United States was also a significant final user of port services, accounting for $155 million in revenues during the study year. These payments repre- sented the costs of shipping capital goods to their destinations and included domestic and foreign machinery and equipment that moved by water. Inventory changes in the final demand sector of the port industry itself amounted to $25 million. (See table 2.) 17 Chart 2 MAJOR SUPPLIERS OF THE PORT INDUSTRY - 1970 ($ Billions) Total Supplies Purchased: $8.9 18 PORTS ARE CUSTOMERS Domestic business services accounted for the largest block amounting to $719 million. Port industry purchases set off a chain reaction. The port industry must purchase various types of inputs to make its services available to users. Such purchases range from real estate and business services to maintenance, repair, utilities, meals, fuels, office supplies, and other goods and services. Direct purchases of supplies and service by the port industry in 1970 totaled $8,921 million. During the study year, $6,747 million of the port purchases originated in the domestic economy; $2,174 million in goods and services were imported from other nations. The port industry's plant and equipment capital investment is not included here, but is dealt with later in this study. Domestic business services such as promotion, advertising, con- sulting, legal and accounting serv- ices, and dozens of other peripheral business services ac- counted for the largest block of expenditures by the port industry, amounting to $719 million in the base year of this analysis. The large expenditures for promotional and other business services indicate the enormous competitiveness within the port industry. Ports and steamship companies both stress the im- portance of these aspects of their port activities. Purchases from other transporta- tion companies formed the second leading category of port industry expenditures, totaling $537 million. These were for serv- ices by domestic truck, rail, air, and freight-forwarding companies in transporting inputs to the port industry. Rental of properties at port and off- port locations cost the port industry $493 million. Finance and insurance charges amounted to $401 million. Purchases of fuels for operating port machinery, vehicles, and vessels were also a major expend- iture of the port industry, costing $323 million. Maintenance and re- pair construction amounted to $251 million. Other key industries which made more than $200 mil- lion in sales to the port industry during 1970 were shipbuilding, business travel, and communica- tions. Table 3 lists the 20 principal sources of inputs for the Nation's port industry in 1970. Port industry purchases set off a chain reaction important to the economy. Direct suppliers of the port industry rely on port pur- chases in indirect ways as well as the direct purchases analyzed above. That is, goods they sell to industries other than the port in- dustry are used for the production of other goods and services sold to the port industry. By combining the direct and indirect impact of port industry purchases a better perspective is obtained of the overall reactions of U.S. industries with port ser- vices. The indirect impact can be mea- sured by using the multiplier of 1.6 that was generated for the port industry by the l-O model. Application of this multiplier showed that an additional $10,806 million* of indirect output was required throughout the economy to sustain the direct level of port industry sales of $17,150 million in 1970. "Adjusted for transferred imports. 19 The industry's total impact on the economy averaged about $76 million per day. The purchasing power of the port industry, with its ripple effect extending to other industries, is of great im- portance to many suppliers in the Nation. Shipbuilding industry sold 5.9 percent of its total output in 1970 to the port industry. Thus the U.S. port industry's com- bined direct and indirect sales im- pact was $27,956 million for the base year of this analysis. It meant that the industry's total impact on the economy averaged about $76 million per day during that year. These figures are quite distinct from the "value added" to gross national product in the model. Using the value added concept, which omits cumulative resale values, the port industry's total annual contribution to GNP in 1970 was $14,953 million and the daily average, $41 million. The ranking suppliers of the port industry, in terms of direct and in- direct sales, closely paralleled the port industry's leading direct sup- pliers in 1970. Business services of $1,042 million were purchased by the port industry directly and by its suppliers indirectly. Transpor- tation services other than the port industry's were the second leading group of direct and in- direct purchases, amounting to $909 million. Payments of $787 million for real estate and rentals formed the third largest category while the finance and insurance industry ranked as the fourth leading direct and indirect supplier at $649 million. Five other broad industry groups made direct and indirect sales of more than $300 million to the port industry and 10 additional groups made sales of $200-$300 million. Table 4 details the direct and in- direct sales of the port industry's 20 leading supplying industries. The port industry's impact upon the economy other than the above groups of industries runs deeply across a broad front of producers of goods and services. The pur- chasing power of the port in- dustry, with its ripple effect ex- tending to other industries, is of great importance to many sup- pliers in the Nation. The U.S. shipbuilding industry, which sold 5.9 percent of its total output in 1970 to the port industry directly and indirectly, is among those industries which rely heavily on U.S. port services to buy a meaningful share of their outputs. It should be noted that only maintenance and repairs are included here. The purchase of ships is categorized as invest- ment. Other suppliers in this group in- clude the travel industry which sold 2.3 percent of its 1970 output to the port industry; the non- waterborne transportation in- dustry which sold 1.6 percent of its output; the maintenance and repair construction, 1.5 percent; and the petroleum refining in- dustry, 1.4 percent. These percentages include the in- direct effect— the impact gener- ated by the sales of each of these industries to other suppliers of the port industry to enable them to produce such supplies in the first place. 20 fi. ■k : ;.!ii#p«c^.. ■ PORTS PROVIDE PERSONAL INCOME Production of port services in the United States during 1970 generated $9,572 million in personal income. The port industry itself paid $6,695 million of that sum in direct payroll while port purchases from other in- dustries were directly and indirectly responsible for $2,877 million in wages and salaries. Production of port services in the United States during 1970 gener- ated $9,572 million in personal in- come. The port industry itself paid $6,695 million of that sum in direct payroll while port pur- chases from other industries were directly and indirectly responsible for $2,877 million in wages and salaries. Transportation services not part of the port industry were the most benefited in 1970, with $359 mil- lion in personal income generated directly and indirectly during the study year by port purchases. Direct and indirect wages and salaries earned in the business services industry through port purchases amounted to $303 million while $269 million in personal income were generated in the finance and insurance industry. Other industries that were strongly affected in 1970 in terms of direct and indirect personal in- come initiated by port purchases were the maintenance and repair construction, $252 million; wholesale and retail trade, $172 million; printing and publishing, $107 million; Federal Government enterprises, $99 million; and communications, $94 million. (See Table 5). 22 23 PORTS PROVIDE BUSINESS INCOME Port activities in the U.S. are important producers of business incomes in cases such as rentals, interest and profits. Port activities in the U.S. are im- portant producers of business incomes such as rentals, interest, and profits. In 1970, the port in- dustry generated $3,741 million in direct and indirect business in- come. Gross profits within the industry itself were $1,661 million while business income generated in other industries was $2,080 mil- lion during the study year. This impact was based on an income multiplier of 2.2 derived in the l-O model. Service industries were the major business income beneficiaries from port activities during 1970. Real estate and rental activities grossed $433 million; business services, $239 million; other trans- portation outside the port indus- try, $154 million; and State and local government enterprises, $124 million in income from the port industry during 1970. Communications, crude petroleum, electric, gas, and water suppliers grossed a total of $279 million from the port in- dustry; the wholesale and retail industry, $63 million; automobile repair and services, $60 million; and maintenance and repair servi- ces, $40 million. (See Table 6.) 24 25 PORTS PROVIDE JOBS 1,046,800 jobs throughout the United States were directly or indirectly at- tributable to the operations of the port industry in 1970. The U.S. port industry's services require the efforts of every type of worker— skilled and unskilled; professional and nonprofessional; white collar and blue collar. The input-output model showed that 1,046,800 jobs throughout the United States were directly or in- directly attributable to the opera- tions of the port industry in 1970. Of these, 686,800 persons were directly employed and 360,000 in the various industries supplying the ports. Transportation that is not part of the port industry was the most strongly affected in 1970 with 45,300 port related jobs in the car- riage, transfer, and storage of goods. Business services hired some 40,600 persons during the study year to supply the port industry; wholesale and retail companies, 31,800; the finance (banking) and insurance business 30,700 to fill port commitments; State and local government enterprises, 13,400; and in port activity related work and Federal Government enterprises, 12,100. Other industries benefiting directly or indirectly in employ- ment from port activities were the maintenance and repair con- struction, 17,200 jobs; printing and publishing, 12,100; ship- building, 12,000; and communi- cations, 11,100. (See Table 7.) 686,800 persons were directly employed and 360,000 in the various in- dustries supplying the ports. 27 PORTS PAY TAXES During 1970 the U.S. Treasury collected $5,198 million in taxes. $1,975 million was received by State and local govern- ments from taxation sources directly or indirectly gener- ated by port operations. Port activities in the United States are a significant source of Government revenue at all levels. During 1970 the U.S. Treasury collected $5,198 million in taxes directly or indirectly generated by port operations. Personal income taxes of $1,180 million from incomes generated by port activities were collected by the Treasury; business income taxes totaled $672 million; and Federal excise taxes on water- borne goods came to $1,258 million. In 1970, Customs collections on waterborne imports totaled $2,088 million. They are included in the port industry's tax category above. Although such collections at the ports are a direct function of port operations, they should be viewed for fiscal planning as a separate source of Federal in- come. Customs duty payments are better reflected as a function of the value of imports. Such values may be derived independ- ently of the input-output frame- work. Aside from the revenues that accrued to the Federal Govern- ment, the port industry also con- tributed meaningfully to State and local tax revenues. In 1970, $1,975 million was received by State and local governments from taxation sources directly or indirectly gen- erated by port operations. 28 i i 5 * • ».\:U:? 29 PORTS ARE INVESTORS $1,187 million was spent by the port industry in 1970 on purchases of capital goods. The direct and indirect impact of the port industry's capital purchases actually totaled $2,057 million during the study year. Long-term capital investments for port machinery, vessels, construc- tion of wharves and sheds, inter- modal containers, computer hard- ware, and many other elements are of key importance to the port industry. This has been especially true in the last two decades, in which rapid technological changes and a strong growth in trade have required increased capital expenditures. Private industry and Federal, State, and local governments make capital investments in the Nation's ports. This section of the MarAd port analysis will focus on private investment. Government investment will be analyzed in the next section. The input-output model is a static analyzing tool that provides a pic- ture of only 1 year's economic transactions. It is not possible to use the model to measure fully the dynamic impact of port in- vestments. A static analysis of capital invest- ments' impact on the national economy is limited to the short- run impact-per-dollar delivered to the gross national product— as is the case, for example, of annual operating expenses. In contrast, the dynamic impact of long- term capital expenditures would take into account the impact of improvements in operating efficiency over the years. The model's development has not yet reached that capability. Therefore, the induced impact that would be generated in future years as a result of the invest- ments in new capacities and technologies in the port industry is not a part of the total impact figures in this study. Analysis of private investment within this study's framework showed that $1,187 million was spent by the port industry in 1970 on purchases of capital goods. They included ships, communica- tions equipment, harbor craft, river barges and towboats, loading equipment, and other port machinery. Application of the relevant sec- toral multipliers from the l-O model to each type of investment showed that the direct and in- direct impact of the port in- dustry's capital purchases ac- tually totaled $2,057 million during the study year. Shipbuilding was the largest single investment category of the port industry that year. The direct and indirect impact of new merchant ship purchases amounted to $664 million. They covered the costs of new U.S. cargo ships and tankers. Ship repairs and maintenance pur- chases were not classified as in- vestments. The second leading category of private port investment was com- munications equipment. The port industry purchased $146 million in communications equipment for harbor, channel, and open-sea navigation. Radar systems and other sophisticated electronic and telecommunications instruments accounted for the bulk of these purchases. 31 The primary iron and steel in- dustry was the third largest beneficiary from port industry capital investment— $93 million — mostly through the indirect im- pact of its sales of materials for new construction of ships, harbor craft, and pier facilities. The direct and indirect sales im- pact of private port investment in new construction in 1970 was $82 million; in boat construction, $81 million; transportation equipment other than communications, $68 million; motor vehicles and equip- ment, $59 million; wholesale and retail purchases, $58 million; engines and tubes, $31 million; and finance and insurance, $25 million. (See Table 8.) It should be noted that annual port investments fluctuate more than port operations expend- itures. Port operations tend toward a continuous volume of traffic flows from year to year; investments tend to be more sporadic. In some years, many more investments are made than in others, depending on the state of the economy. 32 PORTS AND GOVERNMENT Government port activities totaled $641 million in 1970. While the private sector of the U.S. port industry is by far the most important element of port operations, the government sector also plays an important role in waterborne cargo movements. Federal, State and local govern- ments provide a variety of support services and investments that are an integral part of the port in- dustry. Although port authorities usually are technically part of State governments, they were treated in this study as part of the private sector of port industry because of the nature of their port activities and the technique of the l-O model. Government port activities such as services, equipment, materials, and facility construction improve- ments by government agencies totaled $641 million in 1970. Application of appropriate in- dustry multipliers to each form of government expenditures on ports increased the total impact throughout the economy to $1,457 million for the study year. These figures excluded govern- ment expenditures for the ship- ping services that were previously analyzed in this study as part of the output of port industry. Appropriate industry multi- pliers increased the total impact throughout the economy to $1,457 million. Also excluded were maritime sub- sidies representing a transfer of funds, and government wages which were not measurable directly from the l-O model's final demand sectors. Federal Government expenditures covered such activities as chan- nel dredging, waterway mainten- ance, and the construction of public locks and dams by the Corps of Engineers; coordination of maritime affairs by the Department of Commerce; ad- ministration of ocean freight rates and other regulations by the Federal Maritime Commission; collection of tariffs and inspec- tion of merchandise by the United States Customs Service; and implementation of vessel traffic control systems and water safety operations such as channel mark- ing, harbor radar systems, and the licensing of merchant seamen by the United States Coast Guard. State and local governments also directly participate in various aspects of port planning, con- struction, and operations. These activities are included in the above impact totals. In addition, State and local gov- ernments generally provide for new infrastructure requirements around ports such as highway access, traffic signals, and the like. But indirect expenditures of this type are rarely associated with the handling of waterborne cargo and are not included in this analysis. 33 Government port ex- penditures had a powerful direct and indirect impact on many U.S. industries during 1970. Most affected was the new construction industry with sales of $348 million. Ripple effects of government port expenditures were strongly felt in demand for construction materials such as metals, lumber, heating and plumbing equipment. Government port expenditures had a powerful direct and indirect impact on many U.S. industries during 1970. Most affected was the new construction industry with sales of $348 million stem- ming directly and indirectly from government projects. The maintenance and repair con- struction industry benefited by $83 million from government port expenditures that year. Business services directly and indirectly sold $79 million worth of services; wholesale and retail industry came to $48 million. The ripple effects of govern- mental port expenditures were strongly felt in demand for construction materials such as metals, lumber, heating and plumbing equipment, and other supplies. The heating and plumb- ing industry benefited directly and indirectly by sales of $36 million; stone and clay products, by $31 million; primary iron and steel, also $31 million; and primary nonferrous metal, $29 million. (See Table 9.) Government port functions also produced a meaningful number of jobs. While the l-O model does not provide estimates of the num- ber of government jobs directly related to port activities, other sources such as the "Budget of the U.S.— 1970" indicated that about 23,000 Federal employees were primarily engaged in the facilitation of waterborne cargo movements in 1970. Federal jobs ranged from top ad- ministrators to engineers to transportation specialists in the Maritime Administration and the Corps of Engineers. However, the 23,000 figure does not refer to the jobs generated in quasi-govern- ment enterprises such as the Export-Import Bank and the St. Lawrence Seaway Development Corporation. They were counted as part of the private sector employment. Aside from creating jobs within the Government itself, govern- mental port spending strongly affects civilian employment. Port- related government purchases of goods and services were re- sponsible for an additional 42,000 jobs in the economy in 1970. Government port spending in 1970 created 11,890 construction jobs. More jobs were created in construction than in any other category. Wholesalers and re- tailers provided 4,190 jobs in 1970 to expedite various materials and supplies for government port functions. Other business serv- ices accounted for 4,140 jobs. (See Table 10.) 34 v \\\^S^Sss§^^ %\l% y^\^^^^kkskks K%^ft\ AV^^^fi^^S m% Vk wA S^b $vk ^^V ^tm tP^ TMk ^Bk^B^L ill Hi %\ *= b !i vklEk^iX nftk^BL^B^ ^ftk^c^ PORTS' LIFEBLOOD: FOREIGN TRADE Most U.S. international trade, measured either by weight or value, moves into or out of the country by water trans- port. The model can also be used to analyze the impact of economic events on the port industry itself. Port services for handling the Nation's waterborne exports and imports were responsible for $16.2 billion of output in the national economy. The port industry serves the Nation by moving its waterborne domestic and foreign commerce. Most U.S. international trade, measured either by weight or value, moves into or out of the country by water transport. Exports and imports are the lifeblood of the ports. The input-output model has been used to this point of the port industry study to analyze the in- dustry's interaction with other industries and to examine the impact of port activities on jobs, income, and taxes in the national economy. The model can also be used to analyze the impact of economic events on the port industry itself. Analysis of the impact of foreign trade upon the port industry is an example of the model's useful- ness in examining cause and effect relationships from this perspective. In 1970, port services for handling the Nation's waterborne exports and imports were responsible for $16.2 billion of output in the national economy. This means that the movement of each ton of waterborne cargo by the U.S. port industry in foreign trade generated $34 of port revenue. Applying the port multi- plier of 1.6 the direct and indirect revenue throughout the economy amounted to $55 per ton. This does not include the value of the cargo itself. International trade not carried by ships consists of the growing volume of high-value international cargo that moves by air transport and the two-way commerce that moves by overland highway and rail transport between the United States and Canada and between the United States and Mexico. Cargoes valued at $24.5 billion were carried out of the United States on merchant vessels in 1970, or 57.8 percent of the $42.6 billion in exports moved that year. Overland movements to Canada and Mexico and international air cargo accounted for the remainder (42.2 percent). All waterborne exports, regardless of the flags of the ships on which they moved across the seas, re- quired port services in this country. During the study year, the port industry provided $5,706 million in direct services for moving exports. Other port activities, including a variety of waterborne services re- quired by the port industry itself in obtaining its input supplies for handling exports, added another $421 million. A further $657 million in port services was incorporated in the value of the exports. These were services needed in moving raw materials and other input cargoes by water to the export producing industries. The Nation's total exports of $42.6 billion in 1970 therefore generated a demand for port services amounting to $6,784 million — the total of the three impact areas. This came to 16 percent of the total value of U.S. merchandise exports. This means that every million- dollar increase in U.S. exports would require an average increase of $160,000 in port services, assuming proportionate increases in the types of export mer- chandise. 36 Applying the port multiplier of 1.6, the direct and indirect revenue throughout the economy amounted to $55 per ton. The Nation's total exports of $42.6 billion in 1970, therefore, generated a demand for port services amounting to $6,784 million. This means that every million- dollar increase in U.S. exports would require an average increase of $160,000 in port services. 37 Agricultural exports valued at $3,206 million had to move through U.S. ports. The in- dustry handled 70 percent of the Nation's agricultural ex- ports during the study year. Waterborne imports, amounting to $25.4 billion in 1970, accounted for 63.8 percent of the total U.S. merchandise imports of $39.8 billion that year. However, application of such a general ratio throughout the in- dustry is impractical because changes in the level of shipments for specific export commodities have varying impacts on port in- dustry in proportion to their trans- port costs and their relative reliance on vessel shipments. Such characteristics as weight, size, and value of shipments de- termine their dependence on water transport. Because of the weight and bulk of their products, many industries have no feasible alternative to water transport for exporting their products to overseas points. An increase in these exports to such destinations would therefore re- quire port facility expansion in many instances. For instance, all of the Nation's $646 million of coal exports and 98 percent of its $645 million of tobacco manu- facturing exports moved abroad by water transport. Agricultural exports valued at $3,206 million had to move through U.S. ports in 1970 because most of them were bulk shipments of grain which could not feasibly move by other transport. The port industry handled 70 percent of the Nation's agricultural exports dur- ing the study year. The remaining 30 percent, mostly fresh fruits and vegetables, moved by over- land and air transport. Food and kindred products were the second leading classification of U.S. exports handled by the port industry during the study year. Eighty-five percent of such products, valued at $2,060 million, moved by water carrier. Third-ranking were chemicals, with 77 percent of such exports. Chemicals valued at $1,766 million were handled by the port industry in 1970. Most U.S. exports of construction, manufacturing, and oil field machinery are far too bulky and heavy to move overseas by air transport. In 1970, 76 percent of such exports, valued at $1,372 million, were handled by the port industry. Most of the remaining 24 percent moved to Canada or Mexico by overland transport. Other leading export products that were handled principally by the port industry in 1970 were primary iron and steel, 77 percent with a value of $972 million; paper and allied products, 91 percent, valued at $922 million; special industry machinery, 75 percent, valued at $843 million; and general industrial machinery, 67 percent, valued at $539 million. (See Table 11.) Waterborne imports, amounting to $25.4 billion in 1970, accounted for 63.8 percent of the total U.S. merchandise imports of $39.8 billion that year. Proportionately more imports than exports were carried by seagoing vessels because of an abundance of bulky commodities such as agricultural products, petroleum, and ores that constitute the Nation's inbound cargoes. Waterborne imports weighed 42 percent more than waterborne exports in 1970. Hence, imports required a much larger per- centage of the port industry's capacity than exports. The l-O framework treats imports differently than exports. The reason for this is that imports enter the Nation's economic scene much like any other input in the production and consump- tion process. They are distin- guished only by whether or not they undergo further processing and by the sector purchasing them. This makes it more difficult to estimate their industry-by- industry impact on the ports. 38 Movements of waterborne imports in 1970 accounted, directly and indirectly, for $9,440 million of port ser- vices. This means that for each increase of a million dollars of imports, the demand for port services would go up an average of $229,400. However, it was possible to develop a method of estimating this transportation element and compute an aggregate impact figure for imports. Through this method it was de- termined that the movements of waterborne imports in 1970 ac- counted, directly and indirectly, for $9,440 million of port services, slightly less than 23 percent of the $39.8 billion in United States imports that year. This meant that generally for each increase of a million dollars of im- ports, the demand for port serv- ices would go up an average of $229,400. The higher increase in port serv- ices per dollar of imports com- pared to exports was due in part to the higher tonnage of imports carried by vessels, as noted above. Other factors included U.S. customs duties and excise taxes associated only with imports to this country. Here too, many U.S. industries depend heavily on water transport in their production process, since vessels offer the only economical transportation for the imports of raw materials or partly finished products they need. Such in- dustries' production could be greatly disturbed if foreign inputs were not available. Consequently, these industries have a great stake in the viability of port services. The primary nonferrous metals industry was second, with $1,097 million of waterborne imports. Next came the new construction industry with imports valued at $1,017 million. The value of the petroleum refining industry's imports totaled $1,013 million in 1970 but have increased relatively much more than any other U.S. import commodity and far exceeded the 100 percent increase in GNP noted earlier for the period 1970- 77. (This is because of a com- bination of inflationary pressures, increased demand for oil pro- ducts and petroleum production controls that have been imposed by the countries that export oil to the United States since the oil embargo of 1973-74.) Waterborne primary iron and steel imports during the study year amounted to $1,003 million; radio, television, and commercial equip- ment imports, $729 million; motor vehicles, $675 million; livestock, $479 million; rubber and miscella- neous plastic products, $451 mil- lion; lumber and wood, $379 mil- lion; chemicals, $375 million; paper and allied materials, $320 million; and heating and plumbing supplies, $272 million. (See Table 12.) The food and kindred products industry depended most on port industry for handling its imports, valued at $3,111 million in 1970. 39 IVHMfflVr WHAT WOULD HAPPEN IF 9 ■ ■ ■ ■ ■ The input-output model's ability to determine impact in two directions — impact of the port industry on the national economy and im- pact of economic events on the port industry — makes it a valuable economic forecasting and planning tool. $4,060 million represented direct and indirect payments for the transportation of imported products and domestic merchandise for final consumption. The input-output model's ability to determine impact in two directions — impact of the port industry on the national economy and impact of economic events on the port industry — makes it a valuable economic forecasting and planning tool. The model can be used to simulate external changes in the economy and determine their effects on the port industry. It can also analyze the effects of simu- lated changes in port activities or investment. However, this does not mean that the model can serve as a mechanical forecaster. It does not automatically generate solutions and answers. Extensive sets of assumptions usually must be made whenever the 1-0 model is used to simulate the conditions of an external de- velopment. These assumptions may relate to the current state of the economy, anticipated changes in technology, the possible im- pact of other global develop- ments, and, above all, to assumptions that are implicit in all 1-0 analyses, that is the con- stancy of input proportion and the transfer of imports and secondary production to primary industries. Furthermore, special adjustments of the model may be necessary for particular applications. The following examples illustrate the model's ability to answer three hypothetical questions: How Would Increased Consumer Spending Affect the Demand for Port Industry Services? The most prevalent problem that confront producers of goods or services is when, where, and how to adjust to variations in con- sumer demands for their products, especially increased demands. When this occurs, too little expansion of capital facilities can result in bot- tlenecks; overexpansion in economic waste. Decisionmakers in the port in- dustry are continually confronted with the problem of interpreting various available economic in- dicators in a way that is mean- ingful to their operations. Personal consumption data published routinely as part of the national accounting system can be put to good use as business indicators via the 1-0 model's built-in linkage between the private consumption sector of the economy and the port industry. Private consumption, in this context, would act as a barometer mainly to demand for port service in handling domestic cargo and imports. Consumer expenditures through- out the United States in 1970 totaled $615 billion. This included $8,171 million for the waterborne movements of these consumer goods (including expenditures for passenger travel by water). A little more than half the costs of waterborne movements — $4,060 million — represented direct and indirect payments for the transportation of imported products and domestic mer- chandise for final consumption. By using the inverse matrix of the l-O model, it was possible to identify and measure the amount of port services absorbed by private consumers through their purchases of all consumer goods and services. This showed that $4,111 million was paid for port services indirectly generated by consumers through purchases of domestically produced goods and services from industries that purchased port services for various inputs in their production processes. 41 $4,111 million was paid for port services indirectly generated by consumers through purchases of domestically produced goods and services. The model was able to determine that the private consumer was responsible for the indirect consumption of $1,109 million of port industry service in 1970 through the purchases of $71 billion of output from the food and kindred products industry. Assuming that propor- tionality of input-to-output holds, a 10 percent increase in consumer spending would result in an increase in demand for port service of $81 7 million. For example, the model was able to determine that the private consumer was responsible for the indirect consumption of $1,109 million of port industry services in 1970 through the purchases of $72 billion of output from the food and kindred products industry. This amount of port services was incorporated into the value (prices) of the out- put of food and kindred products industry during its production process. Through these techniques the l-O model can be used to estimate the impacts of changes in con- sumer expenditures on demand for port services as follows: Assuming that proportionality of input-to-output holds, a 10 per- cent increase in consumer spend- ing would result in an increase in demand for port services of $817 million (.10 X $8,171 million). This amounts to 5 percent of the port industry's total output of $17.2 billion. How Would Changes in Industrial Output Affect Demand for Port Services? Will changes that occur from year to year in the output of every in- dustry in the economy make new demands (requirements) upon the Nation's port industry? Forecasts of output changes by most industries are available from governmental and private sources. From these forecasts it is pos- sible to estimate future demand for port services by applying the projections to coefficients developed in this study's l-O model. Since each industry requires a dif- ferent amount of port services in order to increase its output, the impacts of their output changes will vary. Industries that have a strong demand for waterborne transportation services or indirect linkages to other supplying indus- tries that are heavy port users, have a substantially greater economic impact on ports than do industries with little direct or indirect linkages to the port in- dustry. Furthermore, the total impact of each industry's sales on the port industry depends not only on the strength of these linkages but also on the size of each industry's output. Naturally, industries with greater absolute sales will tend to have a greater overall impact on the ports. Two methods can be used to demonstrate how a change in the output of each industry affects demand for port service. One em- phasizes the absolute changes in industries' outputs; the other em- phasizes the relative changes in their outputs. The first kind of output simulation by individual industries is to com- pare the impact on the industry of a $1 billion increase in output in each industry. Industries with larger port multiplier effects (direct and indirect demand) will register larger impacts than in- dustries with small multipliers. The model showed that the in- dustry with the largest impact on the port industry in 1970 was the iron and ferro-alloy industry. Every billion dollars in new sales by this industry required $61 million in new port services. 42 V gi- ll ' - 3 m ■* ^^1 ~'w» i . - - V % n f u The industry with the largest impact on the port industry in 1970 was the iron and ferro- alloy industry. Every billion dollars in new sales by this industry required $61 million in new port services. The model showed that a 10 percent increase in the output of the food and kindred products industry would have the greatest impact, generating a $162 million demand for new port services. The second leading impact in- dustry was the primary nonferrous metal manufacturing industry, which generated $39 million in new port services for each billion dollars of new output. Other important impact industries with more than $30 million in new port services demanded for each billion dollars of new sales were primarily heavy industries that required wide usage of port serv- ices in their production proces- ses. These industries were nonferrous metal ore mining, $38 million; primary iron and steel, $35 million; petroleum refining, $33 million; and lumber and wood products, $30 million. The textile goods industry was the leading light manufacturing industry in this category. Each bil- lion dollars of new output of textile goods required some $35 million in new port services. Other industries which generated considerable demand for new port services, according to the model for each billion dollars of new sales, were: forestry and fishery products, $25 million; leather tanning and industrial leather products, $24 million; equipment for other transportation (outside port industry), $24 million; and rubber and miscellaneous plastics products, $23 million. (See Table 13). The second method of comparing the impact of changes in indus- trial output on ports is to simu- late an equal percentage increase in output for all industries regard- less of their sales levels. By doing so, the stress is put on the overall growth impact of each industry's demand for port serv- ices rather than the strength of the multipliers. If a 10 percent increase in output is analyzed separately for each in- dustry, a specific dollar amount of new port services can be determined in every case based on the existing 1970 interindustry relationships and the sales levels existing in that year. The model showed that a 10 percent increase in the output of the food and kindred products in- dustry would have the greatest impact, generating a $162 million demand for new port services. The second ranking impact in- dustry was the iron and steel with $121 million. New construction was third with $109 million, and petroleum refining came fourth with $104 million. The demands for new port serv- ices generated by 10 percent increases in output by other in- dustries were: Primary non-fer- rous metal, $102 million; chem- icals and selected chemical products, $52 million; wholesale and retail, $49 million; lumber and wood products, $45 million; and broad and narrow fabrics, $43 million. (See Table 14.) This information can be very use- ful for the port industry in making long-term growth projections. What it actually demonstrates is that demand for port services is a derived demand and that the logi- cal approach to projecting de- mand for new port services is via those industries that generate the demand in the first place. 44 Even broad indications about the future growth of each of the key industries could be useful from this perspective. For example, if it is expected that a leading impact industry will have sharp growth rates in the short run but much lower growth rates in the long term, a strong signal should be perceived in the port industry about the level of demand for its services. Capacity should then be moderated despite the shortrun boom. However, if such a key impact in- dustry has a steady long-term growth potential, the demand for new port capacity may be more soundly based despite short-run fluctuations. Finally, this analytical tool can also help determine whether certain economic developments have only a remote bearing on port traffic. Those industries which need only small amounts of port services directly and indi- rectly in their production process would not materially affect the port industry even if their output were to double. By recognizing such industries as wooden containers, chemical fertilizer and mineral mining, agri- cultural forestry, and fishery serv- ices, port management can react much more rationally to future de- velopments in the marketplace. How Do Dock Strikes Affect the Economy? Dock strikes always have triggered questions as to their effects upon the economy. Assessments of such effects have appeared in the business trade press from time to time, often with little explanation as to how the assessments were made. Such informal analyses have, nonetheless, found wide accept- ance because of the port in- dustry's great importance to almost every industry in the economy. Creation of an input-output model for this study provided a tool for assessing the economic impact of dock strikes. 45 To demonstrate how the input-output model can be used to evaluate the economic impact of a dock strike, a simulation was performed using a hypothetical set of assumptions. Creation of an input-output model for this study provided a tool for assessing the economic impact of dock strikes. However, impact measurement cannot be made with great precision because of a large number of variables that influence the outcome of such a strike. Key variables that must be taken into consideration in assessing the impact of a strike are: • Duration of the work stop- page. • Geographical extent of the strike (ports tied up). • Expectations of the duration and severity of the walkout and the extent of anticipatory inventory buildup by ship- pers. • Lead time warning before the strike's onset. • Amount of cargo divertable to other modes or routes such as air or overland transport to Canadian, Mexican, or U.S. ports not affected by a stop- page. • Extent of post-strike recovery of lost tonnage. Given these basic assumptions about a strike's duration and effectiveness, the 1-0 model can generate reasonable estimates of losses in output by the port in- dustry. Moreover, by including specific assumptions on the re- sponses of different industries to a dock strike, its impact can be estimated for the economy as a whole. Experience gained from past dock strikes has shown that the detrimental impact of a strike increases exponentially (by geo- metric progression) with time. The daily impact becomes more severe as the strike enters its more advanced stages. h I ' t 46 If a 6 month dock strike were in effect on all the Nation's coast- lines, waterbome foreign trade and most export production throughout the country would come to a halt. By the end of 6 months there would be a logjam of exports awaiting shipment with no space left for storing them. Alternative short-term outlets of Canadian or Mexican ports or air cargo could not possibly absorb this high level of overflow. Similarly, industries that depend on imported raw materials with no domestic substitutes would run into major supply problems that would affect production. Many would be forced to shut down for the walkout's duration and for a while afterward, until the flow of imported supplies could be re- sumed. As a consequence of a long port industry shutdown, many in- dustries unable to withstand the strike's effects could be forced into bankruptcy with a resulting increase in unemployment and other severe economic disrup- tions. In contrast, a strike of only 1 month affecting one coast would have only minor impact con- sequences for the U.S. economy. Meaningful output losses would occur mainly within the port industry itself. No major impact on production and sales would be noted in such an event, particu- larly if the duration of the strike was in line with general expec- tations before it began, or if the delay of seasonal cargo was at a minimum. Industries that depend only slightly on the Nation's foreign trade for supplies or markets would not be affected to a great extent by a strike of short duration. However, beyond a certain amount of time, even these industries could be injured if their domestic suppliers or buyers were severely affected by such a strike. Therefore, production losses re- sulting from a dock strike should be carefully assessed in each in- dustry by taking into considera- tion its individual characteristics in export production relative to total production, existing inven- tories, warehousing space, alternative supplies, potential bottlenecks, and seasonality of shipments. To demonstrate how the input- output model can be used to eval- uate the economic impact of a dock strike, a simulation was performed using a hypothetical set of assumptions. They were for a strike: • Of 2-months' duration; • On the East and Gulf Coasts; • Affecting all waterborne inter- national and all deep-sea domestic cargo except petroleum; • With 20 percent of struck waterborne traffic (based on value) diverted to air and overland transport; and • With 50 percent recovery of traffic through anticipatory shipments and post-strike in- ventory adjustments (50 per- cent based on value). The 1-0 model showed that a 2-month strike would result in a direct and indirect loss of $1,258 million to the United States economy. The direct impact would amount to $803 million. The severity of a dock strike's im- pact for any work stoppage be- tween the 1 month and 6 month durations would depend on the above assumptions. But with each passing day of a shutdown, more industries would begin to be affected. 47 The direct impact of such a strike therefore would amount to approximately 5 percent of the port industry's annual output. The 1-0 model showed that such a 2-month strike would result in a direct and indirect loss of $1,258 million to the United States economy. The direct impact within the port industry resulting from idling of ships, machinery, loading, and all other parts of the industry would amount to $803 million; the rest of the impact would be diffused throughout the economy through a chain of lost sales to the port industry. The direct impact of such a strike therefore would amount to ap- proximately 5 percent of the port industry's annual output. A foot- note to the above figures is that the strike's impact on port in- come may be relatively less than on output to the extent that overtime is paid in clearing back- log after the strike is settled or in hedging before the strike is called. The assumptions for the hypothe- tical strike were roughly consis- tent with the characteristics of most U.S. dock strikes during the last two decades. The 2-month duration of the strike probably re- presents the maximum period in which production in most indus- tries would not be seriously af- fected. The joint shutdown of East and Gulf ports has been the rule rather than the exception. These two coasts handle approximately 75 percent of the Nation's water- borne foreign trade. Diversion of 20 percent of the struck cargo to other modes and coasts could mean traffic increases of 40 percent to 80 percent for inter- national airlines and Pacific and Great Lakes ports that remain open. The role of expectations is ex- tremely important because the im- pact of a strike can be greatly cushioned by hedging during the warning period. Industries that de- pend on exports of their products can rush to get off as many or- ders as possible before the work stoppage deadline; steamship companies push up sailing times so their ships will not be caught in struck ports; industries that de- pend on imports stock up before the walkout takes place. Changes in any of the assump- tions would lead to different impact figures than those ob- tained. It was also assumed that the 2- month duration of the strike was expected, allowing ample warning for an anticipatory buildup of ex- ports and imports by shippers. In general, the closer the expecta- tions are to the final outcome of the strike, the less negative im- pact the walkout is likely to have. Correct expectations allow shippers and carriers alike to react by hedging or accumulating inventory to reduce the potential loss of output. In contrast, incorrect expecta- tions can be costly in overtime and storage costs. If no strike is expected, hedging usually is at a minimum. When an unexpected strike takes place, losses will then be greater. Similarly, if expectations of a prolonged strike do not materialize, short-run misallocations of resources occur at some cost to the affected industries. 48 The 1970 input-output model has many other potential applications that can shed light on various economic questions that are national in scope. The assumption that petroleum movements would not be affected simplified the analysis by elimi- nating the possibility of a crisis stemming from energy shortages. In 1970, petroleum and petroleum products accounted for 10 per- cent of the U.S. waterborne im- port value and less than 4 percent of the Nation's export value. No attempt was made to measure losses in export production and some other repercussions which may result from dock strikes. Such impacts cannot be quan- tified without extensive surveys. Permanent losses of export markets during a strike because foreign buyers turn to other countries are examples of such unquantified impacts. Domestic bankruptcies resulting directly from dock tie-ups are other examples. The simulation was therefore based on all the above assump- tions and confined to the direct impact on the port industry and the resulting indirect impact throughout the economy as measured by the port industry multiplier in the model. Further Applications The 1970 input-output model has many other potential applications that can shed light on various economic questions that are national in scope. Simulations can be made to answer such questions as: • How many jobs are created as a result of port facility construction of a certain size? • What would be the impact on the port industry of changes in tax policy? • What would be the impact on the port industry of changes in Government expenditures? Special attention would have to be paid in any further simulations of the model to assure that inter- pretation of results be made only within the limitations of the l-O model. For example, the model does not account directly for possible supply shortages in the economy or under-utilized labor and capital resources in specific industries. 49 The national 10 model also can be applied in analyzing regional impact of ports. The model provides estimations based on conditions existing in the survey year. These must be compared with any new develop- ments in the economy that are not intrinsic to the model. Updating results into current dollars is another aspect of the analysis which must be handled with great caution. Assumptions of fixed coefficients may hold less for certain specific industries than for others. Moreover, real economic growth and inflation vary by industry. It may be insufficient to merely use trends in real gross national pro- duct growth and price deflators to obtain a current dollar impact fig- ure for the port industry. It would be preferable to use more precise data for such purposes. The national 1-0 model also can be applied in analyzing regional impact of ports. Obviously, the total impact of the national port industry is made up of the various regional components, with each region contributing its share depending on the amount of direct port activities taking place within it and on the direct link- ages that it has with the rest of the economy. Since different regions tend to be more specialized in the handling of different commodity groups, and since regions also tend to have a nonhomogenous produc- tive base, the regional economic impact of ports cannot be achieved by dividing the national impact by any simple weight factor. For example, it is not appropriate to use regional trade volumes by vessels as proxies for regional im- pacts. Nor should any other single indicator such as regional population, income, or production serve such a purpose. The national model can be ex- tremely useful, however, in draw- ing some inferences from the linkages of regional ports to spe- cific national industries. The model is able to pinpoint the industries that benefit most from the existence of a port industry. Conversely, the model can pin- point the port industry that benefits most from certain in- dustries. Each region can evalu- ate its own position relative to the national standard. In addition, by using various adjustments, national impact yardsticks derived by the model can be refined to approximate regional impacts. For example, regions that handle bulk items primarily could com- pensate their impact estimates per ton by lowering them in some proportion to the national norm. On the other hand, regions that specialize in general cargo com- modities, or which have a strong international banking sector, could compensate in the other di- rection above the national average. 50 Although these crude methods do not provide precise regional measures, they could serve a useful purpose in gauging overall impact trends in various regions. Actually, all of the factors that make a region unique economi- cally must be taken into consider- ation when making inferences from the national model. Not only must ratios of bulk to general cargo be analyzed but also the proportions of export, import, and domestic trade as well as regional production and consumption patterns. The national model can be extremely useful, however, in drawing some inferences from the linkages of regional ports to specific national industries. All of which indicates that while the national 1-0 model does pro- vide a valuable blueprint for the derivation of a regional 1-0 study of individual ports, the national study in itself is not a substitute for a more refined regional analysis. 51 IMPACT TABLES TABLE 1 Interindustry Sales of the U.S. Port Industry -1970 TABLE 2 Expenditures for Port Services by Final Demand Sectors • 1970 ($ Millions) ($ Millions) Purchasing Industry Amount Final Buyers Amount Port services $1,220 Exports $5,706 Food & kindred products 749 Consumption 3,783 Primary iron & steel Federal Government 756 manufacturing 705 Investment 155 Petroleum refining 672 State & local government 36 Primary nonferrous metal mfg. 484 Inventory 25 Lumber & wood products 253 Rubber & misc. plastic products 237 Chemicals 223 New construction 205 Fabrics, yarn & thread 199 Paper & allied products 183 Stone & clay mining 181 Radio, television & communication equipment 178 Other agricultural products 170 Misc. manufacturing 127 Federal Government enterprises 114 Misc. textile goods 112 Wholesale & retail trade 107 Iron & ferroalloy ores mining 97 Nonferrous metal ores mining 84 52 TABLE 3 Direct Input Requirements of the U.S. Port Industry by 20 Leading Supplying Industries - 1970 ($ Millions) Supplying Industries Amount Business services $719 Other transportation 537 Real estate and rental Finance and insurance Petroleum refining State and local gov't enterprises Maintenance & repair construction Shipbuilding Business travel & entertainment Communications Automobile repair & services Other fabricated metal products Wholesale & retail trade Food & kindred products Electric, gas, water and sanitary Primary iron & Steel manufacturing Federal Government enterprises Rubber & misc. plastic products Primary nonferrous metal manufacturing General industrial machinery & equipment 493 401 323 320 251 251 228 203 169 149 117 105 81 73 70 68 TABLE 4 The Direct & Indirect Requirements of the U.S. Port Industry by 20 Leading Supplying Industries -1970 ($ Millions) Supplying Industry Business Services Other transportation Real estate Finance & insurance Maintenance & repair construction Petroleum refining Wholesale & retail State & local government enterprises Business travel Primary iron & steel Printing & publishing Communication Electric, gas Food & kindred products Shipbuilding Crude petroleum Primary nonferrous metal Other fabricated metal Automobile repair & service Paper & allied products TABLE 5 Direct and Indirect Personal Income Generated by the U.S. Port Industry by the Ten Leading Supplying Industries • 1970 ($ Millions) Amount Supplying Industry Amount $1,042 Other transportation $359 909 Business services 303 787 Finance & insurance 269 649 Maintenance & repair construction 252 477 Wholesale & retail trade 172 456 Printing & publishing 107 402 Federal Government enterprises 99 395 Communications 94 311 Primary iron & steel 297 manufacturing 85 288 State & local 287 government enterprises 81 280 261 253 229 234 218 3 217 195 61 53 TABLE 6 Direct and Indirect Business Income Generated by the U.S. Port Industry by the Ten Leading Supplying Industries - 1970 ($ Millions) Supplying Industry Real estate & rental Business services Other transportation State & local government enterprises Communications Crude petroleum Electric, gas and water Wholesale & retail Automobile repair & services Maintenance & repair services Amount $433 239 154 124 102 101 76 63 60 40 TABLE 7 Direct & Indirect Employment Impact of the U.S. Port Industry in the Ten Leading Supplying Industries • 1970 Supplying Industry Other transportation Business services Wholesale & retail Finance & insurance Maintenance & Repair construction State and local government enterprises Printing and publishing Federal Government enterprises Shipbuilding Communications Employment 45,300 40,600 31,800 30,700 17,200 13,400 12,100 12,100 12,000 11,100 TABLE 8 Direct and Indirect Sales Impact of Private Port Investment in the 20 Leading Supply Industries - 1970 ($ Millions) Supplying Industry Shipbuilding Communication equipment Primary iron & steel New construction Boat construction Other transportation equipment Nonferrous metal Motorvehicles & equipment Wholesale & retail Heating & plumbing Business services Other transportation Engines & tubes General industrial machinery Lumber & wood products Other fabricated metal products Finance and insurance Real estate and rental Electronic components Electric, gas Amount $664 146 93 82 81 68 66 59 53 46 39 34 31 31 30 28 25 25 21 19 54 TABLE 9 Direct & Indirect Output Impact Of Government Port Expenditures on the Twenty Leading Supplying Industries -1970 ($ Millions) Supplying Industry Amount New construction $348 Maintenance & repair construction 83 Business services 79 Wholesale & retail 48 Heating & plumbing 36 Stone & clay products 31 Primary iron & steel 31 Primary nonferrous metal 29 Lumber & wood products 28 Other transportation 26 Electric & gas 20 Construction & mining mach. 19 Electric industrial equipment 19 Printing & publishing 19 Hotel & personal services 18 Real estate & rental 16 Service industry machines 14 Finance & insurance 13 Shipbuilding 13 Petroleum refining 12 TABLE 10 Direct & Indirect Jobs Generated By Direct Government Port Expenditures in the Twenty Leading Supplying Industries -1970 Supplying Industry Jobs New construction 11,890 Wholesale & retail 4,190 Business services 4,140 Maintenance & repair construction 2,910 Hotel & personal services 1,390 Other transportation 1,240 Stone & clay products 1,120 Primary iron & steel 900 Printing & publishing 790 Electric industrial equipment 720 Finance & insurance 530 Construction & mining machinery 520 Primary nonferrous metal 490 Other fabricated metal products 400 Shipbuilding 390 Office & computing machines 350 Federal Government enterprises 290 Electric lighting equipment 250 Communication 240 Forestry & fishing products 220 55 TABLE 11 Leading Waterborne Export Industries in the United States • 1970 ($ Millions) Industry Agricultural products Food & kindred products Chemicals Construction, manuf. & oil field mchy. Primary iron & steel Motor vehicles & equipment Paper & allied products Petroleum refining Special industry machinery Primary nonferrous metal Coal mining Tobacco manufacturing General industrial machy. Lumber & wood products Service industry machines Metal working machy. Engines & turbines Other fabricated metal products Drugs, cleaning & toilet preps Ordinance & accessories Value Water Penetration $3,206 70% 2,060 85 1,766 77 1,372 76 972 77 959 33 922 91 874 92 843 75 828 76 646 100 645 98 539 67 471 77 425 83 419 67 373 70 362 66 359 57 342 86 56 TABLE 12 Ranking of Waterborne Imports by Consuming Industry in the United States -1970 ($ Millions) Industry Value Food & kindred products $3,111 Primary nonferrous metals 1,097 New construction 1,017 Petroleum refining 1,013 Primary iron & steel 1,003 Radio, television & comm. equipment 729 Motor vehicles 675 Livestock 479 Rubber & misc. plastics products 451 Lumber & wood products 379 Chemicals 375 Paper & allied products 320 Heating & plumbing products 272 Wholesale & retail 255 Other agricultural products 245 Office, computing & accounting machines 234 Electric & gas 220 Misc. manufacturing 219 Business services 182 TABLE 13 Increase in Port Industry's Output Resulting from Additional Sales of Other Key Industries - 1970 (Millions of Dollars per$1 Billion Sales by Other Industries) Industry in Which Output Increased $ 1 Billion Iron & ferro-alloy ores mining Primary nonferrous metal manufacturing Nonferrous metal ore mining Primary iron & steel Misc. textile goods Petroleum refining Lumber & wood products Forestry & fishery products Leather tanning and industrial leather products Other transportation equipment Rubber & misc. plastic products Misc. manufacturing Chemicals Paper & allied products Paints & allied products Metal containers Other fabricated metal products Plastic & synthetic materials Heating & plumbing equipments Special industry machinery Resulting Port Output (in $ millions) $ 61 39 38 35 35 33 30 25 24 24 23 21 20 19 19 19 18 18 18 17 57 TABLE 14 Increase in Port Industry's Output Resulting from Ten Percent Additional Sales of Other Key Industries ■ 1970 ($ Millions) Industry in Which Output Increased Food & kindred products Primary iron & steel New construction Petroleum refining Primary nonferrous metal Chemicals & selected chemical products Wholesale & retail Lumber & wood products Broad & narrow fabrics Rubber & misc. plastic products Paper & allied products Livestock & livestock products Real estate & rental Other agricultural products Apparel Radio, television & communication equipment Electric & gas Other fabric metal products Other transportation Heating & plumbing equipment Resulting Port Output $162 121 109 104 102 52 49 45 43 40 38 36 34 33 32 31 28 26 26 25 58 iV U.S. GOVERNMENT PRINTING OFFICE : 1978 O— 273-28* ■■■* "t f-~ •■>"**' ~' «. ••-■* ^* *, •iOW*-**-* ^*r. "% f*^s*§> SBB*tf ;* «$S ■--ffi^ ..- ; rf Z £ .-' *«* j*» '*> . -*. Report written by: Economists Jerome Gilbert, project leader Nai-Ching Sun Amos Han Technical assistance provided by: John Pisani, Maritime Administration and Philip M. Ritz, Bureau of Economic Analysis, U.S. Department of Commerce Consulting Editor Walter Hamshar Report designed and produced by Port Authority Graphic Services PENN STATE UNIVERSITY LIBRARIES III! ADDDD71EbHT3