An Ode to Lithe

By Jock O’Connell

I gave a talk the other day at the American Association of Port Authorities’ Port Commissioners Seminar at San Francisco’s Hyatt Regency (the one regrettably without coffee-making devices in every room). Part of my remarks involved an examination of five clusters of macro developments I thought were likely to significantly and inescapably affect every North American port’s operations between now and mid-century.

Here’s the relevant slide from my presentation:

All clusters featured obvious dark clouds that would likely cast shadows over the outlook for maritime trade. For example, under Trade Policy, the decades-long Bretton Woods consensus that was inherently biased toward the free flow of trade was pretty much shattered in 2016 on both sides of the Atlantic when Britain voted to leave the European Union and Donald Trump was elected U.S. President. Almost as his first act as president, Trump pulled out of the Transpacific Partnership, repudiated the Transatlantic Trade and Investment Partnership, and issued new threats to withdraw from NAFTA. Then came the waves of tariffs in which Trump picked fights with every important trading partner but especially with China. Now, the U.S. and China are engaged in a hugely complex trade conflict involving so many intertwined issues that meaningful resolution in the near-term seems imponderable. Cargo flows through U.S. ports have been greatly and, for the most part, negatively affected.

However, the clusters that should be of the utmost concern in weighing long-term port planning are Demographics and Climate Change.

All demographic projections indicate a dramatic redistribution of the world’s population by mid-century and beyond. Several major U.S. trading partners will experience populations that are not only shrinking but growing grayer, with all the not-so-positive implications those trends imply for future consumption of tradable goods. By mid-century, there will be fewer Chinese, Japanese, Germans, South Koreans, and Russians.

For a nation like the U.S. (which is forecast to grow in population, albeit at slower rates under Trumpian immigration policies) that conducts more than half of its foreign trade with just five nations, the fact that three of them (China, Japan, and Germany) are on downward population slopes should be sobering.

And it is not just migrations of populations but of industry as well. Technologies such as additive manufacturing, protectionist trade policies that make liberal use of tariffs and barriers to foreign investment, and a ceaseless search by manufacturers for lower-cost jurisdictions will continue to reshape the geography of manufacturing.

The other cluster – Climate Change – overlaps with the demographic cluster in at least one important respect. Changing weather patterns, if they persist, may make some regions of the globe less than hospitable for people and industry. Earlier this month, temperatures in New Delhi reached 118, the highest ever recorded there in June. In one western state in India, the thermometer exceeded 122. Those are temperature readings which discourage even the foolhardiest German tourists from trekking Death Valley. Ultimately, prolonged periods of soaring temperatures may result in population migrations of epic proportions. That would, in turn, substantially alter where crops are grown and where factories manufacture goods, with all of the myriad implications that would entail for maritime transportation.

Now, an earlier part of my talk at the AAPA session involved a riff (maybe closer to a rant, actually) on the long-term cargo forecasts ports periodically commission to help guide planning and investment decisions. The fundamental issue I have with most every forecast I’ve ever examined is that they have a limited shelf-life despite the pretense of predicting cargo volumes as much as 30-40 years into the future.

Frankly, anybody who professes to know what the world will look like in ten years, let alone at mid-century only serves to confirm the old rub that the real reason economic forecasters exist is to give credence to astrology. A cleverly contrived algorithm cannot foresee all eventualities. (Consider the 2007 container forecast for the San Pedro Bay ports that was upended the next year by a Great Recession very few anticipated.)

The problem, typically, is that forecasts are extensions of the existing narrative. Unless there is some compelling reason to think otherwise, they broadly assume the immediate future will resemble the immediate past. If your port’s container traffic has been growing at 3% a year for the past decade, the forecast will likely show a 3% per annum projection, bracketed of course by estimates drafted by Pollyanna on the one hand and Calamity Jane on the other. (Actually, Calamity Jane is an optimist. She seldom, if ever, foresees the port going out of business.)

That is why I propose that forecasters of all stripes contribute to building a shrine to Lithe, the Greek goddess of forgetfulness, on some pleasant Mediterranean isle and be required to make annual pilgrimages there to pray that she will muddy all recollections of their errant prognostications.

Okay, O’Connell, this is all very interesting, but last month you promised your readers that you would discuss the competition between the NWSA ports and their British Columbia rivals? Where’s that piece?

In truth, I had been giving this topic a great deal of thought and had indeed been reviewing the relevant statistics for the four big container ports on either side of the 49th parallel. But then my attention had been diverted in recent days by stories in the maritime media about a report from Mercator on the origins/destinations (O/D) of container traffic through the Ports of Vancouver and Prince Rupert.

The take-away numbers, as recounted in the Journal of Commerce and American Shipper among other news outlets, was that a growing share of the intermodal traffic at both Canadian ports involved O/D within the United States. Where 23.7% of the total container traffic at the two BC ports in 2010 involved U.S. markets, that share had grown to 27.4% in 2018. The dependence on American markets was particularly acute for Prince Rupert, where the U.S. share of total container imports stood at 68.3% last year. (50.5% of the port’s outbound volume involved U.S. shipments.)

The Mercator report featured no commentary, but the conclusions reached by reporters was that these increases were coming almost entirely at the expense of the NWSA ports in Puget Sound.

That may well be the case, but what caught my eye in the brief introduction to the report was the statement that Mercator reviewed and analyzed “Port Metro Vancouver’s 2016 container volume forecast in order to identify this port’s historical breakdown of container volume by origin/destination area.”

Well, it turns out I’d been reading that earlier forecast lately and occasionally stopping to ponder some of its peculiar assumptions as well as its glaring editorial glitches.

Section I of the 2016 forecast contains a “Pacific Gateway” forecast that covers both British Columbia ports and counts both loaded and empty containers. Its base case scenario (Table 1.38 on page 95) expected import demand to rise from 2,018.8 thousand TEUs in 2015 to 3,310.1 thousand TEUs by 2030. Its parallel export forecast (Table 1.39 on page 97) looked for growth from 1,812.1 thousand TEUs in 2015 to 3,310.1 thousand TEUs in 2030.

No kidding, Tables 1.38 and 1.39 display TEU forecast counts for both imports and exports that are identical for every year after 2021. I have no idea why or, more importantly, why no one seems to have fixed the error.

Alas, the same mistake is repeated much deeper in the forecast where a more detailed outlook for Vancouver is presented in Section VII following page 214.

In Table 7.1 (page 219), the Pollyanna Forecast expects total container volumes (in TEUs) to grow by 104.1% between 2015 and 2030, while the Calamity Jane Forecast fears growth will only be 38.4%. In between is the Prudent Patty guess that TEU traffic will swell by 79.4%.

Table 7.2 is titled “Port of Vancouver – Base Scenario Import Container Port Demand to 2030.” Here the expectation is that import traffic will grow from 1,580.8 thousand TEUs in 2015 to 2,739.7 thousand TEUs in 2030, an apparent increase of 72.6%. “Apparent” is the appropriate adjective because, as we shall see, it’s not clear which numbers are which in this forecast.

Table 7.3 is entitled “Port of Vancouver – Base Scenario Export Container Port Demand to 2030”. Here the forecast held that export traffic will increase from 1,473.6 thousand TEUs in 2015 to 2,739.7 thousand TEUs in 2030. That’s right. It expects export and import demand to be identical by the end of the forecast period. Actually, for every year after 2021, Table 7.3 repeats the data contained in Table 7.2.

So which set of numbers is bogus? Evidently, no one has taken the trouble to amend the copy of the forecast available on the port’s website at: https://www.portvancouver.com/wp-content/uploads/2015/05/2016-Container-Traffic-Forecast-Study-Ocean-Shipping-Consultants.pdf.

Shoddy proofreading that thwarts an independent analysis of the forecast is bad enough. Worse, though, is evidence of a forecast that embraces a static world.

In Table 7.2, the major sources of imported TEUs are listed. They are the usual suspects. Along with their respective shares of Vancouver’s container import trade in 2015, they are: China (60.0%), Hong Kong (4.0%), South Korea (10.6%), Taiwan (4.2%), Thailand (3.6%), and Others (17.6%).

China’s out-sized, round-number 60.0% share in 2015 does not seem unreasonable or contrived. The forecast indicates that it was down from 60.8% the year before but up from 56.1% in 2013. (By comparison and admittedly using a different metric, China’s share of containerized import tonnage at the NWSA ports peaked at 63.6% in 2010 and gradually dwindled to 54.6% last year. Still, fully three-quarters of all imports via the NWSA ports come from six nations: China, Japan, Taiwan, South Korea, Vietnam, and Thailand.)

But then something very odd happens in the Vancouver import forecast. For each year between 2015 and 2030, the shares of imported TEUs attributed to each of the principal countries-of-origin do not vary by even a fraction of a percent. China’s 60.0% share in 2015 remains 60.0% in 2030, just as the 17.6% share attributed to Others is the same throughout the entire 15-year forecast period.

Really? Not exactly a forecast for a constantly changing world.

The commentary, views, and opinions expressed by Jock O’Connell are his own and do not reflect the views or positions of the Pacific Merchant Shipping Association. PMSA does not endorse, support, or make any representations regarding the content provided by any third party commentator.