Port Budgeting: On a Wing and a Prayer

By Jock O’Connell

It is difficult these days to find news that does not in some way involve the COVID-19 pandemic. Even newspaper food columns seem largely devoted to simple recipes for families sheltering in place. Fashion columns are all about working-at-home attire. And sports reporters may just as well file for unemployment…although some of us think it would be interesting to watch them pinch hit for the White House press corps.

So you can imagine how thrilled I was the weekend before last to find in the Wall Street Journal a lengthy review of a new biography of the eminent American philosopher, Lawrence Peter Berra, better known as Yogi.

One of the more cogent entries in the Berra canon is his sage observation that “you can observe a lot by just watching.”

Well, something I observed a lot of last month while hopscotching my way back from an abbreviated trip to Majorca was the great abundance of aircraft parked at the airports serving Palma, Barcelona, Amsterdam, and San Francisco. With cowling-clad engines, these planes clearly weren’t going anywhere soon. Government-ordered restrictions on personal movement had collapsed the demand for air transportation. Cavernous airports had become echo chambers. By the end of March, the number of passengers screened at TSA checkpoints at airports throughout the United States was down by more than 90%.

Great, you say, but why bring this up in the monthly newsletter of the Pacific Merchant Shipping Association? Aren’t there more pressing maritime issues to discuss? Like, what’s going to happen to all those orphaned containers full of goods no one seems to want anymore? Or will a major shipping line go the way of Hanjin? Or what’s the future of globalization?

Granted that these are all compelling topics of conversation, but the point I wish to make here is that many of America’s largest ports – including some of the West Coast -- are actually airports masquerading as seaports.

More specifically, it’s the revenue generated by aviation operations that often provides most of the financing for port authorities from Boston to Seattle. And since the collapse of air travel has been much steeper than the fall-offs in maritime trade volumes, the governing bodies of a number of ports across the country are seeing their revenue flows slowing to a trickle, a situation that is unlikely to be quickly alleviated.

In New England, the Massachusetts Port Authority (Massport) runs one of the smaller of the top container ports in the nation. In FY 2019, its Conley Terminal handled 307,000 TEUs and produced $102,774,000 in operating revenue. But Logan International Airport is Massport’s core. In FY 2019, 41,863,411 passengers flew through Logan, which generated $756,415,000 in operating revenue for the port authority. Even if travel restrictions are lifted by summer, it is doubtful passenger levels will return to pre-plague levels within the next year or two.

The country’s largest example of a port authority that is more in the aviation business than in the business of loading and unloading ships is, of course, the Port Authority of New York-New Jersey. PANYNJ, which will celebrate its centenary next April, is really a regional transportation agency that manages the Port of New York and New Jersey, but also four airports (JFK, LaGuardia, Newark Liberty International, Stewart International, and Teterboro Airport) as well as sundry bridges, tunnels and rail services – responsibilities so sprawling that PANYNJ has its own police force numbering over 2,000 officers.

PANYNJ’s 2020 budget projects total revenue of $5.79 billion, with just over half ($2.96 billion) stemming from its aviation activities. PANYNJ’s maritime operations actually yield less revenue ($335,013,000) than does its management of the World Trade Center ($353,286,000).

Out here on the West Coast, while our two largest seaports – the Ports of Los Angeles and Long Beach – are not formally in the aviation business, the picture is much different elsewhere.

The Port of Seattle. In 2015, the Port of Seattle partnered with the Port of Tacoma to create the Northwest Seaport Alliance. Together, they are the nation’s fifth largest gateway for containerized trade with the rest of the world. Last year, the NWSA ports handled 3,775,303 TEUs. The alliance of the two ports did not, however, affect the governance status of the Seattle-Tacoma International Airport, which remained under the administrative auspices of the Port of Seattle.

Seattle-Tacoma International Airport (SEA) is ranked 8th among U.S. airports in terms of passenger traffic and 21st in terms of air cargo tonnage. Prior to the Great Lockdown, SEA was home to 31 airlines serving domestic and international destinations.

In its 2020 budget, the Port of Seattle’s Aviation Division was expected to produce operating revenues of $684.5 million, a $59.4 million or 9.5% increase from its 2019 budget. By contrast, the Port of Seattle’s current budget assumed the Maritime Division would generate operating revenues of $62.9 million. Those numbers are no longer viable, but the drop in aviation-related revenue through the remainder of the year should be particularly precipitous.

The Port of Portland (Oregon) is not just four marine terminals on the Columbia River; it’s PDX, Portland International Airport. With total passenger traffic last year of 19.9 million, PDX ranks as the nation’s 30th busiest airport. The Port of Portland’s 2019-2020 Adopted Budget shows total operating revenues of $338,049,965, of which PDX accounted for $270,826,379 or 80.1%.

Port of Oakland. Through the end of its last fiscal year on June 30, 2019, operating revenue at the Port of Oakland totaled $396,997,000. Of that, Oakland International Airport (OAK) generated $208,022,000 or 52.4% of the total. Passenger traffic had increased to 13.6 million from 13.4 million in fiscal year 2018. Meanwhile, the Port’s Maritime Division produced $170,976,000 or 43.1% of the Port’s total operating revenues in FY2019. Maritime’s operating revenues had increased by 7.2% from the prior year. The third element of the Port’s revenue stream, its Commercial Real Estate Division, yielded $17,999,000 or 4.5% of the Port’s total operating revenues in FY2019.

Even before the virtual collapse of domestic air travel this spring, Oakland had seen an important loss of air service when Norwegian Air Shuttle transferred its long-haul European flights to San Francisco International. That hurt. As the Port’s Director of Aviation told the San Francisco Chronicle last July: “Over one million travelers have flown in or out of OAK on Norwegian.” Earlier this year, JetBlue also announced it would be ending its service to OAK. Still, the suspension of most air traffic will leave a gaping hole in the Port of Oakland’s financing for what is likely to be an extended period of time.

A formal decision to re-open the economy by suspending current restrictions on personal movement will not in itself bring passenger loads back to pre-pandemic levels. That will take time and will be influenced by a variety of factors, mostly economic but also psychological. Namely, how eager will travelers be to sit among strangers in the confined space of an airplane so soon after a deadly virus has swept across the globe? Certainly, the prospects for filling the massive loss of revenue from depressed aviation operations are not especially encouraging.

The state’s other major seaports are stand-alone operations. Although both are departments of the City of Los Angeles, the Port of Los Angeles is independent of Los Angeles World Airports, which owns and operates LAX and Van Nuys airports. Similarly, the Port of Long Beach and Long Beach Airport are separate departments of the City of Long Beach. It’s the respective city governments that will have to deal with the sudden drop in revenue.

The Port of San Diego, established in 1962 by state legislation, does not run San Diego’s Lindbergh Field, although it does provide a police presence at the airport. But the Port of San Diego, like the Port of San Francisco to the north, is existentially vulnerable to any loss of revenue from travel, tourism, and conventions. San Diego’s FY2020 budget expects total operating revenue to be $192,780,500. Of that, its maritime operations were expected to generate just $40,175,700 (20.8%).

From Seattle and Tacoma down to San Diego, ports including San Francisco, Los Angeles, and Long Beach have all invested heavily in cruise ship operations, convention centers, and hotels. Travel restrictions have carved a deep slice from the revenues derived from those investments. Longer term, though, there are few assurances that businesses associated with tourism and conventions will bounce back to former levels. Especially with unemployment rates expected to be persistently high through the next few quarters, it is unlikely that pre-plague consumer and business spending practices will resume within the next few quarters.

So, as grim as projected container trade and other cargo statistics may look, West Coast ports are going to be facing severe financial crises, all because of metrics to which the market-share obsessed maritime industry hasn’t given sufficient thought.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.