The morning before the Skagit River Bridge collapsed I happened to be at the Port of Tacoma’s annual breakfast. The two guest speakers were talking about the biggest economic challenges facing Washington state and the nation generally.
Walter Kemmsies, Chief Economist for Moffat and Nichol, focuses on the future movement of goods and on how markets develop around the world. Lisa Labruno, Senior VP of the Retail Industry Leaders Association (RILA), watches retail trends and monitors supply chain challenges.
Both agreed that the greatest threat to our economic well being is a crumbling and increasingly unreliable transportation infrastructure. Kemmsies put it bluntly when he said that our transportation infrastructure “sucks.”
Besides the obvious need to prevent injury and death, there are sound economic reasons for addressing this situation with some urgency.
First, we need to keep our region competitive. One need only look to Canada’s Gateway Strategy of investing in roads, bridges, ports and rail to begin to understand what the Northwest is up against. South Carolina, Georgia and Virginia are building state of the art port facilities, plus road and rail connections to lure business from other states and countries.
These states understand that companies are much more concerned about supply chain cost, efficiency and congestion than they have ever been. The collapse of major infrastructure, such as the I-5 bridge on the Skagit, shakes corporate confidence in our region and sends shockwaves through the system. More than $10 billion in products move across that bridge every year.
If our infrastructure is not dependable, imports and exports will find other places to go. And these days, there are lots of alternatives. Given the ongoing economic crisis, the diversification of supply chains after 9/11 and other natural disasters around the world, and the cost of fuel, every port city is in the game.
Some critics of globalization argue that Puget Sound doesn’t need to be a worldwide player. That we should focus on products and services made in the region, for and by people who live here.
The problem with that argument is economies of scale. They demand that our agriculture producers and manufacturers have access to markets outside the state in order to be successful. To make exporting our products affordable, indeed possible, we need roads, bridges and rail that are reliable enough to warrant corporate confidence and investment.
Kemmsies and Labruno also provided insight into the global trends that are driving the retail and manufacturing industries, and how well Puget Sound is responding.
First, retailers are getting serious about sustainability. According to Labruno, the two biggest priorities for retailers are reducing transportation and packaging costs for their products. This emphasis on sustainability and environmental performance, she said, is being driven by the bottom line.
Another big trend is urbanism. More people are moving back to the cities. Retailers are following their customers. In Seattle, we have a great example of this with the downtown Target store at 2nd and Pike. We will see more big retailers adapting to the urban environment. Their challenge will be getting goods to the shelves in a cost-effective and predictable way.
In an urban setting, congestion becomes a real threat to the efficient movement of freight. Again, good infrastructure and land use planning will be key.
Turning to the shipping world, ports that can’t compete on cost and reliability will be in trouble. The recession has made retailers hawks on cost. Proof is in the numbers: While retail sales are now back at pre-recession levels, there are 400,000 fewer retail workers now than there were before the downturn. Retailers have learned to do more with less.
What’s the takeaway for Washington manufacturing and exports?
As Dr. Kemmsies has said before, we cannot build national prosperity on a consumer driven economy alone. For one thing, Americans are getting older. One in five of us will soon retire. Older citizens may consume a lot of healthcare but they’re not building houses, buying diapers, or cars or washers and dryers. As a result, the import boom we saw prior to the recession is probably not coming back. The slowdown promises a real challenge for ports and exporters in the next decade. Add to that China’s five-year plan to retool its economy to be less dependent on exports.
Without a brisk import business coming through our ports, exporters will see their costs rise. And this is important, because to be profitable our companies need to have access to markets overseas, and increasingly in our own backyard. (Think: Mexico.) The infrastructure necessary for imports — intermodal and transloading facilities, repositioning of containers, etc. — services exporters too, ensuring affordable and easy access to containers and ships sailing back to Asia.
We can expect continued shifts in manufacturing as well. India has cheaper labor than China, and Mexico offers cheaper raw materials. But U.S. manufacturing isn’t dead. “We aren’t going to be making toasters any time soon,” notes Kemmsies, “but we will be competitive for high end capital goods.” SGL Automotive Carbon Fibers in Moses Lake, for example, imports raw materials from Japan, manufactures carbon fiber, then ships it through our seaports to Germany where it’s being used in two new BMW models. That kind of homegrown manufacturing is exciting, but it can’t thrive on 1950’s-era infrastructure.
Lastly, we can’t forget energy. The hot new trend in energy these days is natural gas. It is the only commodity — among oil, food, metals, etc. — whose price has fallen in the last 12 years. In fact, according to Kemmsies, natural gas is now five times cheaper than diesel, and you can recover the cost of switching over in just 12 to 18 months. These facts will drive demand for natural gas, as well as the infrastructure needed to support it.
Unfortunately, building infrastructure is not something we seem to do either quickly or efficiently. Fiscal conservatives don’t want to spend money to rebuild or upgrade roads and bridges. Liberals support a dizzying array of permit requirements and processes that make it longer to permit a project then to build it. By contrast, Canada uses a number of creative funding and development mechanisms to build what they need to keep their economy going, including public-private partnerships to fund infrastructure projects.
So, do we invest in infrastructure to repair and enhance our competitive edge? Or do we watch both crumble and slip away?
Last week’s bridge collapse afforded a glimpse of one future. Hopefully, not ours.
America is once again driving the world’s recovery from recession. Manufacturing is coming back and we have the resources to invest in infrastructure at a time when it is best to build. Let’s not let this opportunity pass us by.
