Homeland Security Watch

News and analysis of critical issues in homeland security

March 29, 2006

CBO study looks at costs of container disruption

Filed under: Port and Maritime Security — by Christian Beckner on March 29, 2006

The Congressional Budget Office (CBO) released a report today entitled “The Economic Costs of Disruptions in Container Shipments,” in response to a congressional request for better data on the potential impacts of a disruptive event to port operations. The report models two scenarios:

  1. An unexpected one-week halt to all container traffic through the ports of Los Angeles and Long Beach, California, the country’s two largest ports for such shipments;
  2. An unexpected three-year halt to all container traffic through those two ports as well as an initial precautionary one-week stoppage of container shipments at all U.S. ports.

The estimated economic costs of disruption in each of these scenarios:

CBO’s analysis of those scenarios provides rough estimates of the costs to the U.S. economy of disruptions in container traffic. Although in 2004 approximately $500 million worth of containerized imports flowed into the ports of Los Angeles and Long Beach each day, the loss in production (gross domestic product, or GDP) from a oneweek shutdown of those ports would probably be less—between $65 million and $150 million per day.

Daily costs would be at least that large in the case of a three-year closure of those ports and an initial one-week stoppage of container movement at all U.S. ports. Simulations commissioned by CBO suggest that the three-year shutdown would reduce real (inflation-adjusted) GDP by between 0.35 percent and 0.55 percent, or $45 billion to $70 billion, per year. That reduction translates into daily costs ranging from $125 million to $200 million.

These totals are significantly lower than the frequently-cited estimate of $1 billion – $2 billion/day, a number put forward by the Federal Reserve Bank of San Francisco during the 2002 port strike on the west coast (which is for the entire west coast, but is still larger even after you adjust for LA/Long Beach’s share). The difference between the models seems to relate to the fact that the CBO report is an “interindustry study” and assumes the ability of economic actors to adapt to changed circumstances; for example, by rerouting the shipment of goods to other ports or changing inventory management procedures. Nevertheless, these are still significant totals, and I believe that they provide a strong and sustained rationale for action on port and maritime security.

Overall, a very solid report, and I think that these statistics and figures should become the new baseline on which to model and assess disruptions to port operations and container movements.

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