Gulfport port plan shows the pitfalls of central planning

Share this article
The free market is the best way to allocate capital. Government planning is one of the worst, yet the Gulfport port expansion is looking like a classic case of poor government planning.

By Wyatt Emmrich | Editorial | The Northside Sun | May 2014

When hurricane Katrina hit the coast nine years ago, the federal government gave Mississippi six billion in aid. Then governor Haley Barbour decided to use $600 million of that money to expand the port of Gulfport. So far, little has come of the money or expansion.

It would be foolish for a poor state like Mississippi to turn down any government aid, especially after a natural disaster, but a $600 million rebate on our federal taxes would have been a much better way to help.

The free market is the best way to allocate capital. Government planning is one of the worst, yet the Gulfport port expansion is looking like a classic case of poor government planning.

A hundred or so years ago, American shippers believed private ports were using their monopoly power to raise prices unfairly and play favorites. What followed was the establishment of local port authorities and government regulation.

Fast forward to today. Our nation has a quiltwork of local, state and national port regulations and governmental port authorities. Deregulation has not significantly impacted this industry. Ports are expanding not according to market demand but rather political connections. Inefficiency is the byproduct.

The port of Gulfport operates under the jurisdiction of the Mississippi State Port Authority. John Rester is the president, appointed by Kirk Fordice and Haley Barbour. He is former CEO of Mobile Medic and senior vice president of AMR, a national ambulance company.

Other board members are appointed by the governor and the local board of supervisors and include an economic developer, an insurance agent, a public works engineer and an attorney. No one on the board had any prior experience in port management or the intercontinental shipping industry.

The port has experienced an operating loss for each of the last four years, totaling $73 million. Not to worry, the port received $117 million in “transfers from other state agencies.” The port can issue taxpayer guaranteed bonds, has a special ad valorem millage from the county and gets a healthy dose of federal and state block grants. There is no shortage of cash.

The expansion has been backed by various reports proving the economic benefit of the huge expenditure. One mega engineering firm, CH2MHill, has made millions generating reports showing the benefits of port expansions to dozens of ports around the country. The reports promise an enormous windfall of jobs and economic growth created by port expansion.

This excitement is fueled by the nearly-complete expansion of the Panama Canal, which will allow bigger boats that require deeper ports.

In retrospect, the $600 million in federal Katrina money perhaps would have been better spent on direct housing rehabilitation instead of going to engineering, contracting, legal and PR firms. Let the free market decide and auction the land and its structures to the highest bidder. Perhaps that would be one of the world’s dozen privately-owned port management companies that would be better equipped at managing the facility.

Indeed, if Gulfport expanded and deepened  its port and all the other U.S. ports stood still, Gulfport would enjoy good growth. Problem is, dozens of these ports are planning on a massive expansion all at once. The studies don’t factor competition into the equation. This is a huge oversight.

Gulfport handled two million tons a year. In comparison, the port of South Louisiana in La Place handles 246 million tons. Houston’s port handles 237 million tons. Gulfport is ranked 114th in the U.S.  The port of Pascagoula, which has remained independent of state control, does 34 million tons – over 14 times the amount of Gulfport. There are dozens of ports along the gulf that make Gulfport seem tiny in comparison.

This gap will be even wider now that Gulfport has lost Chiquita, its biggest customer, to New Orleans.

When I first heard Barbour speak eloquently about his great plans for the port of Gulfport, they sounded great. I was excited.

But as the facts have come to light, it appears this is just one more example of the pitfalls of government planning. Better to let the free market and private business do this type of investment. Using other people’s money with no personal downside and tons of political upside is a recipe for waste and inefficiency. At least most of it is federal money.

Think about it: A company that is losing $20 million a year is about to spend $600 million to expand while its much-larger competitors are gearing up to do the same. It’s led by a government board composed of local folks with political connections and zero prior experience in the shipping business.

Let’s not even mention the railway lines serving Gulfport are significantly inferior to competing ports and would serve as a bottleneck.

To justify this questionable exercise in capital allocation, the Mississippi State Port Authority released a June 2011 report titled, “The Projected Economic Impacts from Container Terminal Development at Gulfport.”

The report does not mention the word “competition” or “competitors” a single time. Only in the make-believe world of government planning could you envision spending $600 million without a thought to the competitive environment.

The report projects not only direct jobs from the port expansion, but “induced” and “indirect” jobs as well.

The report projects over $2,000,000 in economic benefit for every 1,000 20-foot container. This is not possible because at current world shipping rates, this computed economic benefit is more than it would cost to ship 1,000 containers.

And where does the report factor in the negative “induced” and “indirect” damage from the $20 million in annual operating losses at the port?

Using such logic, the U.S. government could eliminate free enterprise and replace it with state socialism, all justified by the “direct,” “induced,” and “indirect” benefit of government job creation.

The free market has its own way of determining economic benefit. It’s called profit, of which the Gulfport port has zero. Its losses equal an economic detriment.

The issue is not new. In 1990, the Reason Foundation conducted a study on 66 port authorities in the U.S. The report found 30 percent of port authorities were operating at a loss. The study concluded: Government-owned and operated ports face many problems. Lacking exposure to full commercial competitive pressures, publicly owned and operated ports may have reduced incentive to operate efficiently and are often subject to political interference.

In a 2011 book titled “Privatize This: Assessing the Opportunities and Costs of Privatization,” author Richard A. McGowan concludes: Private owners usually have specific goals and objectives in mind when they bid for ports. These firms want to profit and expand their businesses, so the problem of not having clear plans does not exist. For instance, if the port is initially small and unequipped and has a low trade volume, then the new company will design and execute expansion plans. The private firm has an advantage over the public port with its operations management. In general, firms in the shipping and port industry raise capital more efficiently and spend a substantial amount of resources on research and development. Consequently, they can develop more advanced technologies and better management strategies than the public port can.

In retrospect, the $600 million in federal Katrina money perhaps would have been better spent on direct housing rehabilitation instead of going to engineering, contracting, legal and PR firms. Let the free market decide and auction the land and its structures to the highest bidder. Perhaps that would be one of the world’s dozen privately-owned port management companies that would be better equipped at managing the facility.

Source URL: https://northsidesun.newspapers.com/image/134367755/?terms=Gulfport+port+plan+shows+the+pitfalls+of+central+planning

, , ,

No comments yet.

Leave a Reply

sixteen + eighteen =