What Would Happen?

Random Lengths News | September 1, 2006
Port Security—

Assessing the Costs of the Unthinkable

New Report Offers Competing Estimates of Impacts of Terrorist Acts in Ports

Call it a cliché, but USC and UCLA are at it again, with competing estimates of what a terrorist attack on local ports would mean for the national economy. But, in the end, they’re both in the same league, and both argue that, whatever the local impacts, the national economy would not be severely strained, and would not suffer a recession.

Researchers associated with the two schools weigh in with chapter-length economic analyses in the Public Policy Institute of California’s (PPIC) report, Protecting the Nation’s Seaports: Balancing Security and Cost. Although their methods are strikingly different, both focus on the overall economy, not on those businesses directly affected, and both find remarkably little impact on the national economy—anything short of a nuclear attack (the subject of a recent RAND report) would not cause a national recession.

These analyses are port-specific, and do not address the global issue of container security, which involves the entire supply chain, and includes the possibility of WMD smuggling to attack targets far inland. Indeed, part of their purpose is to help determine how much relative threat to assign to the whole system versus the ports specifically.

“A significant closure of the ports would have at most a mild effect on the economy,” according to UCLA economists Christopher Thornberg and Edward Leamer in their chapter, “Ports, Trade, and Terrorism: Balancing the Catastrophic and the Chronic.”

Their approach is to examine the most similar sorts of economically disruptive events, which means labor disputes. The impact of the 2002 lockout—wildly hyped at the time at $1 billion a day—was virtually non-existent in the long run, as most economic activity was delayed, not lost forever, they write. The same was true of earlier stoppages—in 1963, 1964, 1969, and 1971—whichever coasts they effected. Although these lasted between 30 and 70 days, with sharp drops in trade, none resulted in a recession, and in every case trade boomed dramatically once work resumed. Indeed, longshoreman have always taken pride in how quickly they get things moving once a labor dispute is settled.

Nor have other disruptive events—such as Hurricane Andrew, the Northridge Earthquake or 9/11—triggered recessions, despite some popular reporting to the contrary at the time.

USC’s team of researchers—Peter Gordon, James E. Moore, II, and Harry W. Richardson—came up with a much larger cost estimate, but still not enough to cause a recession. They used a complex economic model, dividing the economy into 17 sectors (with 509 sub-sectors) across 1,527 geographic zones in the greater Southern California five-county region. Their study, “The Costs of a Terrorist Attack on Terminal Island at the Twin Ports of Los Angeles and Long Beach,” examines a scenario in which all the bridges to Terminal Island are destroyed—including rail.

An earlier study “explored the effects of simultaneous radiological bomb attacks on the twin ports of Los Angeles and Long Beach,” they report. The five-county cost estimate for that scenario ranged from $4.3 billion of lost output and 9,606 person-years of employment for a 15-day closure to $12.2 billion of lost output and 76,850 person-years for a 120-day closure. The later figures are 1.6 and (roughly) 1.1 percent of the respective annual totals for the five county area in 2005. Losses to the rest of the country’s economy would be about double in both cases.

These are not automatically devastating totals, in light of tragedies like Katrina or the Northridge Earthquake. Whether or not they would be devastating depends largely on the speed and quality of the federal response. In fact, federally-assisted rebuilding after Northridge has been credited with helping to end the early-1990s economic downturn that until then had lingered much longer in Southern California than in the rest of the nation. In contrast, New Orleans is still a shadow of its former self.

Under the Terminal Island scenario, a one-year closure would cost $16.1 billion (2.1 percent) of lost output regionally, and $28.8 billion out of region for a $44.9 billion national total—just over one third of one percent of 2005 GDP. Over 100,000 person-years would be lost locally, and just under 280,000 nationwide. The impacts would be one-third more than the earlier 120-day closure scenario.

“The 120-day estimates were based on scenarios in our earlier research that involve destruction of various access bridges, which significantly multiplies the downtime of the ports. The ports could reopen earlier and shippers could resort to congested surface streets but at a substantial efficiency cost,” they write. The new study focuses on the coordinated destruction of all bridges to Terminal Island.

But the UCLA team is far more optimistic about operational recovery and the resilience of the economy.

“We are not capacity constrained at the port. We are capacity constrained about two months of the year,” Thornberg told Random Lengths. By running operations around the clock, sharing facilities, and getting “some sort of temporary bridge,” the period of actual disruption would be quite brief. Besides, he said bluntly, “I don’t believe in the bridge scenario.”

What’s more, Thornberg argues that for all its complexity the USC economic model is too rigid, and can’t reflect how quickly the real economy would adjust. He uses the analogy of a three-legged dog. Take a rigid mechanical model of a dog, and take away one leg. Surprise! It won’t walk. But study real dogs who’ve lost a leg, and they get along remarkably well.

In contrast, the USC researchers write, “Although it must be possible to increase throughput to some degree, our assessment is that the scope would be limited. The major constraint is the limited number of shipping berths. In recent years, trade has been expanding much faster than port capacity; this explains the relentless drive for port expansion. Another problem is the extent to which the unions would resist a move to 24-hour, seven-day-a-week operation. We believe that a successful terrorist attack on the scale envisaged would overcome the traditional resistance of the International Longshore and Warehouse Union (ILWU) to this change, but this is not assured.”

In short, the differences derive both from the methods used, and assumptions about what sort of attack—and response—is most likely. For example, Thornberg pointed to the example of temporary battlefield bridges during World War II to argue that Terminal Island could quickly become accessible again via similar structures.

However, Bijan Noorambakht, the Army Corps of Engineers’ Natural Disaster Program Manager for the Los Angeles District was not so sanguine.

“It’s really a hard question to answer,” he said, when asked how long building such bridges would take. You would have to know all the specifics—including the location, and the specifics of the approach. “You cannot have a big drop; it cannot be 6 or 7 percent. All those considerations need to be taken into place.” To really know, “We need to have a contingency plan,” Noorambakht said. But no such plan appears to exist.

PPIC’s researchers recommend using the UCLA study as a lower bound and the USC study as an upper bound. The difference between them would be quite noticeable locally—and would influence thinking about how to prioritize port-specific security measures.

“The scale of potential economic damages suggests that there would be high societal returns from prevention and protection strategies,” the USC team wrote. But then acknowledged, “it is difficult to conceive that it would be possible to prevent an 18-wheeler loaded with conventional bombs from driving to the middle of a bridge, parking, and immediately detonating.”

In contrast, Thornberg said, “I think that the entire emphasis should be not protecting the bridges but on what’s coming through in the containers.”

Yet, both agree that the national economy would not be significantly affected—a conclusion strongly at odds with local conventional wisdom. The same, of course, cannot be said if the attack involved a nuclear bomb.

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