Port cost comparisons and productivity from public funding: Port of Milwaukee and Port of Green Bay KANISA RUNGJANG UW - Madison National Center for Freight & Infrastructure Research & Education
Port cost function implication Implication of cost comparisons of Port of Milwaukee and Port of Green Bay will be applied to Impact of public funding for developing freight facilities of National Center of Freight & Infrastructure Research and Education (CFIRE) Concerns: Efficient public funds allocation and port productivity Objective: - Understand public port expenditures and intergovernmental funds - Marginal analysis and Economy of scale in Multi-output framework - Create analytical model to evaluate partnerships and expected outcome from public investment of the maritime port (Profit maximizing under Duopolistic Cournot-Nash Equilibrium) Outcomes of public funds: improve port efficiency, competitive capability $1 dollars of public funds allocated to port A and port B can create unequal port outcomes Port specialization: Marginal cost, Cost elasticity, Scale of economy
Port multiproduct cost function Multiproduct quadratic cost function first developed by Lau(1974) Elaborated by Baumol, Panzar and Willig (1982) Multiproduct cost function for port terminal researches by Jara Diaz, Tovar in Chile (2003) Translog inappropriate cannot define for zero budget in discrete funds Quadratic cost function in multi-output framework: Decomposition analysis by port specialization
Efficient distribution of intergovernmental funding P: Federal / State Agency (Upper Level DM) P: Local public port authority (Lower Level DM) Federal Public funding allocation State Port 1 Port 2 Market Competition/Complement : Duopoly Cournot-Nash Equilibrium
Case study Port of Milwaukee and Port of Green Bay
Harbor Features Feature Green Bay Milwaukee Location Fox river Lake Michigan Kinnickinnic and Milwaukee River Lake Michigan Authorization River&Harbor Acts 1866 River&Harbor Acts 1935 Harbor type Commercial deep draft Commercial deep draft Depth 26 feet for 11.5 miles upstream from entrance 22 feet 0.5 miles upstream of river mouth 27 feet in Kinnickinnic&Milwaukee river 21 feet in Menomonee River U.S. rank 102 nd port over 2.5 M tons in 2008 90 th port over 3.2 M in 2008 Great lakes rank 23 rd in 2008 19 th in 2008 Dredging miles 14 miles (180,000 cu.yard/yr) 3-4 yr dredging cycle Without dredging Stakeholders (U.S. Coast Guard, LCA) Revenue 75 M, 600 Jobs, 18 M personal income City of Brown, Port commission, 13 Terminal Operators Revenue 80 M, 1100 Jobs City of Milwaukee, Port commission >13 Terminal operators, 24 Tenants of port facility in 2009
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Economic Indication Milwaukee and Green Bay GDP (Construction) GDP (Manufacturing) 12000 10000 8000 6000 4000 2000 0 Wisconsin 111 Construction Green Bay, WI (MSA) 11 Construction Milwaukee- Waukesha-West Allis, WI (MSA) 11 Construction 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Wisconsin 112 Manufacturing Green Bay, WI (MSA) 12 Manufacturing Milwaukee- Waukesha-West Allis, WI (MSA) 12 Manufacturing Per Capita GDP (All industry) GDP Great Lakes region 52000 400000 50000 350000 48000 46000 44000 42000 40000 Green Bay, WI (MSA) Milwaukee- Waukesha-West Allis, WI (MSA) 300000 250000 200000 150000 100000 50000 Utilities Construction Manufacturing 38000 0
Waterborne shipment Port of Milwaukee 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 Inbound Outbound 1,000,000 500,000 0 2004 2005 2006 2007 2008 2009 Total annual tonnage (short tons)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 10 coal 4,500,000.00 4,000,000.00 3,500,000.00 3,000,000.00 2,500,000.00 2,000,000.00 1,500,000.00 1,000,000.00 500,000.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 30 Chemicals and related products Port Competition Total commodity 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 250.00 200.00 150.00 100.00 50.00 0.00 2,000.00 1,500.00 1,000.00 500.00 0.00 Milwaukee Green Bay 20 Petroleum&petroleum products 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 40 Crude materials, inedible except fuels 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Port Competition 1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 50 Primary manufactured goods 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 600.00 500.00 400.00 300.00 200.00 100.00 0.00 60 Food and farm products 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 70 All manufactured equipment, machinery and products 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 80 Waste and scrap NEC 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
WisDOT Local Assistant Program (HAP) HAP (Harbor Assistant Program) Financial assistant to harbor facilities on Great Lakes and Mississippi River for project that improve or maintain waterborne commerce Eligible : Commercial harbor Grant amount: 80% project cost or 50 % *If USACE financing involves Typical project: Dredging, Disposal Facility, Dock repair/rehabilitation/construction, Dockwall repair, Liquid cargo pier repair
WisDOT share for Harbor
HAP share by ports
WisDOT HAP
2. USACE Dredging Investment USACE (U.S. Army Corps of Engineer) Public funding for USACE dredging Annual or Periodical contract for harbor dredging Cost varies 0.10 to 12.00 $/yard depend on placement/dredge area
USACE shared by states and by ports
USACE dollars per ton shipment
Total expenditures (budget summary report) recover through revenues Port of Milwaukee/Port of Green Bay 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Port of Green Bay Expenditures Port of Milwaukee Expenditures Port of Green Bay Charges of services Por of Green Bay Revenues Port of Milwaukee Charges of Services
Port of Milwaukee Expenditure 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Special funds 0 0 960000 1058508 1011006 1311340 1279763 1406686 1396271 1527258 1813561 Operating expenditure 926928 834925 958476 894084 762537 853153 845698 1239837 794314 702344 1005493 Fringe benefits 322600 330570 379513 337737 311342 382190 400388 459476 484819 590062 571007 Salaries and wages 1046710 982507 950057 947549 914363 930828 934979 1046264 1182486 1211486 1165737 0
Operating expenditures: Port of Milwaukee 2010 reimburse other departments 5% loans and grants 0% general office expense 1% construction supplies 3% energy 6% other operating supplies 1% vehicle rental 0% vehicle repair services 0% non vehicle equipment rental 1% other operating services 7% professional services 13% tool and machinery parts 0% IT services 1% infrastructure services 20% property services 42%
Correlation of investment to maritime industry Port of Milwaukee correlation Salary -0.00367338 Fringe 0.223549796 Operating 0.465678392 Special 0.249633651 HAP 0.244807675 USACE 0.490194302 HAP+USACE 0.378543371
Correlation of investment to maritime industry Port of Green Bay correlation Salary 0.585492926 Fringe 0.802758445 Operating 0.386718593 HAP 0.451961278 USACE 0.418881986 HAP+USACE 0.537988646
Impact of investment to maritime industry Port of Milwaukee
Impact of investment to maritime industry Port of Green Bay F=0.9823 F=1.12x10^-11 F=1.59x10^-13 t=0.991 t=2.4x10^-5 t=1.59x10^-7 F95% = 5.32 t95%=2.306
Port of Green Bay revenues trend 932.8 K 932.8 K 932.8 K 932.8 K 61.8 K 62 K 62 K 62 K 70 K 81 K 81 K 101.8 K 85 K 110 K 95 K 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Property tax Other state grant Tipping and lease fees Foreign trade zone Harbor fee special rev. funds used Contributed capital amortization Other miscellaneous Harbor dredging transfer-in O&M fund reimbursement Interest 217 unrestricted cash transfer (overhead) 217 unrestricted cash transfer (operating cash) 217 unrestricted cash transfer (salaries)
Green Bay revenues 2001 by revenue category 217 unrestricted cash transfer (salaries), 0.00, 0% 217 unrestricted cash transfer (operating cash), 93,485.00, 8% Interest, 2,146.00, 0% O&M fund reimbursement, 10,600.00, 1% Harbor dredging transfer-in, 0.00, 0% 217 unrestricted cash transfer (overhead), 0.00, 0% Property tax, 0.00, 0% Other state grant, 0.00, 0% Tipping and lease fees, 62,000.00, 6% Foreign trade zone, 6,000.00, 1% Other miscellaneous, 4,550.00, 0% Harbor fee special rev. funds used, 0.00, 0% Contributed capital amortization, 932,754.00, 84%
Cost comparison
Marginal cost
Scale economy
Cost comparison coal specialization (mw1, mw4, gb)
Cost comparison crude material
Cost comparison primary manufacture goods
Cost comparison coal & crude material
Cost comparison crude mat.& prim. manu. goods
Cost comparison coal & prim. manu. goods
Cost comparison coal, crude mat. & prim. manu. goods
Estimated port cost and policy making Public funds and port multi-output can be examined by quadratic cost function Estimated cost function indicates the differences of marginal cost and economy of scale of Port of Milwaukee and Port of Green Bay in last decade Statistical estimate is restrictive in limited data acquisition of port budget By the implication of multi-output quadratic cost function, Port profit maximizing level can be defined under the competitive environment