Roll On

A server in Tuscany displays a bottle of Widmer Upheaval IPA.
The myth of a freight-dependent economy.

Share this article!

The myth of a freight-dependent economy

The mythology is as old as the West: The fate of your frontier settlement’s economic future depended on whether the railroad came to town. If the railroad ran through your community, you would have cheap access to national markets, a steady influx of travelers, settlers and investment. If it passed you by, you would probably end up a ghost town. The stakes were high: Oregon’s rich history includes a shooting war between two rival railroad companies that were building rail lines on the opposite banks of the Deschutes River.

That story is a faded and largely irrelevant vestige of the Wild West. Today we move things because we’re good at making them; we don’t make things because we’re good at moving them. But while the economy has changed, the myth lives on. We’re told constantly by newspaper editorial writers and highway advocates that Oregon has a “freight-dependent economy,” and that if we somehow don’t make freight move faster or cheaper, our economy will grind to a halt.

{pullquote}We are no more and no less freight dependent than we are water dependent, electricity dependent and Internet dependent.     {/pullquote}

But the term “freight dependent” is a meaningless shibboleth; it has gained currency only by frequent repetition. The truth is Oregon is no more and no less freight dependent than any other place. And we are no more and no less freight dependent than we are oxygen dependent, water dependent, electricity dependent and Internet dependent. It’s a handy catchphrase, but it’s largely meaningless in economic terms, because our business competitiveness hinges not on any actual or imagined advantage in efficiently moving things, but rather on our ability to innovate and to produce things.

Oregon has a robust manufacturing sector not because we have some special advantage at moving things but because, in sector after sector, from semiconductors to microbrews to athletic gear to composite wood products, we are smarter about figuring out better products and better ways to make them.

Consider one typical example: This past May, my wife and I vacationed in a small town in Italy, Cortona. One day for lunch we visited a local pizzeria (Fufluns, just steps from the ancient Piazza della Repubblica — highly recommended). On the menu was Widmer Upheaval IPA, imported from Portland.

The reason this tiny, locally owned restaurant in Tuscany was stocking Oregon beer had nothing to do with our special advantages in shipping beer to Italy. It had everything to do with the distinctive and superior qualities of the India Pale Ale, for which Oregon brewers have a justly deserved reputation (even in the backyards of some of the world’s greatest brewers).

Obviously the bottle of Widmer had to travel to Italy. But the point here is that shipping costs are so low everywhere that the ability to move high-value goods like apparel, beer, and electronics — is virtually never a competitive factor in their sale. A century (or more) ago, when transport systems were less developed and transport was much more expensive, freight moving costs mattered more.

But global transportation is now ubiquitous and cheap. As a result, today — and for the foreseeable future — the cost of moving physical stuff has almost no impact on the location of economic activity. As Harvard economist Ed Glaeser wrote more than ten years ago: “The 90% reduction in freight transportation costs in the past century, and the declining importance of the good-producing sector of the economy, means that it is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.”

If one seriously thought that freight movement had any importance to economic growth, one would have forecast dire consequences from the loss of most of the container service to Portland when first Hanjin and then Hapag-Lloyd discontinued calling on the Port of Portland. (see “How Oregon will survive the Loss of Hanjin,” February 2015). But since both companies pulled out, our growth has actually accelerated. Portland experienced year-over-year job growth of 4%, a level not seen since the tech boom of the mid-1990s.

In the past decade, the growth of the Oregon economy has completely decoupled from freight movement. We produce an ever-larger amount of goods and services — via our gross state product, the state-level counterpart of gross domestic product (GDP) — with progressively smaller amounts of freight movement. In the past two decades, the amount of truck freight ton-miles per real dollar of gross state product has declined by more than 40%.

In the fast-growing, high-value industries in which Oregon firms are globally competitive, it turns out that freight transportation is mostly or completely irrelevant to their competitive success. Nike actually closed its Portland-area distribution centers more than a decade ago. The sports-apparel giant manufacturers its products in Asia and distributes them through huge warehouses in Memphis, Tenn. — and yet continues to grow and thrive here. Intel and other chip makers generate billions in exports, but generate freight movement measured in pounds, rather than tons, because a couple of million dollars worth of chips would easily fit in your carry-on luggage —  even in economy class. And more and more Oregon businesses — like Elemental Technologies, which does video processing and was just purchased by Amazon for half a billion dollars — produce software and services that don’t involve shipping any physical products.

While freight isn’t a competitive factor in these businesses, access to talent is. Oregon’s economic future hinges not on its ability to move physical stuff but to create new things. As we invest for the future, we shouldn’t let nostalgic metaphors from the Old West, like the railroad myth, cloud our thinking about what it takes to build a successful economy.