IDRiM (2018) 8 (1)DOI10.5595/idrim.2018.0295

ISSN: 2185-8322

Journal of Integrated Disaster Risk Management
Original paper

An Assessment of the Impacts on the International Container Transport andthe World Economy Resulting from the 2014/15 U.S. West Coast Port
Disruption
Yasuhiro AKAKURA , Tomoko SASAKI , Kenji ONO , Tomihiro WATANABE
1

2

3

4

Received: 20/11/2017 / Accepted: 27/09/2018 / Published online: 28/09/2018
Abstract The development of global supply chains has progressed as a result of reduced transport
costs and lead times associated with the expansion of the global container trade. However, thisextensive, highly efficient, just-in-time supply chain system is vulnerable in the face of various
disasters, and maritime transport and port operations face the risk of stagnation induced not justby natural disasters but also by man-made disasters such as strikes, explosive accidents and so on.
Against this background, a review of the 2014/15 U.S. West Coast port disruptions was conducted
to assess its impact on the international container transport and the world economy. The findingsof the study indicated that the disruption induced an additional two weeks of transportation leadtime between the United States and East Asian countries. Direct losses were estimated at above
US$7 billion and overall losses, including indirect losses, were estimated within a range of US$10
to 13 billion. In addition, a procedure is proposed for reducing the economic impacts of thestagnation of maritime transport and port operations on world trade.
Key words Supply Chain; Container Transport; Man-Made Disaster; Port Disruption; Economic
Impact.
1. INTRODUCTION
The transportation of 58 containers from Port Newark to Port Houston in Ideal-X, the world’s
first container ship, in 1956 marked the onset of modern maritime container transport.
Approximately 60 years later, maritime container transport has evolved into an integral part of
Head of Port Systems Division, Port and Harbor Department, National Institute for Land andInfrastructure Management (NILIM), Ministry of Land, Infrastructure, Transport and Tourism (MLIT)
2 Senior Researcher of Port and Harbor Department, NILIM, MLIT
3 Visiting Professor, Graduate School of Management, Kyoto University
4 Professor, Graduate School of Management, Kyoto University
1

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economies and contemporary trade, globally. In the 1950s, it was not possible for consumer goods
produced in Asian and African countries to reach markets in the United States and Europe. The
reason was that the cost of transport over a distance of 10,000 km was too high relative to theirproduction costs. In addition, shippers did not have advance knowledge of the true day of arrivalof their cargoes, because cargo handling for conventional ships was canceled on rainy days.
However, following the introduction of a stable and inexpensive freight system, many companies
ventured abroad, seeking a low-priced and high-quality work force. Consequently, China becamea “factory” for the world.
Thus, global maritime container transport has evolved, enabling the advancement of global
supply chains through the reduction of transport costs and lead time. An excellent example isprovided by the transport of auto parts within the global car production system. As shown in
Figure 1, a number of automakers are producing various brands in several countries, and the scaleof production and procurement of these parts has become global. These auto parts are transportedby ships, mostly within containers, between all areas except within North America.

712

243

459

1,827
1,007 Canada

1,076

326

EU

734
766
665422

Russia

401

401
Korea

590

375
412

281

1,778
U.S.

1,915

China

Japan

Turkey220

271

MexicoThailand202

244
LegendSouth Africa≥

200,000 t≥

500,000 t

Brazil

≥ 1,000,000 t※Unit: ‘000 t, Data from UN Comtrade

Figure 1. The global trade flow in auto parts in 2015

The division of labor between production processes has been internationalized, andglobalization has led to considerable growth in the trade of raw materials, parts, and capital goods
between countries. In addition, a “just-in-time” production and delivery system has been
introduced that enables the manufacture and delivery of required quantities of products on demand.
However, this extensive, highly efficient, and cutting-edge supply chain system is vulnerable in
the face of various disasters. In the aftermath of the Great East Japan Earthquake, the disruption
in the supply of auto parts from Japan slowed down the global production of cars. For example,
the production of cars in Toyota factories in North America decreased to 20% of ordinary
production levels (Figure 2), indicating that the impacts of disasters spread worldwide throughout
supply chains and that the pace at which they spread has been increasing. At the same time, thestagnation of transport can lead to an equivalent outcome.

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Overseas
Factories

Domestic
Factories
Comp. Car

Parts for Repair
Parts for Overseas
Toyota Tsutsumi
The Other Toyota
Toyota Kyushu
Toyota East Japan
United States
CanadaChina
Other Factories

March
April
11 18 21 28
15 18 21 25
1
ResumeResumeResume50%
ResumeResumeResumeSuspension

Date

ISSN: 2185-8322

30%

May
10

June
3
3

Off

50%

70%

20%

100%

70%
30~50%

Data: From Toyota Home Page.

Figure 2. Impact of the Great East Japan Earthquake on Toyota’s production

Maritime transport and port operations, which play an important role in the global economy
and trade, may be brought to a halt or become stagnant as a result of not only natural disasters but
also man-made disasters (Table 1). Many countries and areas, including the U.S. West Coast ports,
have been affected by strikes, and, in June 2017, it also occurred in Spain intermittently. The
explosion accident at the Tianjin port fully shut down the port’s operations and its restoration tookapproximately one month to complete, having a significant impact on the Chinese economy. In
June 2017, cyberterrorist attacks targeting the global Maersk container terminals compelled theirclosure or led to manual operation at terminals within Europe and North America. Following thebankruptcy of Hanjin Shipping, which was formerly the seventh largest container shipping
company in the world, the container ships operated by the company were obliged to wait inoffshore areas or at ports, and the transport of many of their containers was cancelled on the way.
In June 2017, the Persian Gulf countries, including Saudi Arabia, broke off diplomatic relations
with Qatar, which was the largest LNG exporting country in the world, and prohibited the callingof Qatari registered ships. These examples illustrate how maritime transport and port operations
may cease or become stagnant as a result of various disasters.
Against this background, a review of the case of the disruption of U.S. West Coast ports was
conducted to assess its impact on the international container transport and the world economy. In
this study, direct as well as overall economic losses caused by the disruption were assessed. In
light of this assessment, a procedure for reducing the economic impacts of stagnation of maritime
transport and port function on world trade was proposed.

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Table 1. Recent Disasters that have Influenced Maritime Transport and Port Operations
Category

Disasters

Earthquakes 1995:Hanshin Awaji (Japan), 2004:Sumatra/Galle (Sri Lanka), 2010:Talcahuano
and Tsunamis (Chile), 2011:East Japan (Japan)
Natural
2003:Busan (South Korea), 2005:Katrina-New Orleans (U.S.), 2008:Nargis/Yangon
Tropical Storms(M yanmar), 2012:Sandy-New York (U.S.), 2017:Harvey & Irma (U.S.)
2002:West Coast (U.S.), 2003:Busan (South Korea), 2003:Europe, 2007:Shenzhen
Labor Disputes (China), 2008:Cochin (India), 2010:Chittagong (Bangladesh), 2013:Nhava Sheva(India), 2014/15:West Coast (U.S.), 2017:Spain, 2017:Jakarta (Indonesia)
Explosion
2010:M umbai (India), 2010:Dalian (China), 2015:Santos (Brazil), 2015:Tianjing
Accidents(China)M an-M ade IT System
2013:New York (U.S.), 2017:M aersk Terminals
Failures
Bankruptcies of
1986:Unaited States Lines, 2001:Chaoyang Shipping, 2012:Sanko Steamship,
Shipping
2015:Global M aritime Investments, 2016:Hanjin Shipping
Companies
Political Issues 1983-88:Tanker War, 2017:Qatar

2. LITERATURE REVIEWA number of assessments of economic loss due to port shutdowns have been conducted. Amongthese is a widely quoted estimate by (Martin Associates 2001), who claimed that the 11-day
lockout of West Coast ports would cost the U.S. economy US$1.94 billion per day. However, (Hall2004) contended that this was an overestimation, because the ratio of direct loss was only 4% and
the indirect loss was calculated based on the assumption that all companies using ports were closed.
(The Congressional Budget Office 2006) concluded that the direct loss incurred as a result of theWest Coast port shutdown in 2002 ranged from US$65 to US$150 million per day.
(Haveman and Shatz 2006) discussed the impacts of terrorist attacks and countermeasuresagainst them in the context of the vulnerability of the Los Angeles and Long Beach ports. They
estimated that one year of reconstruction would lead to a loss of US$45 billion for the U.S.
economy. (Winterfeldt and Rosoff 2007), who similarly estimated losses from terrorist attacks on
the Los Angeles and Long Beach ports inflicted with radiological dispersal devices (“dirty”
bombs) calculated values within a range of US$130 million to US$100 billion. These figuresapplied to a shutdown in port operations for a period of 15 days to one year. (Park 2008) estimatedthat the same attack leading to a one-month shutdown would result in a loss to the global economy
of US$35.9 billion. (Funase et al. 2011) estimated that a closure period of one year for the Nagoya
port would cost the Japanese economy JPY252.9 billion (approximately US$2.2 billion, based on
the exchange rate on August 28, 2017), and it would cost the global economy JPY794.3 billion(approximately US$7.0 billion). (Southworth et al. 2014) reviewed various cases of port
disruptions and conducted a specific case study of the Superstorm Sandy and Columbia River
Closure. Based on their examination of the U.S. port system, (Trepte and Rice 2014) suggested
that the major ports lack sufficient capacity to handle disruptions, with consequent significant
economic impacts. (Lam and Su 2015) compiled and analyzed cases of port disruption in Asia.
(Werling 2014) and (Martin Associates 2014) also estimated losses for the U.S. economy resulting
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from the impact of the 2014/15 U.S. West Coast port disruptions, which are the focus of the present
study. Their estimates, ranging from US$3.4 to 40.9 billion, were based on the assumption of aport shutdown period of 5 to 20 days prior to the occurrence of the disruption. In fact, West Coast
port operations during this period did not stop, although they remained stagnant for a long period.
In another study, (Novati et al. 2014) assessed the impacts of major port disruptions on the shipping
networks that connect Europe and Southeast Asia.
The impacts of the closure of international waterways have also been studied. (Akimoto 2001)
examined the structural weakness of chokepoints in Eurasian maritime areas such as the
Malacca/Singapore Strait, the Sunda Strait, and the Lombok and Makassar Straits from theperspective of securing sea lanes. (Rimmer and Lee 2007) calculated the cost of using alternativeroutes to the Malacca/Singapore Strait. (The International Risk Governance Council 2011)selected and analyzed three possible high-impact events that would lead to the closure of the
Malacca/Singapore Strait: the explosion of refineries, cyberattacks directed at ship control
systems, and multiple collisions of large ships. They estimated that the Strait’s closure for a periodof one year would have an economic impact to the value of US$18 billion.
Almost all of these earlier studies were based on the assumption that closure of ports andwaterways would occur. Therefore, they did not consider cases in which the ports’ functions
remained partially active and stagnant. No studies are available in which the actual alternativeroutes used by shipping companies and cargo owners in cases of port disruption. This study
addressed this gap through an analysis of an actual case study entailing the use of alternative routes
under conditions of port disruption and presented a possible countermeasure.
In the practical field of business, the Asia-Pacific Economic Cooperation (APEC) focused on
counter measures for terrorist attacks by the Secure Trade in the APEC Region (STAR) Initiative,
and its tenth conference was held in Peru in 2016. Moreover, the world’s seven major insurancecompanies, led by Risk Management Solutions Inc., have developed marine cargo catastrophe
modeling to assess risks associated with maritime cargo.
3. U.S. WEST COAST PORT DISRUPTION
3.1 An Outline of the West Coast Ports and Labor-Management Negotiations
U.S. West Coast ports constitute important gateways not only for the United States but also for
the East Asian region, specifically, Japan, South Korea, China, and Taiwan. There are twocontainer transport routes between the United States and East Asia: those via the West Coast andEast Coast ports. The West Coast route connects marine transport with inland rail and truck at
West Coast ports, so this route is described as “intermodal.” The East Coast route is exclusively
for marine transport to and from East Coast ports and is therefore described as “all water.” The
West Coast route is the one chosen most often, with approximately 70% of container cargoes
moving between the United States and East Asia. Major ports handling containers along the West
Coast are Los Angeles, Long Beach, and the Northwest Seaport Alliance (NSA) comprising Seattle
and Tacoma. Their container throughput rankings in the United States are first, second, and fifth,
respectively.
At the West Coast ports, the International Longshore and Warehouse Union (ILWU), whichprimarily represents dock workers, and the Pacific Maritime Association (PMA), comprising5

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shipping companies and stevedores, have negotiated labor contracts from the time of the inceptionof the PMA in 1949. In recent decades, labor contract negotiations have occurred every six years.
The negotiation held in 2002 resulted in an 11-day lockout. During this period, 29 West Coast
ports fully ceased operations, and over 200 ships were kept waiting offshore. The lockout wasended through a Federal Court order originating from President Bush’s appeal based on the TaftHartley Act (Labor Management Relation Act, 1947). The negotiation in 2008 was concluded in
the absence of any major confusion. Table 2 provides details regarding the 2014/15 negotiation.
At the end of 2014, the offshore waiting time was extended, and it became necessary for shipping
companies to add extra ships. President Obama decided to dispatch Peres to the scene, followedby the Secretary of Labor, because, as discussed in the next section, increasing stagnation of these
ports was apparent in February of the following year. Consequently, the negotiation was concluded
after a nine-month period of confusion.
Table 2. The sequence of events that occurred during the 2014/15 negotiations
Time

2014

2015

M id-M ay
End of Jun
Late Oct
Late Dec
Feb 4thFeb 11th
Feb 17th
Feb 20th

Occurrence
Start of the negotiation
Deadline of the 2008 Contract
ILWU started slowdown (Announcement by PM A)
PM A stopped night work
PM A proposed compromise to ILWU and released it
PM A announced end of holiday work
Start of the mediation by Peres Secretary of Labor
Tentative Agreement

3.2 Stagnation of Port Operations
The slowdown and suspension of night work led to a significant decline in the efficiency ofcargo handling. Figure 3 shows a change of the efficiency of container handling during the periodof stagnation compared with that of the same month in 2013. ILWU denied that there was a
slowdown, but the efficiency rate began to decrease at the Los Angeles and Long Beach ports in
October and at the NSA ports in November. The average efficiency rate decreased to around 0.4
in January and February, indicating that the time required for container handling was 2.5 times
above the time normally required.
The decrease in container handling efficiency resulted in lengthy offshore waiting times. Fromthe shipping company’s perspective, waiting was the only option for handling carrying containers,
because the cargo handling work was carried out in the order of the arrival of ships. In other words,
even if a container ship from East Asia reached the offshore area of the West Coast ports on time,
the projected terminal of call was still occupied by the previous ship that should have departed
several days ago. Moreover, the arriving ship had to join a long queue. On February 17, 2015 when
Secretary Peres began mediation efforts, there were over 30 container ships waiting offshore of
the Los Angeles and Long Beach ports.

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Ratio to the same month of 2013

IDRiM (2018) 8 (1)DOI10.5595/idrim.2018.0295

1.6
NSA

1.4
1.2

Long Beach

1.0
0.8
Los Angeles

0.6
0.4
0.2

1

4

7
10
2014

1

4

7
2015

10

Data from Lloyd's List Intelligence and Each Port

Figure 3. Efficiency of container handling (time per box)

4.

LA

IMPACTS ON CONTAINER TRADE

LB

4.1 Impact on Transportation Lead Times

NSA

The stagnation of port operations directly impacted on the container trade. The lengthy handlingand offshore waiting times increased the transportation lead time for containers passing throughthe West Coast ports. Figure 4 shows changes in transportation lead times from the Tokyo Bay
ports to the U.S. West Coast ports. The blue bars represent offshore time, including offshore
waiting, and the green bars represent average container handling times at the terminals. The
average lead time, which was ordinarily approximately 12 days, rose to 26 days in February 2015.
Thus, an additional two weeks was incurred for shipping. In March 2015, the average terminal
time was restored to normal as a result of the tentative agreement reached on February 20.
However, the time spent offshore did not decrease immediately, because considerably more time
was required to resolve the problem of offshore waiting.

Lead Time (Days)

30
25

Offshore
Terminal

20
15
10
5
0

2

11
2014

12

1

2
3
2015

4

Data from Lloyd's List Intelligence

Figure 4. Lead time for container transport from Tokyo Bay ports to U.S. West Coast ports

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4.2 A Case Study of Auto Parts
Japanese and Korean automakers produce a number of cars at their factories located in the
United States. (MarkLines 2017) reported that in 2016, the U.S. market shares of Japanese car
manufacturers, namely, Toyota, Honda, Nissan, and Subaru, according to the number of cars
produced, were 14.0%, 9.3%, 8.9%, and 3.5%, respectively. The Korean automakers, Hyundai andKia, occupied respective shares of 4.4% and 3.5% (MarkLines 2017). In the U.S. production
factories of these Japanese and Korean companies, supplies of parts characterized by highfunctionality are sourced from the home countries. Approximately 20% of the destination states
for these parts, both from Japan and Korea, are located in the American West and the remaining
destinations are in the American Midwest and the South (Figure 5). However, the discharging
ports for imported auto parts from these two countries differ. Almost all of the Japanese parts areimported via the West Coast ports, and about 40% of Korean parts are imported through the East
Coast ports (Figure 5).

●NSA

13%
MI

Japan Korea
17% 25%CA●
LA/LB

Discharging Ports (2013)10%OH

15% 16%IL
11%
15% KYTN●
31% Savannah●AL

MobilePort

W/E Japan

Los Angeles W
Long Beach W
NSA*W
Vancouver** W
SavannahE
M obile
E

36.6%
26.2%
24.2%
4.9%
1.8%
0.0%

Korea
31.4%
11.4%
13.1%
3.9%
17.8%
15.5%

* Northwest Seaport Alliance** Canada

Data from PIERS

Figure 5. Destination states for auto parts and discharging ports in the United States

How then was the route for transporting auto parts from Japan and Korea to the United States
altered by the West Coast port disruption? Possible alternative routes were the East Coast routeand the air transport route. Figure 6 shows a comparison of the proportions of usage of thesethree routes in normal circumstances (February 2014) and at the time of disruption (February2015). Japanese automakers used air transport as an alternative, whereas Korean automakers
mainly opted for the East Coast route. Thus, the choices of Japanese and Korean automakers
differed regarding alternative routes. It is possible that this difference could be attributed towhether or not these automakers had used the East Coast route under ordinary circumstances.
This is because it is generally very difficult to create a new transport route during a state of
emergency and confusion. In addition, the press reported that Toyota and Honda were obliged todecrease their car production, and that Subaru had to charter four flights per month at a cost of
JPY7.0 billion (US$62 million) for urgent transportation of car parts. However, Hyundai did notface any serious problems in its car production, indicating that there is a valuable lesson to be8

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learned by shippers to manage the risk of stagnation of their supply chains.

Share of the Routes

100%
80%
60%

Air
Air
East

East

40%
West

20%

West

0% Feb-'14 Feb-'15
Japan

Feb-'14 Feb-'15
Korea

Data from PIERS and U.S. Trade Statistics

Figure 6. Transport routes for Japanese and Korean car parts

Air
East
West

5. DIRECT ECONOMIC LOSSES
5.1 Estimation Method

During the disruption at the West Coast ports, shippers could choose among three options. The
first was to stop shipping operations. The second was to switch to air transport or use the East
Coast route. The last option was to use the West Coast route, even though this significantly
extended the transportation lead time. The second option of using an alternative route fortransporting auto parts has already been discussed in a previous chapter. The direct economic loss
resulting from the port disruption was calculated by multiplying the volume of the container thatwas halted, switched to another route, or kept waiting by the cargo value/cargo time value/freightchange.
(1).

LS , which denotes the loss resulting from stoppage of shipping was calculated using formula

LS = CS ´VS ´ 0.5(1)where CS denotes the corresponding container volume in twenty-foot equivalent units (TEU) andVS denotes the corresponding cargo value (in US$/TEU). The multiplication by 0.5 in the formulais based on the assumption that the corresponding cargo value was reduced by half. Some cargoes
may have been exported to another country using land transport or they may have been transported
through the East Coast ports, some may have been sold in the United States at discounted rates,and some may have incurred a complete loss. At the time of the 2002 lockout, the cargoes forwhich shipping was stopped became the business targets of 99-cent stores (Development Bank ofJapan 2002). One case of spoilage of edible fresh fruit that could only be used as a juice ingredient
was reported (Hall 2004). As the actual rate of loss of cargo value could not be captured by any
statistic, it was assumed, for the sake of practical convenience, that the cargo value was reduced
to half of its original value.
The second step entailed the calculation of LC , which denotes the loss resulting from switching
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to air transport or the East Coast route, using formula (2).

LC = CC ´VTC ´ TC + CC ´ FC

(2)where CC denotes corresponding container volume (TEU); VTC denotes the corresponding
cargo time value (US$/TEU/h); TC (h) denotes the difference in transportation lead time between
the alternative route and the usual route; and FC denotes the difference in freight charge (in US$)between the alternative route and the ordinary route. The first part of formula (2) shows the loss
induced by the increase in lead time. In the case of switching to air transport, the value of this loss
was below 0, indicating a benefit. The second part of formula (2) shows the loss induced by theincrease in the freight charge, which was very high for air transport and also increased foreastbound transport via the East Coast ports.
In the third step, LW , which denotes the loss incurred from the waiting at the West Coast ports,
was calculated using formula (3).

LW = CW ´ VTW ´ TW (Except for perishable food at peak time)+ CWP ´ VWP ( Perishable food at peak time)(3)

where CW denotes the corresponding container volume (TEU), with the exception of perishable
food at peak time; VTW denotes the corresponding cargo time value (US$/TEU/h); TW (h) denotes
the difference in the transportation lead time between the normal and disruption states; CWP
denotes the container volume (TEU) of perishable food at peak time; and VWP denotes the cargo
value (US$/TEU) of perishable food at peak time. The second part of formula (3) shows the total
loss of perishable cargo at peak time, because gas and water vapor that fresh vegetables and fruits
exhaust accelerates spoilage even under the temperature control. The quality of meat and fish also
deteriorates over time, even in a reefer container. The peak time was set from January to March,2015. Perishable food was defined using the HS Code (Harmonized Commodity Description
Coding System) as follows; 02 (meat), 03 (fish), 04 (daily produce), 07 (vegetables), 08 (fruit andnuts), and 09 (drinking material).
Last, LT , denoting the total amount of loss, was calculated using formula (4).

LT = LS + LC + LW

(4)

5.2 Stopped and Switched Container Volumes

CS , denoting the stopped container volume in formula (1) and CC , representing the switchedvolume in formula (2) were estimated using trend analysis. X-13ARIMA, that is the seasonal
adjustment program by U.S. Census Bureau, was used to calculate the assumed trend values in theabsence of the West Coast port disruption. In this trend analysis, the observation period was set
from 2009 to 2015, excluding the port disruption period. This is because of the obvious data
discontinuity of container port traffic before and after 2008 on account of the worldwide economic
recession in 2008. During the observation period, the reproducibility of the estimated data wasvery good, for example, in the second half of 2015, the coefficient of determination between theactual and the estimated volumes by country/month was 0.9999.
The stopped and switched volumes were obtained from the difference between actual and trend
values. Figure 7 shows an example of the actual and trend container volumes transported from the10

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United States to Japan. The trend volumes were greater than the actual volumes from October 2014
to January 2015, whereas the trend volume in March 2015 was less than the actual volume becauseof the delayed arrival of cargoes. The stopped volume was calculated as the total difference
between these two volumes during this period.

Container Volume (TEU)

80,00070,000Trend Analysis
60,000
Actual
50,00040,000

7

10
2014

1

4
2015
Actual Data from PIERS

Figure 7. Actual and trend container volumes transported from the United States to Japan

実績

Table 3 shows the estimation result for the stopped and switched volumes. Concerning
eastbound cargo coming from Japan, the switch to air transport was mainly used, whereas a switch
to the East Coast route was mainly used by cargoes comingfrom other countries. A large number
推計of westbound cargoes stopped shipping, with the exception of cargoes en route to Taiwan.
Table 3. Estimation Results for Stopping and Switching Container Volumes (‘000 TEU)
Eastbound
Stoppage of Shipping
Switch to Air
Switch to East Coast
Westbound
Stoppage of Shipping
Switch to Air
Switch to East Coast

Japan
5.0
9.8
0.9
Japan
22.5
3.6
10.7

Korea
China
To United States
0.0
18.8
1.1
8.5
17.2
179.2

Taiwan4.9
0.9
4.9

From United States
Korea
China Taiwan
12.0
157.8
0.0
0.3
2.2
0.5
19.8
44.8
18.7

5.3 Estimation Results
To estimate direct losses, the cargo values were calculated using U.S. trade statistics and PIERS
data, and cargo time values were estimated using the opportunity cost method. As to the interest
rates for this method, short-term prime rates of importing countries were used because, as
described later, these importing countries were assumed to incur the losses. Table 4 shows thecalculation results. The value of cargo shipped from Japan to the United States, and the11IDRiM (2018) 8 (1)DOI10.5595/idrim.2018.0295

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corresponding cargo time value were the highest.
Table 4. Calculation results for cargo value and cargo time value
Cargo ValueTo United States('000US$/T EU) From United States
Cargo Time Value To United States(US$/T EU/h)
From United States

Japan
99.4
21.7
0.369
0.027

Korea
36.7
20.4
0.136
0.047

China
31.3
12.8
0.116
0.082

Taiwan
37.8
14.6
0.140
0.047

The direct loss for each country was estimated using formulas (1) to (4) presented in section
5.1 (Figure 8). With the exception of stoppage of shipping, losses were added up to imported
country, because a large number of trade contracts are that the owner of the cargoes move toimported side after the shipments have started among various Incoterms (International Commercial
Terms) (Yoshida 2015). The whole direct loss was estimated to be US$7.2 billion. From a countrybased perspective, the loss suffered by the United States was clearly the greatest, with Japan
incurring a slightly higher loss than China. Among the categories of loss, waiting at the West Coast
ports incurred the highest loss for all countries with the exception of the United States, and thoselosses by waiting of the U.S., Japan, and China were the same level. Japan’s loss resulting fromthe extended waiting time at the West Coast ports rose, because the proportion of its imported
container volume of perishable food was high compared with those of the United States and China.

Direct Loss (Billion US$)

0.0
Wait atWest Coast

-0.5
-1.0
-1.5

Switch to Air/East Coast

-2.0
-2.5

Stoppage of Shipping

-3.0
-3.5
-4.0

U.S.

Japan Korea China Taiwan

Figure 8. Estimation results for direct loss(i) Stop

6. OVERALL ECONOMIC LOSSES INCLUDING INDIRECT LOSSES(ii) Shift(iii) Wait

6.1 Findings on risk communication in the information discussion process
As discussed in the first chapter, stagnation of transport decreases production and reduces
economic activity. The estimation methodology discussed in section 5 is that for direct losses thatwere imposed mainly on shippers, however, these losses had additional negative impact to thewhole economy (indirect losses). A GTAP (Global Trade Analysis Project) model was used to12IDRiM (2018) 8 (1)DOI10.5595/idrim.2018.0295

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estimate the approximate size of the overall impact of stagnation on economic activity. This model
is one kind of computable general equilibrium (CGE) model developed at Purdue University andis widely used for estimating economic impacts associated with custom tariff changes. For
example, the U.S. and Japanese governments applied this model to assess the economic impactsof the Trans-Pacific Strategic Economic Partnership Agreement (TPP). Figure 9 shows the
production function of the GTAP model. The intermediate input comprises a double layered
structure, and the elasticities of substitution of intermediate input were set, respectively, atdomestic and international levels. The GTAP9 Database for 2011, comprising 140 countries/areas
and 57 sectors, is the most up-to-date database applied for the model.

Quantity of Output qo(j,s)

Surplus Value qva(j,s)
Land Labor Capitalqfe(i,j,s)

Leontief
Intermediate Input qf(j,s)
CES
Domestic qfd(i,j,s) Foreign qfm(i,j,s)
CESCountries/Areasqxs(i,j,s)

Figure 9. Production functions of the GTAP model

To perform the estimation using data of the appropriate size, aggregations of countries/areas
were constituted as follows: the United States, Japan, Korea, China, Hong Kong, Taiwan and therest of the world. Table 5 shows the aggregation of sectors based on the relationship between the
HS Code and GTAP sector classification (Hutcheson 2006) considering the cargo property and thecontainerized rate. The proportions of the firm prices of each sector of endowment commodities(labor and capital) in each country/area were locked, because it was assumed that layoffs and the
reduction of production facilities were not implemented because of the disruption of the West
Coast ports. A number of studies have discussed the elasticity of substitution parameters (e.g.,
Arndt et al. 2001; Hertel et al. 2003; Annabi et al. 2006; Okagawa and Ban 2008; Hillberry and
Hummels 2013) and the parameter of the GTAP model (Hertel and Mensbruqqhe 2016) is one of
the latest. If the purpose of conducting an estimation is to calculate the geographical spread of
impact, the detailed estimation of elasticity of substitution parameters is indispensable. However,
the aim in this study was to present an estimation of an approximate scale of overall economic
loss. Consequently, the GTAP9 parameters were not modified.

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Table 5. Aggregated sectors featuring in the calculation
Average Rateof Container
1FreshFoods
4, 8, 11, 14, 19, 20, 22, 25
72.3%
2PrimaryPro-Lo 1, 2, 3, 5, 6, 9, 21, 23
15.4%
3
PrimaryPro-Hi 10, 13
83.3%
4
Extraction
15, 16, 17, 18, 32
27.1%
5LightM nfc
7, 12, 24, 26, 27, 28, 29, 30, 31, 33, 34, 42
79.0%
6
HeavyM nfc-Lo 35, 40, 41
28.1%
7
HeavyM nfc-Hi 36, 37, 38, 39
71.1%
8Services43, 44* Average rate of container cargo was calculated based on the data by HS Code.
No Aggregated Sectors

GTAP Sector Codes

All direct losses in section 5 were reflected to the increase in the tariff rates. The increases ofcosts by switching to air transport or the East Coast route was converted into additional rates byusing the average cargo values. As to the increase in transportation lead time, the parameters forconverting into tariffs were calculated in previous studies (Freund and Rocha 2010; Hummels andSchaur 2012; Minor 2013) based on the differences in freight charge between various modes oftransportation. In this estimation, the ad valorem trade time cost for each country/area wascalculated from the data provided by (Minor 2013). Accordingly, as shown in Table 6, transport
disruption was considered as the increase in tariff rates. For example, an additional one day leadtime was equivalent to a 0.84 to 1.16 % point increase in the tariff rate for eastbound cargotransported from Japan to the United States. This range of ad valorem trade time cost was treatedas a minimum loss case and a maximum loss case, respectively.
Table 6. Ad valorem trade time cost (% points per day)
Country/Area
Japan
Korea
China
Hong Kong
TaiwanRest of the World

Eastbound
To United States
0.840 – 1.160
0.760 – 1.075
0.670 – 0.935
0.670 – 0.935
0.635 – 0.860
0.700 – 1.080

Westbound
From United States
0.585 – 0.950
0.585 – 1.075
0.635 – 0.930
0.680 – 0.895
0.450 – 1.060
0.720 – 0.980

The additional tariff rate by the stoppage of shipping was calculated as the half value ofcorresponding cargoes as already assumed in section 5.1. In the same way, for perishable food,
which was considered to incur a total loss at peak time during the waiting at the West Coast ports,
the additional tariff rate for a minimum loss case was calculated from the recorded cargo value atpeak time. The additional tariff for a maximum loss case was set at a value that was 20% higher
than that of the minimum loss case considering disposal fee of wasted cargo.
In the trade between the United States and East Asia, cargoes are shipped not only in container
ships, but also in conventional ships such as tankers and bulk carriers as well as in jets. The increasein the tariff rate was set for each sector considering the proportion of container transport along the14

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West Coast route. The calculation period was set at one half year commencing from November
2014, as the increase in lead time during that period was significant.
6.2 Opinions of participants in the information discussion process

Total Loss (Billion US$)

Figure 10 shows the estimation results for overall economic losses. The total loss, worldwide,
was estimated to be in the range of US$10.3 to 12.4 billion, including the direct loss. This meansthat the indirect losses correspond to around 43 to 73% of the direct loss, although the simple
comparison is difficult because the estimation methods are partially different. The United States
incurred the highest loss, followed by China. The trade volume for the rest of the world (“ROW”
in Figure 10) with the United States increased to compensate for loss of trade with East Asia,
simultaneously, the economy was affected by the decrease in the GDP of the United States andEast Asia. Consequently, there was a slight gain in the GDP for the rest of the world.

1.0
0.0
-2.0
Min Loss-4.0-6.0
Max Loss-8.0

U.S. Japan Korea China Taiwan ROW

Figure 10. Estimation results for overall economic loss

Max Loss

7. THE SUBSEQUENT CONTINIOUS PRACTICE

Min Loss

Previous studies have provided estimates of the economic impacts of ports/water ways
blockage. In some of the studies, as described in section 2, it was assumed that transportation
through the targeted port came to a complete halt, and the production materials did not reach local
manufacturers which could not continue production and shipping of goods. Such assumption
makes it easy to estimate the economic losses but may lead to overestimation, because, as (Hall2004) pointed out, shippers look for alternative routes. Estimating the alternative routes andcalculating the additional costs and lead times are essentially indispensable to estimate theeconomic losses caused by port blockage. On the contrary, the losses caused by partiallyoperational port can be also estimated by using the costs and times of alternative routes as shownin this study. In case that the complete halt of port function continues for longer period and all thevalues of cargoes are totally lost due to on ship waiting, the estimation method of this study forthe spoilage of perishable foods is available.
The estimation of alternative routes is also one of the argument points. This study estimated15

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the routes after the disaster by using various data. However, these data cannot be available inadvance. (Funase et al. 2011) and (Martin Associates 2014) deduced the alternative routes during
port blockade. Theoretically, the estimation by a route choice model which is improved to apply
it at the time of disasters is necessary. (Akakura et al. 2015) developed the alternative port/route
choice model based on the travel time and cost for Japanese export and import container cargoes
by considering the handling capacities of ports after the outbreak of disasters.
The economic impact of stagnation of international container traffic consists of the direct losses
that are imposed mainly on shippers, and the indirect losses that reflect the economic ripple effectsuch as decrease in the demand of intermediate goods associated with the direct losses. (Funase etal. 2011) estimated the overall losses by adding the transport costs of alternative routes directly to
the CGE model. In this study, the direct losses are estimated in section 5 and overall losses
including indirect losses are discussed in section 6. Regarding the direct losses, the estimation does
not depend on the cargo commodity classification, except for perishable foods waiting at the West
Coast ports, because the scope of estimation is limited only in container transport. In terms of theestimation of overall losses, the proportion of maritime container traffic to all transport modes
varied greatly by the cargo commodity as indicated in Table 5; therefore, the cargo commodity
classification was essential. Among six regions included in the CGE model, the rest of the world
was considered negligible in terms of the direct losses, whereas it is indispensable for calculationof CGE. The rate of cargo value loss due to the stoppage of shipping was assumed as 0.5 in section
5.1, was reflected to tariff rates in calculating the overall losses and was considered to need to
improve in future studies. For this estimation method of overall losses, it should be pointed outthat the additional tariff rate leads to an increase in government revenue (Funase et al. 2011).
However, the proportion of tariff revenue in relation to government revenue was only 1.8% in the
United States and Japan (Ministry of Finance 2017). Moreover, the trade volume was estimated todecrease in line with a tariff change. In this study, the impact of the disruption on domestic tradeconducted through the West Coast ports was not considered. These factors contribute to reducing
overall loss. Therefore, the actual loss may have been greater than the estimated loss.
Table 7 shows a comparison of the results of estimations of economic loss calculated inprevious studies. The value of the overall loss incurred as a result of the U.S. West coast disruption,
as calculated in this study, was somewhere between those incurred as a result of the one-year
closure of the Nagoya port (Funase et al. 2011) and the one-year closure of the Malacca/Singapore
Strait (IRGC 2011).
Table 7. Estimation of economic loss associated with the disruption of various ports/water ways
Port/Water Way

Situation

Authors

Economic Loss
(Billion US$)

DirectOverall
0.715–1.65
U.S. West Coast
7.2
9 month Stagnation
This study
10.3-12.4
45
1 year Closure
Haveman and Shatz (2006)
Los Angeles/Long Beach100
1 year Closure
Winterfeldt and Rosoff (2007)
7.1
Nagoya1 year Closure
Funase et al. (2011)18
M alacca/Singapore Strait
1 year Closure
IRGC (2011)
11 days Lockout

CBO (2006)

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8. RISK MANAGEMENT
As discussed in previous chapter, the disruption of the U.S. West Coast ports that was theoutcome of labor contract negotiations in 2014/15 had a significant impact on the maritime
container trade and resulted in extensive losses within the U.S. and East Asian economies.
Transport disruptions may be identified as the Achilles' heel of global supply chains. Maritime
transport and port operations can deteriorate or come to a halt as a result of various disasters. If
the cargo that is en route does not arrive, and if the stock runs short because of the time taken toarrange an alternative route, then the concerned company will be compelled to decrease or stop
producing the cargo items.
Insurance constitutes one countermeasure against various risks by transferring it to the othermarket. However, any delays are disclaimed by international freight insurance companies.
Therefore, as in the case of the disruption of U.S. West Coast ports, if cargo arrives undamaged at
the destination, it is not eligible for compensation by the insurance company, regardless of how
long the cargo delays. In cases where the cargo shipment is canceled en route, the residual transport
may be compensated through insurance. In the case of a strike, the insurance can be covered bywaterborne agreement together with war risk, with the premium rate based on the countries/portsof origin and destination. However, even in this case, the insurance covers only the damage
inflicted by strikers, while the loss caused by the walkout itself is discounted.
This raises the question of whether any methods exist for controlling risks during the transportof cargo. Multiplex transport routes constitute one of the most effective countermeasures for
reducing the risk. As discussed in the chapter 4, during the disruption of the West Coast port,
Japanese automakers that used only one route during normal circumstances were forced to choose
air transport as an alternative route. By contrast, Korean automakers that used both the West andEast Coast routes could shift to the other route without their car production suffering any adverse
consequences. Shippers who ordinarily used both routes were able to switch easily to the otherroute in case one of the routes was in a stagnant state. However, this countermeasure is only
effective under the condition that the transport efficiency does not decrease when multiple routes
are retained. Generally, shippers cannot retain an uneconomical route solely for the purpose of risk
management, although this depends on the frequency and impact of the targeted risk.
Another question concerns the existence of any countermeasures that relate to ports andshipping companies. In the United States, the Port Resilience Project has been promoted by the
National Center for Secure & Resilient Maritime Commerce (CSR) and the Massachusetts Instituteof Technology (MIT). In Japan, Port-Business Continuity Plans (BCPs) have been developed foralmost all of the major ports in the country. In the U.K., University College London and the
University of Nottingham are developing a tool known as the Methodology for Improving
Resilience of Seaports (MARS), to strengthen the resilience of overall port system. Each of theseapproaches is aimed at increasing the durability and resilience of port functions. From thisperspective, Area Port-BCPs, as the superordinate concept underlying each Port-BCP, have beendeveloped in Japan to facilitate the substitution of other ports to compensate for the loss offunctions of the disaster-stricken port during its restoration. In the area of shipping companies,
THE Alliance, one of three groups operating in the East–West trade lane and comprising five major
shipping companies, established an independent trust fund for handling the bankruptcy of amember company. Given that Hanjin Shipping declared bankruptcy in August 2016, shipments of17

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containers were subject to drastic delays, and many were terminated en route. These methods canbe applied by organizations managing transport to reduce risk.
The most effective method of risk management will be that a shipping company/forwarder,
which is commissioned to transport by shipper, provides an alternative route in consultation withthe concerned organizations such as port authorities at the time of a disaster. At present, thisapproach is not within the scope of freight contracts, and it is not realistic to expect a shipping
company to assist in the search to find its own replacement among other shipping companies, evenin a state of emergency. However, this type of mutual cooperation system is already operating
among Japanese railway companies. At the time of an accident, the concerned Japanese railway
company provides the ticket-holding customer with an alternative route at no cost using anothercompany's line. After an accident, the passenger fare required for availing of the alternative routeis spent by the accident involved company. As in the case of international maritime freight,
Japanese railway companies do not guarantee arrival times. However, because the risk of an
accident applies to all companies, the provision of an alternative route is critical to provide
customers with relief. Similarly, shipping companies can increase their reliability by providing
their own temporary alternative route at the time of a disaster.
9. CONCLUSION
In this study, the economic impacts resulting from the stagnation of international containertransport were assessed based on a review of the case of the 2014/15 U.S. West Coast port
disruption. As discussed, the division of labor between production processes has beeninternationalized as a result of globalization, resulting in a dramatic expansion of trade between
countries worldwide. In addition, a just-in-time production and delivery system has been
established. However, this advanced and highly efficient global supply chain system is vulnerable
in the face of various disasters, including port disruptions. Ports are also affected by man-madedisasters such as strikes, explosions, and bankruptcy. Thus, disruptions in transport may constitutethe Achilles’ heel of global supply chains.
The U.S. West Coast disruption in 2014/15 reduced the efficiency of cargo handling to a low
level and resulted extended offshore waiting times, leading to an additional two weeks oftransportation lead time. During the disruption, Japanese automakers used air transport as analternative mode of transport, whereas Korean car manufacturers mainly selected the East Coastroute and were thereby able to avoid any impacts of the disruption on their production.
The findings of the review indicated that the switch in the case of cargoes from Japan was
mainly to air transport, whereas the transport of cargoes from other East Asian countries was
mainly diverted to the East Coast route. Stoppage of shipping was the main option selected forcargoes from the United States. Direct economic losses caused by the disruption were calculated
at US$7.2 billion. Based on the application of a GTAP model, overall losses, including indirect
losses, were estimated to be within a range of US$10.3 to 12.4 billion.
Any delays are disclaimed within international freight insurance agreements, including
waterborne agreements. From the shipper’s perspective, securing an alternative route, if feasible,
constitutes an effective countermeasure against disasters. Mutual cooperation between
ports/shipping companies may be another effective countermeasure.

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The findings of this study confirmed that considerable economic losses result from thestagnation of a global supply chain, with ports being one of the most important components of theassociated infrastructure. A major scientific contribution of this study that has not been exploredin previous studies is its proposal of a method for estimating economic losses when port functions
are not completely stopped, and its demonstration of this method using actual alternative routes.
In the future, efforts will be made to extend this approach with the aim of developing a method forassessing differences in economic losses according to the degree of damage inflicted at a disasterstricken port in relation to the evolving project for strengthening port resilience.
ACKNOWLEDGEMENT
This study was supported by JSPS KAKENHI (Grant Number 16K01272). The authors are
grateful for comments received at the IDRiM 2017 Conference held in Reykjavik, Iceland, and for
inputs provided by Mr. Hirohito Ito at Central Consultant Inc., which facilitated the estimation of
overall losses.
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