Port Investments on Coastal and Marine Disasters Prevention: An Economic and Policy Investigation

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Port Investments on Coastal and Marine Disasters
Prevention An Economic and Policy Investigation

• Anming Zhang / Sauder School of Business, UBC
• November 2014
• Joint work with Yi-bin Xiao (U. of Electronic
  Science and Technology of China), Xiaowen Fu (U
  of Sydney) and Adolf K.Y. Ng (U. of Manitoba)

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Introduction

• Located along shorelines, seaports are highly
  vulnerable to coastal and marine natural
  disasters
• and more generally, coastal facilities and
  coastal cities

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Port expansion City center to coast
1946-1960
1400-1800
1960-1970
Port of Rotterdam
1800-1900
1970-now
1920-1940
Near Future
Direction of Port Development
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• In Manhattan, Sandys surging tide darkening the
  city below Midtown. The new World Trade Centers
  base is three feet above sea level.

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Coastal and Marine Natural Disasterscan be Very
Costly

• Preliminary estimation damage by Sandy could
  exceed 18 billion (NBCNews.com, 2012). Earlier,
  Katrina had caused damages worth 146 billion
  (National Geographic, 2012)
• Hurricane Sandys cost to marine insurers was
  estimated at 2.5-3.5 billion (Lloyds List No.
  61,014)
• In addition to such one shot disasters, there
  is an increasing risk of coastal and marine
  natural disasters, owing to climate change
  (esp. rising sea level)

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• Mark of the typical flood height in Chesapeake,
  Virginia. It doesnt take a major storm heavy
  rain and the right wind during a high tide will
  do it.

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• Damages associated with coastal disasters can be
  prevented or alleviated with proper investments
  in ports and coastal regions
• Raise height of roads (causeways) improve
  groins, dikes, levees and seawalls improve a
  ports storm water system
• Example of Terminal Groin (a long wall or
  hardened structure that extends out toward the
  ocean, usually perpendicular to the coastline,
  and adjacent to an inlet or at the end of coastal
  land mass that is prone to beach erosion)

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Projects may be long and costly

• The Saint Petersburg Flood Prevention Facility
  Complex costs 3.85 billion, started in 1979 and
  finished in 2011

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1953 North Sea Flood and Delta Works finished in
1997
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Right after Sandys surge on New York City It
was argued that a sea wall barrier could have
stopped Sandys 14-foot storm surge A sea
barrier proposal has been proposed, with a price
tag of 6 billion
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In Gulfport, only days after Sandy hit NYC
(and in fact, only 7 years after Katrina) 570
million in Federal Community Development Block
Grant for post-Katrina restoration and
expansion Change 25-feet elevation to 12-15 feet
for West Pier 120-140 million can be saved for
deeper water channels for additional jobs and
business
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Key factors in decision making

• From port commissioners
• Thats based on 15 being something our
  contractor told us he could reach in a relative
  quick period of time. Twelve or 14 being what
  some of our tenants said was comfortable for
  them.
• I personally feel that if we get our elevation
  up to somewhere around 15 feet thats going to
  mean something to somebody that is bringing cargo
  to our port to be exported. I personally feel
  that if we get it up to 15 feet well be in good
  shape.
• Governor Phil Bryant Not to elevate the West
  Pier to 25 feet was a good decision. We should
  now concentrate on better serving current
  tenants, attracting new business and creating an
  additional 1,200 jobs.

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Uncertain return on disaster-prevention
investments
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Investment offers benefit only in the case of
disastersFudai, Japan
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Introduction (cont.)

• In summary, port investment on disaster
  prevention remains a challenging task
• - Costly, and time-consuming
• - Lumpy, and irreversible
• - Disaster-specific
• Yet, whether disaster occurs, and its impact,
  remain uncertain, although the knowledge on them
  improves over time
• When should investment be made?
• Later investment with better knowledge? or
• Early investment with limited knowledge, but
  longer time to recover the investment (buying
  insurance earlier)

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Introduction (cont.)

• Which factors influence the amount of investment?
• Most ports now adopt the landlord port model
• The Port Authority owns basic infrastructure,
  land, and access and protection assets, and
  leases them out to operators, mostly on a long
  term concession basis, while retaining most, if
  not all, regulatory functions. Private operators
  are usually expected to finance their own
  superstructure and heavy equipment
• Allocation of investment responsibilities
• - Port Authority, or its tenants? Each believes
  that the other side should be responsible (free
  ride problem)
• Would government coordination help?

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The model
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Case 1 Investment in period 1 and individual
decision-making
(1.1)
(1.2)
where financial damage to port and
tenant Damage reduction to the port
Damage reduction to the tenant
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Denote
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(3.1)
(3.2)
(4)
(5)
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(6)
(7)
(10)
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Case 2 Investment in period 2 and individual
decision-making
(11.1)
(11.2)
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(12)
(14)
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Case 3 Investment in period 1 and coordinated
investment
(15)
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(17)
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(18)
(20)
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Case 4 Investment in period 2 and coordinated
investment
(22)
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Invest earlier or wait?
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Proposition 1
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Is coordination always better?
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Proposition 2
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Proposition 2 (Contd)
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Proposition 3
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Conclusion

• Now or wait?
• Immediate investment is optimal for disasters
  with high likelihood, whereas investment should
  be postponed if the likelihood is very low
• Optimal timing for cases of intermediate
  probability cant be determined it depends on
  other factors
• Who should finance investments Coordination or
  not?
• Positive spillovers between a port and its
  tenants lead to under-investment, which could be
  corrected by coordination
• Centralization is optimal for disasters with
  either low or high likelihood
• Methodological
• How can the problem (including all the
  uncertainties associated with climate change) be
  handled analytically?
• Insights also apply to investments in other
  types of vulnerable infrastructure such as power
  generation and distribution, commercial buildings
  and residences.