It’s what’s called a hold-up problem. LA+LB together are 40% of shipping, so they have a ton of pricing power even medium-term, and short-term they can effectively take more than all of your profits because the alternative is even worse. The cities could extract a substantial percentage of the value of international shipping, but the deadweight loss triangle involved would be gigantic, and the cost pass-through might destabilize the entire economy if they got too aggressive. Yes, you want to do enough of this to allocate via price, but there’s the temptation to do far more than that in order to transfer wealth.
If the money is being used to improve the port, then I think I explicitly note that I’m fine with that, and I’m noting that I mostly disagree with Ryan on the fees being bad—I simply want the fees not to create incentives for the city that go against the public good.
If it was a privately owned port, it would be a different situation in many ways, and hopefully long term enterprise value would keep the port doing mostly the right things if it was truly private (and also it would have been made much more efficient by now and be implementing all these solutions!) but anything that big with this kind of leverage that was privately owned in 2021 is effectively not so private.
“However there’s definitely an additional problem, which is that the fees are going to the city.”
Money which the city could presumably use to purchase scarce and vital longshoreman labor.
The city is getting a windfall because it owns a scarce resource. Would you consider this a problem if the port were privately owned?
What Ryan is calling punishment is just an ECON 101 cost increase.
It’s what’s called a hold-up problem. LA+LB together are 40% of shipping, so they have a ton of pricing power even medium-term, and short-term they can effectively take more than all of your profits because the alternative is even worse. The cities could extract a substantial percentage of the value of international shipping, but the deadweight loss triangle involved would be gigantic, and the cost pass-through might destabilize the entire economy if they got too aggressive. Yes, you want to do enough of this to allocate via price, but there’s the temptation to do far more than that in order to transfer wealth.
If the money is being used to improve the port, then I think I explicitly note that I’m fine with that, and I’m noting that I mostly disagree with Ryan on the fees being bad—I simply want the fees not to create incentives for the city that go against the public good.
If it was a privately owned port, it would be a different situation in many ways, and hopefully long term enterprise value would keep the port doing mostly the right things if it was truly private (and also it would have been made much more efficient by now and be implementing all these solutions!) but anything that big with this kind of leverage that was privately owned in 2021 is effectively not so private.