Trade drives job growth and wealth generation in Washington. Our state is among the most trade dependent states in the U.S. Washington’s exports include not just airplanes, but also medical devices, agriculture commodities, machined parts, and processed foods, among many other Washington-made products. Added to exports, Washington is home to a comprehensive system of port operations and businesses collectively referred to as the “Global Trade and Supply Chain System.” A recent report commissioned by the Center of Excellence quantifies the economic importance of this system, as well as what is at stake from a series of extraordinary circumstances dampening global trade and supply chains across the globe.
This system includes companies and organizations specializing in marine terminal operations, air freight shipments, supply chain management, freight forwarders, trade finance, and trucking, as well as the ports, educational institutions, and state and federal government agencies. Added to this, there are many related operations and personnel within trade-reliant industries in Washington, such as global logistics and supply chain managers at The Boeing Company.
The movement of goods and procuring of key inputs in turn supports a wide range of workers and income generation across the state economy In 2019, businesses and operations classified as “all-in” activities—such as port logistics, trucking, warehouses, intermodal, and freight forwarding—directly employed an estimated 99,300 workers in Washington state in 2019—more than the statewide aerospace sector—up from 92,400 workers in 2017. The average income, including wages and benefits, among these businesses was $80,700 per worker, though some industries, such as marine cargo shipping and air cargo shipping, paid above or nearly $134,400 on average.
A second category of activities are those additional jobs among businesses in other industries that, while not entirely engaged in the sector, conduct many of the same roles in such areas as freight cargo handling, logistics, and procurement. The largest single employer of supply chain management workers was Amazon, whose business model includes a range of activities tied to optimizing the location, storage, and transport of goods between suppliers, producers, and end user customers. The aerospace industry, likewise, has an extensive number of logisticians, purchasing agents, and other supply chain positions critical to the receipt and assembly of major aircraft parts. There were an estimated 72,700 such workers in Washington state in 2019, with average annual earnings, including benefits, of $185,700.
The economic impacts of these activities reach into nearly every corner of the state economy. In 2019, “all-in” operations had a total economic impact of 211,300 jobs, $14.4 billion in labor income, and $34.3 billion in business revenues. Work tied to supply chain management in other industries across the economy had a total economic impact of 217,700 jobs, $21.8 billion in labor income, and $47.2 billion in business revenues.
The Impacts of Covid-19
The advent of Covid-19 has brough unprecedented disruption to many of these activities The first economic effects of the Covid-19 pandemic were felt after the virus disrupted manufacturing in China, creating a “supply shock.” Closed factories and quarantined workers in the world’s largest final assemblage hub dramatically reduced the volume of physical goods produced and shipped to the U.S. and other markets. In Washington state, the early effect of this supply shock was a sharp increase in blank sailings, or cancellations of scheduled cargo vessel arrivals at Washington state ports.
Following the supply shock, the virus has caused a significant reduction in demand in the U.S., such as from temporary shuttering of retailers, social distancing, and reduced household consumption. These effects have further reduced demand for shipments, in turn further reducing port and logistics activities.
Passenger air travel plummeted starting in March. This translates into fewer planes and belly freight capacity, higher transportation costs, and narrower margins for exporters. In January, February, and March of 2020, monthly air cargo tonnage through Sea-Tac were slightly above 2019 levels, while passenger counts in March are 55.6% less than in March last year. Passenger volume in April and May are likely down similar amounts, but the scale of the impact on freight has yet to be seen.
Containerized marine cargo through Washington ports declined by 10% in the first four months of 2020 compared to the same period last year. Imports fell from 2.8 million metric tons to 2.5 million (-12%) while exports dropped from 2.7 million to 2.5 million (-8%). Exports to China by value declined 40% compared with the first six months of 2019.
The timetable for economic recovery is uncertain. But even after recovery, trade might look quite different. The ongoing trade dispute with China and growing calls for economic “decoupling” may cause, or accelerate, some supply chains to shift to new parts of the world. This could mean, for example, on the margins, rerouting of shipments of intermediate and finished goods away from the Pacific Northwest, reducing activities at our ports.
With the global trade and supply chain system so important to Washington State’s economy, industry and policy leaders will need to keep a close eye on these developments.