The fatal flaw in Utah’s Inland Port idea

Malin Moench spent 37 years analyzing legal, economic, and technical issues relating to transportation and public utility regulation at the Federal level. Now retired, he volunteers for a number of environmental organizations, including the Stop the Polluting Port Coalition. He wrote the following op-ed for the Deseret News:

The inland port attempts to help a supply chain crisis, but it would be counterproductive to send goods to Salt Lake City and then backhaul them for distribution.

Utahns have long feared that building an Inland Port will aggravate Salt Lake Valley’s dismal air pollution and traffic congestion. To those concerns, we can add the near certainty that it will fail as a business, according to Professor Robert Leachman, a nationally renowned logistics expert.

Utah’s imports come mostly from Asia by way of the two Los Angeles seaports. Adhering to a nearly mystical belief that “if we build it, they will come,” Inland Port officials assumed that LA’s ports could outsource key functions to Salt Lake City, easing congestion at those ports and securing a national role for the city in the Trans-Pacific supply chain. 

Never doubting this belief, Inland Port officials have spent $40 million on overhead and borrowed $150 million in taxpayer-backed bonds, with nothing to show for it. That failure has prompted an overhaul of Port leadership. Leachman explains that the Inland Port’s business model is fatally flawed, whoever tries to implement it. The reason is simple — it will not save shippers either time or money. 

Only a few, high-volume importers can save money by “transloading.” They take dozens of single-product marine containers from ships, repack their contents into a third fewer (but larger) multi-product domestic containers, and then send their goods inland. Transloading near the seaport can cut transportation costs inland by a third. It also allows importers to closely match their inventories to seasonal and regional variations in demand.

Shifting the “transloading” function from California ports to Salt Lake was central to Utah port official’s business plan — the pitcher’s mound in their logistical “field of dreams.” Unfortunately, they never bothered to do the math. Transloading is labor intensive and expensive. Trans-loading three ocean containers into two domestic containers costs $1,500. To save that much in transportation costs, an importer must ship its surviving domestic containers at least 500 miles beyond the trans-loading point.

Professor Leachman notes that this scenario would rarely occur in Salt Lake. Nearly all of the marine containers shipped from the LA seaports to Salt Lake are offloaded at Union Pacific’s intermodal railyard, then trucked to a local warehouse. There, the marine containers are unpacked and their contents distributed to retailers. 

Leachman says that the further from the LA seaports transloading takes place, the fewer transportation savings it will capture. Importers have no reason to ship their containers 800 miles to Salt Lake before transloading them. By spending $1,300 to transload three marine containers in Salt Lake, they avoid one truck trip costing $200 or less. This is a hugely negative “value proposition.” If it remains central to the Inland Port’s business plan, the Port will fail. 

Professor Leachman adds that there is no business case for trying to make Salt Lake a transloading waypoint for marine containers destined to markets east of the Rockies. It would be far cheaper, he says, to let marine containers complete their rail journey to Denver or the Midwest than to trans-load them to domestic containers in Salt Lake and truck them the rest of the way. 

Leachman explains that only a few Original Equipment Manufacturers and big-box retailers import enough single-product ocean containers to regularly trans-load them into dozens of domestic containers, placing an array of goods in each that closely matches regional and seasonal fluctuations in demand. For them, it would be much less efficient to shift their demand-matching distribution centers to Salt Lake City to serve the entire Western U.S., rather than continue to use their distribution centers in Los Angeles.

A distribution center in LA can reach 40 million consumers within a day’s drive. One in Salt Lake would reach one-tenth as many. Most of the goods arriving in Salt Lake would have to be backhauled to markets along the West Coast — an irrational choice for any large importer. 

The few, large importers who transload already maximize their profits by doing it in LA and sending their goods to Salt Lake in domestic containers — either by rail or truck. This effectively eliminates any demand for trans-loading marine containers in Salt Lake. 

Why put millions in city-backed bonds at risk building an Inland Port to meet a demand that doesn’t exist?