Missed connection on air cargo
- Jock O'Connell
Tuesday, August 3, 2004
The Bay Area economy is acutely reliant on the region's airports, and no airfield is more critical to the region's economic fortunes than San Francisco International Airport, especially when it comes to international business. More than 90 percent of the international travelers arriving or departing the Bay Area use SFO, according to airport records.
But what is less generally known is that SFO -- and not the sprawling maritime shipping complex at the Port of Oakland -- is Northern California's principal conduit for international trade. In fact, as federal Department of Transportation figures bear out, SFO handles more than double the two-way trade (measured by dollar value) moving across the docks in Oakland.
Whether SFO will be able to provide the global air-freight connections that Bay Area businesses will require in the years ahead is an open question, however. A report issued in April by the San Francisco-based Public Policy Institute of California offers compelling evidence that SFO's competitiveness as international air cargo hub has been waning since at least the mid-1990s. A similar conclusion was reached in a January 2003 study for the Pacific Council on International Policy, which specifically noted that cargo-handling inefficiencies at SFO were forcing more and more freight forwarders to route overseas shipments through airports in Southern California.
The issue here goes well beyond whether the international air transport needs of local companies are being adequately met. Ultimately, what's at stake is the Bay Area's ability to remain economically competitive and to retain its stature as a commercial crossroads. In the global economy of the 21st century, world-class seaport and airport facilities confer substantial economic advantages by reducing transportation costs and more generally facilitating links between local businesses and the global economy. Regions so endowed have a sizable edge in pursuing economic development strategies that target highly competitive companies and the well-paying jobs they typically provide. As a 2001 report by the Bay Area Economic Forum report observed: "While air transportation is vital to the movement of trade nationally, this is emphatically the case in the San Francisco Bay Area due to the region's technology economy and the high value of its technology exports."
Regrettably, SFO has been unconscionably slow to upgrade its facilities in anticipation of huge increases in the volume of international and, more specifically, transpacific air cargo trade. The consequences are becoming easier to identify. For example, California's merchandise exports surged by 19.9 percent through the first five months of this year, but the volume of international cargo handled by SFO inched upward by only 1.3 percent, according to the Federal Aviation Administration and carriers that serve SFO. In June, the San Francisco Airport Commission spurned a proposal from Airis Holdings, LLC, a Texas-based private developer, for a huge 633,000 square-foot, privately financed, state-of-the-art air cargo terminal. Instead, the airport has chosen to bolster SFO's cargo-handling capacity on its own.
How the only California airport assigned a negative credit outlook by Standard & Poors intends to pay for a vast new construction project is anyone's guess. SFO is still paying off about $4 billion in debt from previous capital projects, and its principal tenant, United Airlines, is in bankruptcy. The airport's plan involves a piecemeal approach, building the cargo terminal over several years and thus assuring maximum feasible disruption of the airport's air cargo operations. Even worse, the plan caters largely to the handling requirements of a handful of major domestic carriers who transport freight primarily in the bellies of passenger jets. Meanwhile, the air cargo operations of large foreign carriers like EVA, Air China and Korean Air, who make far greater use of dedicated air-freighters, have been exiled to an off- airport gulag of widely dispersed warehouses that are miles of congested streets and highways away from SFO.
Even if heightened security concerns do not eventually lead to a general ban on transporting freight aboard passenger planes, there is little question that the real heavy lifting on transpacific routes will be done by Asian carriers, especially those operating all-cargo services. Yet, without the highly mechanized and technologically sophisticated type of facility foreign carriers are demanding, SFO will likely see more and more international air cargo diverted elsewhere. That, in turn, is apt to further tarnish the Bay Area's reputation as a place for globally engaged companies to do business.
SFO is truly a regional asset, but its operations reflect the often distinctive interests of its sole proprietor, the City and County of San Francisco. As a mecca for tourists and conventioneers, San Francisco has an understandably keen interest in facilitating passengers. That priority has long served to inform, if not dominate, SFO's expansion plans. It is, unfortunately, a governance structure that poorly serves the more industrialized counties such as Santa Clara, Alameda and Contra Costa that generate most of the Bay Area's air cargo.
Jock O'Connell is an authority on world trade who has also served as a consultant for Airis Holdings.
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