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Keynote Speech

by Jock O’Connell

www.jockoconnell.com

TradeVisions 2005 Conference

May 18, 2005

San Diego, California


It is always a pleasure for me to visit San Diego, especially when the Legislature is in session up in Sacramento.

San Diego is also special for me because it is about as far from where I grew up as you can get and still be in the United States.

It’s speaking of the coast of Maine, not far a town which has played a role in one of San Diego’s major icons – the presence of he U.S. Navy. You see, no fewer than 17 of the destroyers and cruisers currently home-ported here in San Diego were built in Maine.

If you’ve ever visited Maine and become lost, you will appreciate why it is that all men instinctively sense that no good comes from stopping to ask directions. Forget Stephen King for the moment. If you’re lost in Maine and ask a native for help, there are two kinds of answers you’re apt to get. Those who are genuinely trying to be helpful will – in their own addled way -- tell you something like: Just drive down the road a ways, go past the lake, over a couple or three hills and then turn right where the Hutchinson’s barn used to be.

Other times, though, you’ll simply get the classic line [offered in a Downeast drawl]: “I reckon you can’t get they-ah from he-ah.”

Well, in a global economy with worldwide supply chains, that’s about the worst thing you want to hear people saying about your city or town.

Build a better mousetrap and the world of the 21st century won’t beat a path to your door -- unless there’s an 11,000-foot runway or a deep-water port in your front yard.

Put more formally, an efficient transportation infrastructure can a region a substantial competitive edge by lowering the costs, reducing the delays, and increasing the reliability of moving goods in a just-in-time economy.

San Diego has long relied on Los Angeles for its air and sea links to overseas markets. That de facto strategy may have been satisfactory in the past. It certainly permitted San Diego to avoid much of the downside of being a major corridor of global trade.

But as the Ports of Long Beach and Los Angeles – not to mention Los Angeles International airport -- grow more and more congested and as the surface routes between San Diego and Los Angeles become less and less reliable, that old strategy is growing more and more tenuous.

Sorting out a new strategy requires not only an appreciation of modern transportation logistics but an understanding of what kinds of transportation facilities best serve a region.

Unfortunately, most people – policymakers included – often come to this task with some rather peculiar assumptions. For example, most people conceive of foreign trade as an activity that takes place down by the waterfront.

One of the breakout panels this afternoon will be devoted to maritime trade. The shipping delays and occasional diversions witnessed last year in San Pedro Bay caught widespread attention. Indeed, even at a State Capitol famed for its own delays and diversions, the condition of California’s seaports has become a very popular topic of discussion – if not deliberation.

And why not? When it comes to foreign trade, there’s absolutely no question that the nation’s seaports do the heavy-lifting.

According to the U.S. Bureau of Transportation Statistics, over 77 percent of the 1.7 billion tons of cargo that crossed our borders in 2003 was waterborne. Another 22 percent went by truck, rail or pipeline.

If you’re wondering what that sliver of red [on accompanying PowerPoint slide] is, that’s the mere 0.4 percent of America’s foreign trade tonnage that passed through our airports that year.

So it’s not surprising why California’s big three container ports – LA, Long Beach and Oakland – get a lot of attention. All that cargo – even if it is just passing through California – is of very considerable economic significance to this state. John Husing will shortly underscore that point.

Of course, the movement of that much freight also stirs up a lot of dust, literally, figuratively and politically. So it’s understandable that elected officials, bureaucrats, and editorial pundits have all lately taken to pondering the plight of the ports and the highways and railways that serve them.

By contrast, far less attention is given to the role airports play in the movement of goods internationally.

But the fact is that, when trade is measured in dollar terms, over one-quarter of America’s merchandise trade travels on planes – either aboard air-freighters like those operated by FedEx or in the bellies of passenger aircraft.

Now we don’t gauge our economic competitiveness according to how many imports we consume. Instead, we look to our export trade as a barometer of economic health. And when we look at how our exports get to foreign markets, what we find is that a far more equitable distribution of the burden of moving America’s merchandise exports. Indeed, in 2003, more of the nation’s exports were shipped by air than by either sea or land. (Air = 32.6%; Overland = 30.6% (26.9 by truck; 3.5 by rail, 0.1 by pipeline); Water = 28.5%. Those of you quick with numbers will see that the feds could not identify the mode of shipping for the remaining 8.3% of exports.)

Because it costs substantially more to ship goods by air, air-freighted items tend to be products with high value-to-weight ratios.

Since that describes much of the stuff manufactured by high-technology industries, it shouldn’t really come as much of a surprise that more of California’s merchandise exports go by air than by sea and land combined. That’s right: a clear majority of California’s export trade – 53.6% in 2003 -- was airborne.

And that’s on the low end of recent experience. In 2000, before the dot.com bust and before 911, air cargo’s share of California’s merchandise export trade stood at 65.1%. Up in Silicon Valley the dependence on air cargo is even more pronounced. That’s reflected in data showing that air cargo’s share of exports from the San Francisco Customs District was 72.3 percent in 2003, down from a peak of 79.2% in 2000.

Incidentally, it crept back up to a 74.9% share in 2004.

In the LA area, airborne exports have been running roughly equal with maritime exports – in dollar terms – in recent years. (In 2003, 48.2% by air, 49.5% by sea.)

So one conclusion you can certainly draw from all this is that the more high-tech your region’s industrial base, the greater your need is going to be for reliable and economical air links to national and international markets.

Let’s look quickly at three slides that neatly summarize San Diego’s air cargo current dilemma. The first shows the breakdown of trade through the Los Angeles Customs District last year. As you can see, there are ample distributions of cargo being moved by both sea and air. Now, here is same information for trade through the San Francisco Customs District. Note the preponderance of air cargo’s role in the economic life of one of the world centers of high-technology, even in the lingering aftermath of the telecom bust. Finally, we have the San Diego Customs District. The dominant coloration of the slide does not in this case indicate that San Diego and Imperial Counties are Republican strongholds. What is does mean is that, when it comes to trade with every country but Mexico, San Diego is almost wholly reliant on gateways in other jurisdictions.

So ask yourselves: will you still be able to get there from here, and vice-versa? Better still, ask the people responsible for getting your firm’s next shipment to LAX if I-5 and the 405 are getting any less congested.

How confident are you that the Southern California Association of Governments – a body that does not include San Diego – will have San Diego’s best interests in mind as it seeks to shift more of the region’s air cargo burden away from LAX.

Will the day come when you have to truck your overseas air freight all the way up to Palmdale?

What will happen with the LAX Master Plan now that Antonio Villaraigosa – a confirmed opponent of airport expansion -- has been elected mayor of Los Angeles?

Building a new airport or significantly expanding the capabilities of Lindbergh Field is not going to be easy. Clearly, not every community is up to that kind of challenge. Some communities – even some not too far from here -- can’t or simply won’t connect the dots between the transportation services they want and the investments and trade-offs required to provide those services.

If you look closely at debates over airport construction of expansion plans, there is one curious thing. The voice of the business community is not as strong as it might be. And a big reason for this, it seems to me, is that a generation of aggressive outsourcing has served to dilute a natural constituency. During the late 1980s and certainly during the 1990s, business management gurus strenuously advocated that companies concentrate on their core functions and outsource everything else – from accounting and payroll services to logistics – to firms that specialized in fulfilling those functions. Everybody was to focus on what they did best, and everybody was to flourish.

One regrettable outcome, though, was that management became partially blind to what it takes to move goods. Whether a company turned over its shipping needs to FedEx or your friendly neighborhood freight-forwarder, chances were high that it would become alienated from shipping and eventually would lose an appreciation of what it takes to move goods around the country and across oceans.

Last year, a survey of businesses in the Sacramento region concluded that the region’s business community was largely indifferent to the future of the Port of Sacramento. That finding was remarkable given the obvious fact that cargos not shipped through the port would spill over on to the region’s roads and railways. So even if you didn’t ship through the port yourself, its closure would affect you. Likewise, in a study of air cargo’s role in California agricultural export trade that my firm just did with the Center for Agricultural Business at Fresno State University, it was not uncommon to find that growers had only a vague idea of what happened to their produce once they turned it over to their freight-forwarder.

Businesses small and large clearly need to re-acquaint themselves with their own dependence on an efficient goods movment system. Otherwise, building the kind of infrastructure this region and this state need to go forward in the global economy will be all the more difficult.

In conclusion, it is worth observing that -- as you approach the infrastructure challenge that lies before you -- sensible, long-term policy choices do not always require inspired vision. In many cases, the mere absence of shortsightedness would do.

Thank you.

Copyright © 2005 by J. A. O’Connell