California Industry's Growing Reliance on "Fly-By-Night" Operators

By Jock O'Connell
This is the author's text of an article published in the Sacramento Bee Forum section on Sunday, May 14, 2000. The article as it actually appeared may be found at " A 'fly-by-night' state. "

How California's manufacturers and growers will get their products to market through the state's congested transportation system doesn't get much attention in the state Capitol infrastructure debate. As a result of patchy information and some decidedly old-fashioned notions, transportation planners are flying largely blind to the way most California products are now shipped to foreign markets - not by sea or land, but increasingly by air.

Whenever top policymakers and their advisors talk about the logistics of California's $110 billion-a- year export trade, their instinct is to think first and almost exclusively of seaports. At an April meeting of the California State World Trade Commission - with Gov. Gray Davis attending - one panelist asked whether the state's transportation infrastructure is poised to accommodate anticipated growth in the volume of foreign commerce. The ensuing discussion, which focused entirely on road and rail links to the state's major seaports, prompted the commission to schedule its next meeting at the sprawling Port of Long Beach.

There the trade commissioners will doubtless receive a detailed briefing on the enormous economic impact of the Port of Long Beach and the adjacent Port of Los Angeles. (Together, they constitute the nation's largest port complex, handling three times the volume of the now familiar standardized shipping containers as the Ports of New York and New Jersey.) Commissioners will also likely hear about the massive expenditures that have been made to streamline access to the ports via the Alameda Corridor, the primary route connecting the two ports with the rail yards and truck terminals of East LA.

But what the commission - explicitly created to foster the growth of California exports - may not be told is that most of the merchandise California firms ship to customers overseas goes nowhere near a seaport. Instead, it goes by air. Los Angeles International Airport (LAX) and San Francisco International Airport (SFO) each handle more exports (measured in dollar value) than do the Ports of Los Angeles and Long Beach combined. In 1997 (the last year for which comparable data are available), some $36.5 billion in merchandise exports departed from LAX, while another $35.8 billion left through SFO. By contrast, the Ports of Long Beach and Los Angeles moved export shipments valued at $19.1 billion and $16.1 billion, respectively.

Across the United States, airports and seaports each handle approximately one-third of the nation's merchandise exports. (The balance, principally shipments to Mexico and Canada, are moved by truck or rail.) California exporters, however, have grown singularly dependent on air cargo because of the nature of the goods California industry produces. In the case of merchandise with a comparatively high value-to-weight ratio - a classic hallmark of high-technology products - air has become the favored method of transportation. That's why at least 85 percent of the goods exported from the San Francisco Customs District (which encompasses Silicon Valley) depart by air freight. It's also why exports shipped out of SFO have about three-and-a-half times the value of those exported through the Port of Oakland.

It is just not high-tech goods that travel by plane. When timely delivery of perishable commodities is crucial - as in the case of Central Valley crops like asparagus, cherries and cut flowers - air freight is the only way to ship. For example, Farmington Fresh, a farming co-op, operates a sizable air cargo service for San Joaquin Valley produce out of Stockton Metropolitan Airport. The service features regularly scheduled air freight service to the Pacific Rim, Mexico, Canada, South America, and Europe.

The Colography Group, an Atlanta-based consulting firm, projects that more than 42 percent of the value of global goods this year will move by air, up from 40.9 percent in 1999. Equally interesting is that more lower-valued goods are entering the air-freight channel. Marks & Spencer, the British department store chain, recently announced that it was establishing its first global logistics center in Sri Lanka and would be using air freight to move as much as 80 percent of its merchandise to its stores in the United Kingdom and elsewhere.

Unhappily, neither policymakers nor the general public seem to understand the importance of international air freight services to the state's economy. Merchandise exports account for some 10 percent of California's output. Yet, as a 1998 report by UC Berkeley's Institute of Transportation Studies - commissioned by the California Department of Transportation - observed: "Little is known about the role of air cargo in California's goods movement."

To be sure, CalTrans does compile monthly activities reports on the weight of air cargo shipments handled at California's airports. But the dollar values of these shipments provide a much more accurate measure of the significance of airports to the state's economy. This "official" knowledge gap is even wider when it comes to exports traveling by air. For one thing, CalTrans' air cargo figures - which help inform state transportation policy - don't distinguish domestic from foreign shipments. For another, no one seems interested in exploring the subject. The UC report, for example, cites as the definitive analysis of California air cargo exports a paper I co-authored - 14 years ago!

Making policy in the dark could cause more than bruised shins. As the UC report warned, the demand for air cargo services is rapidly outstripping current airport facilities, especially at the state's two principal international air terminals, LAX and SFO. Plans to build additional air cargo capacity not only at these two hubs but at such alternate locations as San Diego's Brown Field or the former El Toro Marine Corps airbase in Orange County have been stymied by opposition from neighboring communities and environmentalists. Even Sacramento's Mather Field, once well-insulated from encroaching neighbors, is in trouble.

The demand for air cargo services won't ease soon. Spurred by airline deregulation, trade liberalization and new international accords governing airlines, the use of air cargo is steadily rising. Global air cargo traffic increased by 9.7 percent in 1999, according to the Airports Council International. The International Air Transport Association is forecasting a growth rate in international air freight traffic of 5.5 per cent over the period 1999-2003. Boeing has published slightly more optimistic numbers for the next 20 years, pegging annual growth at 8.2 per cent for intra-Asia traffic, 7.3 per cent for Europe-Asia, and 7 per cent for trans-Pacific traffic. This is also the first year in which the aircraft manufacturer expects to deliver more 747 freighters than 747 passenger planes.

This matters hugely to California firms and workers. The growing popularity of just-in-time manufacturing practices and management strategies that involve the coordination of global supply chains will compel more and more California companies to turn to air cargo. But given the imposing barriers airport authorities face in seeking to meet the rising demand for air cargo services, it is not at all clear that California will remain a viable place to be in business. Ultimately, transportation bottlenecks influence business location decisions.

Airports are under a NIMBY siege. Especially at risk are airfields hosting air freight carriers, whose flight-by-night operations are most likely to distress neighbors. Here in Sacramento, the full development of a regional air cargo hub at Mather Field is already being imperiled by the new housing developments proposed nearby. When Mather was a base for B-52 bombers carrying nuclear weapons, the Air Force maintained a 60,000 acre exclusion zone around the field. When the base was handed over to civil authorities, the County of Sacramento reduced the exclusion zone to 12,000 acres.

If Mather can't keep development at bay, it could face the same sorts of problems already being encountered by airports elsewhere in the state. Law suits have long obliged John Wayne Airport in Orange County to ban commercial flights between 10 p.m. and 7 a.m.

Similarly, officials in San Diego County has been in a policymaking dither for years about the future of the cramped but conveniently located Lindbergh Field. The most obvious option - creating a new regional airport at Brown Field near Otay Mesa - has been consistently thwarted by local opposition. In the meantime, both passenger and air cargo services to the burgeoning cross-border economy are being squeezed.

Further north, LAX has seen its passenger load rise from 40 million a year ten years ago to about 63 million passengers this year. The Southern California Association of Governments estimates that about 160 million passengers will use the region's major airports by 2020, with about 29 million passing through Orange County airports, and about 98 million using LAX. To cope with this growing traffic, Los Angeles World Airports, the governmental agency that runs Los Angeles International Airport and three other regional airports, is planning a $10-12 billion expansion. Its ability to implement this scheme is being hindered by an absence of regional cooperation in forging a new air transport strategy.

At San Francisco International, which has the nation's worst flight punctuality record, low visibility often reduces airport capacity to a single runway instead of two. There are plans to construct a new runway out into the bay to permit simultaneous landings in bad weather. But the prospect of filling in two square miles of San Francisco Bay has energized powerful environmental groups.

Both LAX and SFO have spent substantial sums on programs to deal with aircraft noise in adjacent neighborhoods. In February, more than $34 million was approved by the San Francisco Airport Commission to insulate nearly 1,800 homes in northern San Mateo county from the noise made by airplanes flying in and out of San Francisco International. This was in addition to the more than $120 million the airport commission had already been obliged to spend on similar retrofits in recent years.

The Airports Council International claims the U.S. will need 10 new airports the size of Dallas-Fort Worth by 2020 to keep up with increasing traffic. California, by all accounts, will require dramatically expanded passenger and air cargo capacity not only in LA and the San Francisco Bay Area but also in such fast-growing regions as the transborder area at San Diego-Tijuana, Orange County, the Inland Empire of San Bernardino and Riverside Counties, and the Central Valley.

So what is being done? Airports unfortunately fall into a morass of cross-cutting bureaucratic lines of responsibility involving federal, state, regional and local agencies. Inevitably, airport expansion issues are tackled (or more commonly avoided) at the regional level. But none of the state's various regional policymaking bodies has demonstrated an ability to transcend local cleavages.

Nor is there much leadership from state government. There are currently no legislative committees devoted explicitly to airport issues, although there is an Assembly Select Committee on California Ports and a Senate subcommittee to deal with the Alameda Corridor access route to the Ports of Los Angeles and Long Beach. Not surprisingly, the needs of airports seldom get the attention of those forging the state's transportation policies. In an emerging global economy where the future of trade is literally in the air, this level of official indifference just won't fly.

For other articles by Jock O'Connell, click on "Essays"