"International Trade is Swamping California's Infrastructure"

By Jock O'Connell

This is the text of an article which appeared in the Sunday Forum section of the Sacramento Bee on July 4, 2004.

It's virtually a testament of faith among politicians, economists and editorial pundits that trade is good and more trade is presumably better. Of late, however, this buoyant sentiment is being met with a guarded "yes, but ..." response from California's trade professionals.

What's troubling those on the front lines of international commerce is that the enormous volume of goods we're importing and exporting is starting to overwhelm California's trade gateways and the connective tissue of highways and railroads that lead to and from them.

What's worse, the volume of international trade is expected to double or even triple within the next two decades. But there is little confidence - especially among logistics experts - that enough is being down to ensure that California's transportation system will be able to cope with future demand.

In Southern California, the neighboring ports of Los Angeles and Long Beach constitute the nation's busiest seaport, and international trade has emerged as the single largest source of jobs in the Los Angeles Basin. But the region is paying a heavy price in highway congestion, unclean air and traffic safety.

That's today. As for tomorrow, the Southern California Association of Governments expects that trade through the ports of Long Beach and Los Angeles will nearly triple by 2030. That, in turn, will increase daily truck trips along the nine major truck routes in the region by 70 percent. Daily rail trips through the region's mainline railway system will increase by over 150 per cent.

The trade-offs are manifest, as the association warns: "While the potential economic benefits of increased regional goods movement that accrue to the region, state and nation are great, the potential negative effects on the region's mobility, air quality, safety and resources are staggering."

In the San Francisco Bay Area, traffic congestion on roads adjacent to the Port of Oakland and San Francisco International Airport has been getting steadily worse as more and more trucks compete for limited roadway space with more and more passenger cars and buses. The Texas Transportation Institute's 2003 Urban Mobility Report ranked the Bay Area as having the nation's worst congestion, placing it just behind Los Angeles.

Trade's impact on the state's transportation infrastructure is not limited to the L.A. Basin and the Bay Area. As Sacramentans know all too well, the Bay Area has been exporting its traffic congestion - and air pollution - into the Central Valley, especially along the I-80 corridor toward Sacramento and the I-580 corridor toward Tracy and Stockton.

Moreover, as The Fresno Bee's Jennifer Fitzenberger reported on June 21, more trucks now travel up the Central Valley's Highway 99 than on any other north-south highway west of the Mississippi River. Traffic reaches up to 109,000 vehicles per day, even exceeding that on the parallel I-5. The consequences entail more than clogged transportation arteries and environmental degradation. Ultimately, California's long-term economic prospects are also being put at risk.

In "Globalizing L.A.: Trade, Infrastructure and Regional Development," Stephen Erie of the University of California at San Diego describes the "catalytic role of infrastructure" in fostering economic growth. Referencing an impressive body of recent academic research, Erie argues that 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 decided edge in pursuing economic development strategies that aim at attracting highly competitive companies and the well-paying jobs they typically provide.

Today's most competitive businesses are typically those that thrive in a global market. To flourish, though, they require easy access to a transportation network able to move goods reliably, efficiently and often rapidly over great distances. This is especially true for those companies taking aggressive advantage of worldwide production-sharing arrangements, global supply chains and just-in-time delivery schedules.

Conversely, regions that stint on their transportation infrastructure investments generally suffer as a result. Erie points to the example of San Diego, where the failure to develop a first-rate airport and maritime facilities costs area businesses some $4-5 billion annually in added transportation expenses and has inhibited the region's ability to attract globally focused businesses.

In L.A.'s case, Erie notes that civic entrepreneurs in the early decades of the 20th century firmly established the region as a major conduit for international commerce by investing massively in carving seaports out on the shores of San Pedro Bay and by transforming a modest airstrip west of town into what would become Los Angeles International Airport.

Today, however, such ambitious infrastructure projects are infinitely more difficult to initiate, let alone complete. Not only are there many more competing claims on public funds, a host of political and legal tools have become available that enable anyone with even the slightest motive to hamstring virtually any scheme transportation planners might conceive. As a result, commerce in California has grown dangerously dependent on inherited transportation assets.

And it's starting to show. In a study published in April by the San Francisco-based Public Policy Institute of California, economist Jon Haveman found that the share of U.S. trade handled by California gateways, which had doubled between 1974 and 1995, has been diminishing ever since.

Haveman attributed the loss of market share to a number of factors, but the one that stands out most conspicuously was simply that "shippers preferred other ports of entry or exit." In short, we're still seeing growth in trade volumes, but a lot of business that once came through California's seaports and airports has been going elsewhere lately.

That finding would surprise no one attending a June 11 trade logistics symposium in Oakland sponsored by the Bay Area World Trade Center. There, several panelists alluded to a significant shift in the attitudes of shippers regarding the reliability of California's seaports in servicing trade between Asia and North America.

The symposium's keynote speaker, Stephen Petracek, a trade logistics expert with Booz, Allen Hamilton, pointed to a substantial upswing in just the past two years in all-water service from Asia seaports to ports on the East and Gulf coasts. Among the reasons Petracek cited for this trend was increased congestion at West Coast ports coupled with shippers' concerns with the carrying capacities of the railroads linking the Pacific Coast to the rest of the country.

And it is not just our seaports that are feeling the strain of trade. In the economy of the 21st century, building a better mousetrap will not necessarily prompt the world to beat a path to your door - unless that path takes the form of an 11,000-foot runway.

For Northern California, it is San Francisco International Airport - and not the sprawling maritime shipping complex at the Port of Oakland - that is the region's principal conduit for international trade. (Measured in dollar terms, SFO actually handles just over two-thirds of the two-way trade moving through Northern California's international gateways.) But whether SFO will be able to provide the global connections that Northern California's businesses will require in the years ahead is an open question.

The Haveman report offers compelling evidence that SFO's competitiveness as an international air cargo hub has been waning since at least the mid-1990s. And that is not a novel indictment. In a January 2003 study for the Pacific Council on International Policy, economist Sarah Bachman pulled no punches: "Inefficient Oakland and San Francisco airports and marine ports are losing business to their rivals, particularly those in Southern California. Some freight forwarders truck shipments to Los Angeles to avoid congestion and delays in the Bay Area."

What may be more ominous, though, is that Haveman identifies changes in global trade patterns that, by "compromising the ability of California's gateways to raise revenues through fee increases," could undermine efforts to construct and maintain the logistical infrastructure needed to cope with projected increases in the volume of domestic and international trade.

Several commercial as well as technological developments bode ill for the financial health of California's trade entrepôts. For example, mega-importers like Wal-Mart and Home Depot have been investing heavily in gigantic distribution centers in low-cost states like Georgia. As a result, the Port of Savannah has emerged as a primary destination for shipments from the Far East that might otherwise have been routed through a West Coast seaport and then shipped eastward by truck or rail.

On the technological front, the emergence of ultra long-haul aircraft will expand the number of U.S. cities with direct air cargo service to Asia, thus allowing shippers to bypass SFO and LAX even more than now. Indeed, Singapore Airlines initiated a non-stop service between Singapore and New York just last Monday.

If California's trade infrastructure is showing clear signs of buckling under the weight of current trade flows, what happens down the road? Most forecasts call for the volume of international trade to double or even triple by 2020. The problem is that providing the vast transportation infrastructure needed to bear that growing burden will take time, money and - most critically - a breed of politically willful master builders not seen in California in generations.

In a speech given earlier this year, Jack Kyser, the chief economist at the Los Angeles Economic Development Corporation, complained of the lack of true champions to articulate the benefits of international trade at the state and local levels. By contrast, as Kyser noted, the voices ready to express their dismay and even their hostility toward the consequences of international trade have become all too numerous and ubiquitous.

The problem is that the upsides of international trade tend to be broadly dispersed, while trade's nastier side effects tend to be more targeted. Everyone, for example, enjoys the benefits of a major airport, but not everyone has to endure the sound of large planes landing and taking off. Not surprisingly, there are more people who are apt to feel more passionately about the intrusions of global commerce than there are those prepared to argue that a greater good is being served.

Even less surprisingly, risk-averse politicians are too often prone to taking a walk when the agenda turns to critical but controversial and costly transportation infrastructure projects. But if California wishes its industries to remain competitive in the global economy, its political leadership must do more than lend rhetorical support to international trade. The usual preoccupations - opening foreign trade offices or leading trade missions abroad - may do wonders for a politician's constituent relations. But such diversions do not even come close to dealing with the real needs of the state's international business community. As much popular sentiment as there is right now for providing a minimally burdensome business climate or for subjecting state government's bureaucrats to an "out-of-box" experience, there are certain essential functions that only government is suited to perform. One of the most pressing and paramount is harnessing the diverse range of private interests as well as local and regional public authorities that all have a stake in insuring that California has the infrastructure it needs.

Website: www.jockoconnell.com Email: jockoconnell@gmail.com