May is International Trade Month, but there doesn’t seem to be much cause for celebration this year. To one extent or another, all of the surviving presidential aspirants have broken with a decades-long political consensus in favor of free trade, while also raising broader questions about the impact of globalization on the lives of middle-class Americans.
Foreign trade has also sparked controversy here in California. Growing crops for export during a drought has drawn sharp criticism. Democratic politicians like Elk Grove Rep. Ami Beri, who have backed President Barack Obama’s trade liberalization efforts, have lost support from organized labor.
Still, trade plays a vital role in California’s economy. The state’s seaports, airports and border crossings with Mexico are not only major conduits for America’s trade with the world, they provide employment for armies of blue-collar workers who might otherwise find themselves economically disenfranchised in an increasingly high-tech California.
At the same time, some 65,000 California firms regularly engage in export transactions that, last year, were collectively valued at $165 billion, according to the U.S. Commerce Department.
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So it’s no wonder that state officials have historically struggled to find a role for the state to play in bolstering California’s exports and attracting foreign investment. Unfortunately, their proposals have tended to run from the perfectly dreadful (like opening state trade offices abroad) to the patently self-serving (offering to lead overseas trade delegations).
This is not to say that state government does not have a legitimate role to play in furthering California’s interests in the global economy. But it’s a more prosaic role, more akin to blocking and tackling than throwing game-winning touchdown passes.
Instead of focusing on foreign travel, state leaders should be more concerned with more elemental matters – such as why it currently costs more to haul a shipping container by truck the 90 miles from Sacramento to the Port of Oakland than it does to ship that container 6,200 miles across the Pacific to Shanghai.
While domestic transport costs are a salient concern for all California exporters hoping to remain competitive in a global market, they are especially critical for Central Valley shippers of agricultural products. Last year, exports of agricultural produce and food products represented 66.9 percent of the $17.95 billion in exports trafficked through Oakland.
While domestic transport costs are a salient concern for all California exporters hoping to remain competitive in a global market, they are especially critical for Central Valley shippers of agricultural products.
Yet for a number of reasons the cost of shipping goods out of that port have risen sharply in recent years. Terminals at the port normally are run on a schedule that bankers would envy. Labor contracts inhibit flexibility in handling cargo. And a state-sanctioned monopoly that supplies the mariners who guide commercial vessels into and out of San Francisco Bay results in piloting charges to steamship lines that are three times higher than at the ports of Los Angeles and Long Beach.
But highway congestion and the deplorable condition of road surfaces loom large as cost factors. I have been driving in Spain and France the past three weeks and can personally attest that California’s highways are a civic embarrassment. There’s nothing world-class about them.
As recently as three years ago, truck drivers could hope to make two round trips per day from the Central Valley to the Port of Oakland, according to executives at Devine Intermodal, a West Sacramento trucking company. Now, trucking lines serving the Port of Oakland are fortunate to make one round trip per day. But with fixed equipment costs, the inability to make maximum use of their trucks and drivers due to the state’s failure to maintain a transportation infrastructure consistent with contemporary commercial needs ultimately results in higher transport costs to California exporters.
And there are more costs to come.
Last July, Gov. Jerry Brown issued an executive order calling on state agencies to develop “an integrated action plan that establishes clear targets to improve freight efficiency, transition to zero-emission technologies and increase competitiveness of California’s freight system.”
A draft of that plan was released for public comment on May 3. In essence, it insists that the policies and programs it will engender will keep California’s freight transportation systems competitive without compromising on Brown’s pre-eminent goal of dramatically reducing carbon emissions.
Pulling that off will be an exceedingly neat trick.
The draft, hastily cobbled together in just 10 months, reflects an antiquated grasp of transportation logistics and a dubious set of assumptions about the link between economic growth (especially as measured in terms of gross domestic product) and forecasts of the volume of goods expected to be handled in California in coming years.
For maritime officials in particular, implementation of the plan would require enormous investments in new equipment and facilities. According to a study by Moffat & Nichol, a leading infrastructure engineering firm, converting the state’s three big maritime gateways – the ports of Long Beach, Los Angeles and Oakland – to zero emission equipment will cost $35 billion in the next 30 years, compared with $7 billion to replace existing gear.
The rub is how to finance compliance with stricter environmental mandates. On this score, the draft plan issued this month is remarkably tentative. Indeed, the text is so cavalier in its consideration of the economic consequences of zero-emission mandates that it belies the Brown administration’s professed desire to maintain the competitiveness of the state’s goods movement system.
Terminal operators at ports around the world are financially stressed, as a recent report from London-based Drewry Shipping Consultants attests. In January, one major terminal operator unilaterally canceled its lease at the Port of Oakland in order to focus its limited financial resources at ports elsewhere.
Inevitably, new business costs get passed on. Saddled with huge new expenses, terminal operators at California ports will have no choice but to charge higher fees. But shipping lines and cargo owners have options, especially when an expanded Panama Canal opens next month and when ports in the Pacific Northwest are bolstering their cargo handling capacities.
As exporters of California products have long recognized, it’s very easy to be priced out of global markets because of the costs added by only-in-California fees, taxes and regulatory burdens.
So it’s no wonder that, during this year’s International Trade Month, businesses that depend on the efficient and economic transportation of goods are likely to be very skeptical about whether state government has their backs.
Jock O’Connell is a Sacramento-based international trade economist affiliated with Beacon Economics. Contact him at email@example.com.