Center for Agricultural Business
California State University, Fresno
The Role of Air Cargo
in California’s Agricultural
Export Trade
by
Jock O’Connell
Bert Mason
John Hagen
Center for Agricultural Business
California State University, Fresno
Fresno, California
Published by the
California Agricultural Technology Institute
May 2005
CATI Pub. # 050502
by
Jock O’Connell
Bert Mason
John Hagen
The Role of Air Cargo
in California’s Agricultural
Export Trade
Table of Contents
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
About CAB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A Preliminary Word On Trade Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 1: The Current and Future Role of Air Cargo Services in the Shipment
of California’s Agricultural Exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Current Picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Future Prospects for Airborne Agricultural Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A Challenged Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
An Overlooked Mode of Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The Logistics of Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Air Cargo and Perishables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
An Air Cargo Airport for Agriculture? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
The Demographic Imperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Chapter 2: Measuring the Value of California’s Airborne Agricultural Export Trade . . . 57
The Root of the Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Measuring California’s Farm Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ERS export data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
UC Davis farm export data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
WISER agricultural export data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Principal Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Chapter 3: The International Air Cargo System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Black Box of Transportation Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Evolution of Air Cargo Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
The Impact of Regulation/ Deregulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
The Characteristics of Air Cargo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Shipping Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
The Economic Significance of Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
At the Airport: An Often Frantic Dance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Air Cargo Shipping Containers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Cargo Airports in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Impact of New Aircraft Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
The Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Boeing’s Air Cargo Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Airbus Global Market Forecast 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
MERGEGLOBAL Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Rolls- Royce Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Other assessments of the future of air cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Chapter 4: The Air Cargo System in California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Air Transport and California’s Economy: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
California’s Commercial Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
California’s Principal International Gateways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Los Angeles International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
San Francisco International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Other Key Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Air Cargo in Southern California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Air Cargo in the San Francisco Bay Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Air Cargo in the Central Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Chapter 5: Air Cargo Transportation Viewed by California Agricultural Exporters . . 164
Cherries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Desert Grapes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Asparagus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Salad Mixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Strawberries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Blueberries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Industry Obervations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Chapter 6: Principal Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Public Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Table of Contents ( cont.)
About the Authors
Funding for this project has been made available by the Governor’s Buy
California Initiative, the California Department of Food and Agriculture and
the U. S. Department of Agriculture, through the California State University
Agricultural Research Initiative Program ( ARI: Project # 03- 8- 007). Additional
funding was provided through Cooperative Agreement 12- 25- A- 4248 between
California State University, Fresno and the Agricultural Marketing Service’s
Transportation Service’s Branch, USDA.
vii
Acknowledgments
Jock O’Connell ( www. jockoconnell. com) is a principal consultant, The Clarkstreet
Group, Sacramento, California. Bert Mason is a professor, Department of Agricultural
Economics at California State University, Fresno. John Hagen is professor emeritus,
Department of Agricultural Economics, California State University, Fresno.
About CAB
The Center for Agricultural Business ( CAB) is one of four research units
comprising the California Agricultural Technology Institute, located at
California State University, Fresno. For more information on programs and
research, contact us at the following address:
Center for Agricultural Business
California State University, Fresno
2910 E. Barstow Ave., M/ S 0F 115
Fresno, CA 93740- 8009
Phone: 559- 278- 4405
Fax: 559- 278- 6032
Web: cati. csufresno. edu/ cab
1
The Role of Air Cargo Services in the Shipment of
California’s Agricultural Exports
Executive Summary
This study examines the expanding role of air cargo services in transporting
agricultural exports from California. Although air cargo accounts for a seemingly
modest share of the state’s farm export trade, California’s airborne agricultural
exports in 2004 totaled $ 659 million, an increase of nearly 60 percent since 2000.
Moreover, for several highly perishable, high value- added crops such as cherries,
strawberries, asparagus and a range of fresh organically- raised produce, air cargo
generally offers the only effective means for exploiting overseas markets. The
principal destinations of California’s airborne agricultural export trade are in the Far
East, primarily Japan, China, South Korea, Taiwan and Hong Kong. A much more
moderate airborne export trade is conducted with Europe and Latin America. Not
surprisingly, given the efficiency of modern trucking and rail operations, there is very
little airborne trade with Canada and Mexico.
Looking ahead, there are several reasons to expect that California’s agricultural
exporters will be making even more extensive use of air cargo in the future. Chief
among those are the following:
● Maritime shipping – the customary mode for moving most farm products to
overseas markets – is becoming an increasingly problematic partner for
exporters of high value- added perishable farm products.
● There has been a dramatic expansion of worldwide demand for high- quality
and typically high value- added food products grown and processed under
conditions conducive to wholesomeness and food safety.
● Multinational food companies are embracing sourcing and logistics practices
that place a heavy burden on transporting produce over vast distances in a
timely and reliable fashion.
2
● California agriculture’s progressive shift toward higher and higher value-added
crops that command premium prices will place more of the state’s
agricultural output in the category of goods for which air transport is
economical.
● Efforts to liberalize both trade in agricultural products and international air
transport regulations should open new markets while expanding existing
markets for California farm exporters.
A worrisome issue facing California’s transportation planners is whether the state’s
air transport infrastructure will be able to cope with ever increasing levels of
international passenger air travel as well as a volume of international air cargo that
is expected to double or even triple by 2025. With approximately half of all air cargo
shipped in the bellies of passenger aircraft, it is hardly surprising that much of the
state’s airborne foreign trade passes through its two principal gateway airports, Los
Angeles International Airport ( LAX) and San Francisco International Airport ( SFO).
What is remarkable, though, is the extent to which these two airports have
maintained an effective monopoly over the state’s foreign airborne trade. In 2004,
for example, LAX and SFO together handled 98.8 percent of all airborne imports into
California and 93.2 percent of all airborne exports from the state. Yet both airports
face severe constraints on their ability to handle significantly greater levels of
additional cargo. LAX has little room for expansion and faces very stiff political
opposition from neighboring communities to any increase in flight operations. SFO
suffers from high rates of weather- induced flight delays and diversions and has been
slow to upgrade its air cargo handling capabilities. Highway access to both facilities is
increasingly congested, posing a particular problem for shipments of perishable
commodities.
To be sure, exporters have a somewhat different take on airport congestion than do
importers. For one thing, so long as there is a substantial trade imbalance, the lack
of ‘ back- haul’ cargos commensurate with the level of airborne imports serves to
depress the rates air carriers can charge for outbound shipments. What should be of
great interest to exporters are the efforts under way to relieve burden on SFO and
LAX by shifting more passenger and cargo flights to other California airports.
3
To better manage increasing air cargo traffic, aviation and surface transportation
planners in Southern California have sought – so far with very limited success – to
encourage air carriers to shift more air cargo activity away from LAX to other
regional airports, most notably Ontario International Airport. By contrast, there is no
similar strategy in Northern California to alleviate the burden on SFO. Indeed, SFO
officials have consistently discouraged efforts to formally coordinate operations of
the San Francisco Bay Area’s three major airports.
A substantial portion of the state’s international air cargo capacity will necessarily
migrate from LAX and SFO to airports further inland and, hence, nearer to
California’s agricultural heartland. This migration will be spurred not merely by the
need to ease the air cargo burden on LAX and SFO but also to provide better air
transport services to the fast- growing population and industrial centers in California’s
Inland Empire and Central Valley. It will also be shaped by investment decisions
made by the so- called integrated carriers ( most notably, FedEx, UPS and DHL) that
are poised to seize larger and larger shares of the international air cargo market.
Several inland airfields between Sacramento’s Mather Field and March GlobalPort in
Riverside County have been aggressive in promoting themselves as future air cargo
hubs. Clearly, not all will succeed, since airlines are typically reluctant to provide
scheduled passenger service to the less densely- populated regions where some of
these vying airports are located. Geographic remoteness would not necessarily be a
disqualifying factor for a dedicated air cargo airport were it not for the fact that an
airport needs to attract both air carriers and the myriad logistical and other support
services needed to sustain significant air cargo operations. Freight- forwarders,
customs brokers, trucking companies, aircraft servicing firms, and other providers of
essential support services are more apt to be persuaded to establish a presence at or
very near airports featuring passenger as well as air- freighter flights. For that
reason, this report submits that demographic considerations – the presence of a
burgeoning population and expanding economic base – will be critical in determining
which of California’s airports garner significant shares of the state’s international air
cargo trade.
In Southern California, the migration will most likely benefit Ontario International
and March GlobalPort. These airports are situated in San Bernardino and Riverside
4
counties, two of the fastest growing counties in California. The airports also happen
to be regional hubs for UPS and DHL, respectively. ( The FedEx hub for Southern
California is LAX.) Meanwhile, San Diego will have to resolve a long- standing
controversy over if and where to build a major new airport before it attracts
appreciable international air cargo, despite being California’s second largest city.
In Northern California, Oakland International should gain larger shares of the San
Francisco Bay Area’s international air cargo traffic, but SFO will remain Northern
California’s dominant hub for international air cargo so long as passenger aircraft
carry a substantial portion of air cargo. However, there is some expectation that
some foreign air carriers will shift their all- cargo operations from SFO to Oakland.
In the Central Valley, Sacramento International Airport ( SMF) and Mather Field
should emerge as important conduits for international trade. Even today, the
passenger market served by SMF is reportedly large enough to warrant regularly
scheduled non- stop passenger flights to Europe. The introduction of new aircraft
such as Boeing’s 787 and a possible competitor in the Airbus 350 should only
enhance the prospects that SMF will be offering overseas service in the next decade.
Both the 787 and 350 are medium- sized, long- distance aircraft specifically designed
to provide non- stop service between non- hub airports. Because of the synergies
available to companies providing support services for air cargo operations at airports
in such close proximity, Mather would enjoy an advantage in its efforts to attract all-cargo
operations.
For grower- exporters in the Central Valley, the initiation of overseas flights out of the
two Sacramento airports would offer easier and more direct access to foreign
markets. There is a substantial likelihood that Mather will feature all- cargo service to
markets in the Far East. Meanwhile, cargo space available on passenger flights from
SMF to one or more European destinations will enable growers to better serve the
European Union’s growing demand for California food products.
Projections should come with caveats. Although proximity to a major metropolitan
area presents a powerful lure for air transport providers, civic opposition to the
noise, air pollution and surface traffic congestion associated with expanded flight
operations could easily thwart airport expansion or construction plans. Less
5
frequently acknowledged is the concern likely to be raised by growers themselves.
Although the introduction of international air service to airports nearer to the state’s
agricultural packers and shippers may seem an unmitigated boon, it is indeed far
from clear whether the initiation of overseas flights would be cheered by growers
justifiably nervous about the risks of disease or pest infestation that return flights
might bring. Even though the almost relentless urbanization of agricultural land –
especially in the Central Valley and Inland Empire – will almost certainly make
regular international air service inevitable, growers have a legitimate reason to fear
pest or disease invasion – either accidental or deliberate – into California’s
farmlands. Appropriate prophylactic measures would have to be devised to protect
state agricultural production.
Ultimately, the issue of whether California’s agricultural exporters as well as other
businesses will continue to enjoy the quality and frequency of air cargo services
needed to sustain a presence in the global economy will hinge on the fostering of a
political climate hospitable to increased flight operations. That climate is currently
conspicuous by its absence in virtually ever corner of the state. As was seen in the
defeat of proposals to establish a new regional airport at the former El Toro Marine
base in Orange County, even those who make extensive use of air transport for
personal or commercial reasons resist having a major airport in their neighborhood.
Even though the need for greater air transport capacity seems self- evident,
community resistance to expanded operations at existing airports and construction of
new airports is strong and pervasive. It is also largely unbalanced by a business
constituency that depends on efficient air links to the national and global economies.
A generation of aggressive out- sourcing of logistical functions has evidently left
many companies indifferent to the need to maintain and expand the state’s
transportation infrastructure. That infrastructure projects are typically expensive,
socially unsettling and environmentally sensitive make political leaders reluctant to
tackle them. Undertaking massive infrastructure projects implies a major role for
government, which makes the process ideologically offensive to some. Still, if
California is to continue to enjoy the kind of transportation infrastructure essential
for full participation in a global economy, a stronger constituency will have to be
mobilized in support of an expanded and more diversified air transport system.
6
PREFACE
Introduction
This report examines the steadily expanding but generally unacknowledged role air
cargo1 services are playing in transporting California’s agricultural exports to
worldwide markets. In this and in succeeding chapters, we will describe the use
currently being made of air freight by California’s agricultural exporters, explain why
agricultural exporters’ demand for air cargo services is likely to continue to increase,
and illuminate the challenges both private industry and public agencies will have to
overcome if a major segment of California’s agricultural economy is to compete
successfully in foreign markets.
There are two fundamental questions this report will seek to answer:
To what extent and under what conditions does air transport offer a viable
alternative to ocean- going vessels in transporting California’s agricultural
exports to foreign markets?
How will the air cargo industry meet the needs of California’s agricultural
exporters over the next two decades?
Outline
This introductory chapter provides a comprehensive overview of the facts, figures,
and issues involved in transporting California’s agricultural products by air to
overseas markets. Chapter 2 looks more closely at the available statistical data on
California’s airborne agricultural export trade and also addresses the methodological
challenges associated with finding numbers to accurately describe the state’s farm
export trade. Chapter 3 provides a description of the air cargo industry worldwide.
Chapter 4 looks more closely at the air cargo system in California and how various
1 “ Air cargo” is customarily defined as any property carried on an aircraft with the exception
of passenger baggage or items which are incidental to the carriage of passengers ( e. g., in-flight
meals). However, the International Air Transport Association’s definition of cargo
excludes mail and material owned by the air carrier. The term “ air freight” is generally defined
as airborne property other than mail and passenger baggage. For the purposes of this report
and unless otherwise specified, the two terms will be used synonymously to indicate all third-party
goods other than passenger baggage and mail.
7
economic, technological and demographic trends are combining to alter that system
profoundly. Chapter 5 describes the results of our survey of fruit and vegetable
packers/ shippers and other agricultural industry representatives. The report
concludes with a statistical appendix displaying detailed data on airborne exports of
250 agricultural commodities and processed food products from California in the
period from 1999 through 2003.
A Preliminary Word On Trade Data
As Chapter 2 will discuss in greater detail, there are at least three very different
calculations purporting to describe California’s farm export trade.
Agricultural Issues Center Export Data. The most precise California agricultural
export figures are undoubtedly those compiled by the Agricultural Issues Center
( AIC) at the University of California at Davis. 2 Since 1997, AIC has been working
with the California Department of Agriculture to develop more accurate estimates of
California’s farm exports. The collaboration was begun in response to widely
acknowledged deficiencies in existing sources of state- level export statistics. AIC
devised a commodity- specific methodology, focusing primarily on fifty commodities
which together account for more than 90 percent of the value of California’s farm
production. For each of those commodities, AIC tapped a variety of data sources,
including industry sources who furnished AIC with both export data and guidance.
AIC began by developing export data for 1995- 1997 and has since published data
through 2003. In the process, it has also refined some of its estimation techniques
and revised some of its earlier estimates. Unfortunately for the purposes of this
study, AIC does not seek to distinguish the various modes of transportation used to
ship California’s farm products to foreign markets.
USDA Export Data. A second but rather less informative set of state farm export data
is published by the U. S. Department of Agriculture. Those figures are really
apportionments of total U. S. farm exports based on USDA’s estimates of each state’s
share of the overall production of the commodities in question. Thus, if California
growers were known to produce ten percent of the nation’s kumquats, California
would be credited with ten percent of the nation’s kumquat exports – even if all of
2 AIC describes its methodology for determining California’s agricultural exports at:
http:// aic. ucdavis. edu/ pub/ exports. html.
8
the Golden State’s kumquats were consumed locally. ( Despite their hugely different
methodologies, AIC and USDA have yielded oddly consistent export figures, as Figure
A indicates.) As with the AIC data, the USDA state export figures are of limited use
for the purposes of this study. Perhaps because the vast bulk of U. S. farm exports
have gone either overland to Canada and Mexico or by sea to more distant markets,
USDA analysts have until very recently given scant attention to airborne agricultural
exports. More importantly, USDA’s apportionment method of calculating a given
state’s farm exports is not conducive to determining how vital air cargo may have
been in supporting that state’s agricultural export trade.
FIGURE A.
Figure A
California Agricultural Exports:
Differing Perspectives
1999- 2003
( In Billions of Dollars)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
1999 2000 2001 2002 2003
USDA UC Davis WISER
Origin of Movement Export Data. The third source of state agricultural export figures
is based on information provided by the exporter- of- record on the Shippers Export
Declarations ( or their electronic equivalent) that by law must be filed for all outbound
shipments worth at least $ 2500. Compiled by the U. S. Customs and Border
Protection Agency, the raw information is then processed and analyzed by the U. S.
Census Bureau’s Foreign Trade Division. Since 1988, the Census Bureau has
contracted with outside parties to refine the raw data to yield useful figures
describing the exports of the individual states and of several metropolitan areas.
9
Since at least the early 1990s, the data officially used by the State of California to
describe California’s merchandise export trade has been provided by the
Massachusetts- based Western Institute for Strategic Economic Research ( WISER)
and its forerunner, the Massachusetts Institute for Social and Economic Research
( MISER). One major virtue of this data source is that it provides insight into the
mode of transportation and point of departure not possible with the AIC or USDA
data sets. In completing the Shippers Export Declaration, exporters are required to
identify the state in which the export shipment was initiated as well as the port of
embarkation, the mode of transportation, and the destination abroad. The WISER
data do have some drawbacks, though. Probably the most troubling deficiency is that
the data – despite considerable algorithmic efforts to the contrary – will inadvertently
include some shipments of items that, while shipped from a California airport, were
actually grown or processed outside of the state. As a result, WISER’s agricultural
export totals for California are substantially higher than the estimates published by
either AIC or USDA. Still, the WISER data are consistent year- to- year and do
represent the only available source of data on California’s airborne agricultural
export trade. Therefore, unless otherwise specified, the agricultural export figures
cited in this report are derived from origin of movement data supplied by the U. S.
Census Bureau’s Foreign Trade Division via WISER.
10
Chapter 1
The Current and Future Role of Air Cargo Services
in the Shipment
of California’s Agricultural Exports
The Current Picture
During the past five years, a relatively modest but growing share of California’s
agricultural exports has been transported by air ( Figure 1- 2). In 2004, for example,
airborne shipments amounted to just 6.3 percent of the $ 10.4 billion value of all
agricultural products exported from California in that year. Still, even this ostensibly
meager percentage represents a substantial volume of business. More importantly,
the nominal value of the state’s airborne agricultural exports has increased by nearly
60 percent since 2000, from $ 414 million to $ 659 million in 2004 ( Figure 1- 1). 3
FIGURE 1- 1.
Figure 1- 1.
California’s Airborne Agricultural Exports
1996- 2004
( In Millions of Dollars)
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004
WISER DATA
3 As of May 1, 2005, neither USDA nor AIC have released data on California’s agricultural
export trade in 2004. For the period from 1999 through 2003, however, WISER reports a 31.4
percent increase in California’s airborne agricultural export trade ( from $ 411 million to $ 540
million), while AIC reports an increase of 23.6 percent ( from $ 6,061 million to 7,491 million).
On the other hand, USDA reports a 32.5 percent jump in California’s overall farm export trade
during those years ( from $ 6,195 million to $ 8,210 million).
11
FIGURE 1- 2.
Figure 1- 2.
Air Cargo’s Share of California’s Agricultural Exports
1996- 2004
( Source: WISER)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2000 2001 2002 2003 2004
% of Dollar Value
Furthermore, in the case of certain high value- added crops such as fresh cherries,
strawberries, asparagus and a range of perishable organically- raised produce, air
cargo simply may offer the only effective means for meeting some of the overseas
demand for these highly perishable crops. Figures 1- 3 and 1- 4 show the leading
agricultural and specialty- crop exports shipped by air from California in 2004.
12
Figure 1- 3.
Figure 1- 3.
Ten Top California Airborne Agricultural Exports and Their Share
of California’s Farm Exports By All Transportation Modes – 2004
( In Millions of Dollars)
Source: WISER
Seeds, fruits and spores for sowing ( HS- 120999) $ 12.7 ( 36%)
Bovine Semen $ 13.1 ( 94%)
Seeds of herbaceous plants, principally flowers $ 16.2 ( 90%)
( HS- 120930)
Odoriferous mixtures used in food or drink $ 16.5 ( 25%)
( HS- 330210)
Asparagus, fresh or chilled $ 22.2 ( 50%)
Fresh Grapes $ 24.2 ( 5%)
Fresh Strawberries $ 30.6 ( 18%)
Vegetable Seeds for Sowing ( HS- 120991) $ 77.9 ( 43%)
Fresh Cherries $ 91.5 ( 85%)
Food Preparations NESOI ( HS- 210690) $ 174.0 ( 25%)
Figure 1- 4.
Figure 1- 4.
California’s Top Ten Airborne “ Specialty Crop” Exports
and Their Share of the State’s Farm Exports
By All Transportation Modes – 2004
( In Millions of Dollars)
Source: WISER
Vegetables NESOI fresh/ chilled ( HS- $ 2.1 ( 10%)
70990)
Tomatoes, fresh or chilled $ 3.3 ( 5%)
Raspberries, blackberries, etc. $ 4.8 ( 24%)
Peaches & Nectarines $ 5.7 ( 7%)
Onions & Shallots, fresh/ chilled $ 6.0 ( 14%)
Lettuce, all varieties $ 9.2 ( 6%)
Asparagus, fresh or chilled $ 22.2 ( 50%)
Fresh Grapes $ 24.2 ( 5%)
Fresh Strawberries $ 30.6 ( 18%)
Fresh Cherries $ 91.5 ( 85%)
13
California’s airborne agricultural exports go primarily to markets in the Northern Asia
( Japan, China, Korea, Taiwan and Hong Kong) ( Figures 1- 5 and 1- 6). By contrast,
airborne shipments to neighboring Canada and Mexico are understandably limited by
the ready availability of less expensive truck and rail routes. Japan, not surprisingly,
has been the top destination for California’s airborne agricultural exports, although
shipments there have plateaued in recent years. Most startling has been the huge
surge in airborne shipments of California agricultural products to China in the brief
period since that country joined the World Trade Organization in 2001. Over the next
three years, the state’s airborne agricultural exports to China tripled, then
quadrupled, and then doubled again for an overall thirty- fold increase in trade, from
$ 3.1 million in 2001 to 94.4 million in 2004. By comparison, California’s overall farm
export trade with China grew immensely during the same period, increasing from
$ 186.3 million in 2001 to $ 663.6 million in 2004, a somewhat more decorous pace of
growth. ( The sharp increase in airborne shipments to China apparently did not come
at the expense of California’s airborne agricultural export trade with Hong Kong,
which saw a fairly robust 41 percent increase, from $ 11.1 million in 2001 to $ 15.7
million in 2004.)
Figure 1- 5.
Figure 1- 5.
Leading Regional Destinations
of California Airborne Agricultural Exports
( In Millions of Dollars)
Source: WISER
0
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004
NE Asia
" Old" Europe
Canada/ Mexico
Latin America
14
Figure 1- 6.
Figure 1- 6.
California Airborne Agricultural Exports
Leading Destinations, 2004
( Based on WISER Data)
Japan
PRC
Korea
U. K.
Australia
Taiwan
Netherlands
Hong Kong
France
Italy
E. B. E.
Of additional interest is the value of airborne exports to the advanced economies of
Western Europe and to the developing economies of Latin America. Although the
increase of California’s airborne agricultural exports to Europe parallels the recent
strong growth in the state’s overall farm export trade with the European Union, 4 the
findings in both cases are noteworthy for being somewhat counterintuitive, given the
popular impression that the EU is intensely hostile to importing U. S. food products.
That the conventional wisdom in this instance is evidently erroneous not only
suggests that the state’s growers and shippers should reconsider their global
marketing strategies but also regard in a new light the likely prospect that at least
one Central Valley airport – most probably Sacramento International – will be
offering direct or even non- stop flights to London and Frankfurt within a decade. As
for the data on Latin American exports, there is considerable reason to believe that
the available data actually understate the value of California’s airborne agricultural
exports to Central and South America. 5 Considering the fast if sometimes turbulent
4 The European Union outdistanced Canada and Japan to become the leading destination for
California farm exports in 2003, according to the Agricultural Issues Center at UC Davis. See:
http:// aic. ucdavis. edu/ pub/ 03_ table4. pdf.
5 Despite efforts to improve the quality of state export data, shipments of commodities
originating in one state are often misreported as an export of the state from which the
15
pace of economic growth in major Latin American economies like Brazil and Chile,
California’s agribusiness strategists should not discount the possibility that urban
areas throughout Latin America will emerge as significant markets for California’s
high- quality, high value- added food products.
Future Prospects for Airborne Agricultural Exports
Looking ahead, there are at least five reasons to anticipate that demand for air
freight services among California’s agricultural exporters will expand.
1. Changes in the maritime shipping industry may not be especially
conducive to the needs of food exporters. Maritime shipping – the customary
mode for moving most farm products to overseas markets – is becoming an
increasingly problematic partner for exporters of high value- added perishable farm
products. The congestion plaguing the Ports of Los Angeles and Long Beach during
much of 2004 has been well- documented in the media. But a transportation
infrastructure over- stressed by surging cargo traffic is only one manifestation of
broader developments that are reshaping the maritime shipping industry both here
and abroad.
To achieve new economies of scale, shipping lines have been investing heavily in the
construction of larger and larger vessels capable of carrying more and more
standardized shipping containers. Over the next four years, no fewer than 227
container ships too large to pass through the Panama Canal will enter service. These
so- called “ post- Panamax” vessels account for more than half of the total number of
container ships on order. By at least one authoritative estimate, two- third of the
containers that will be imported into the United States in 2020 will arrive on ships
too large to navigate the Panama Canal. 6
Huge, new container ships bearing more than 8,000 twenty- foot equivalent units
( TEUs) have begun calling at the Ports of Los Angeles and Long Beach. ( Until a
channel dredging project is completed in 2006, vessels of that size will be unable to
shipment leaves the U. S. See Jock O’Connell, “ California's New Latin American Trade Strategy
Based on Flawed Data,” Sacramento Bee, March 7, 1999.
6 Cited in The New York Times, “ New York Port Hums Again, With Asian Trade,” November
22, 2004.
16
call at the Port of Oakland.) Yet, because of their size, these vessels and the even
larger one now entering service can be handled by fewer and fewer of the world’s
ports. 7 Even now there is an unprecedented level of congestion at major seaports as
well as along the highways and railways that carry cargoes to and from inland
locations. In many regions where rapidly expanding economies are spawning newly
affluent customers and new geographic markets for value- added food products,
surface transportation systems are often inadequate, especially for the purpose of
moving perishable commodities.
Inadequate infrastructure is not restricted to developing countries. In Southern
California, traffic generated by the movement of containers through the twin Ports of
Los Angeles and Long Beach has led to serious air pollution problems and to
congested and frequently dangerous highway conditions. Those consequences have,
in turn, spurred a political backlash that imperils plans to expand port operations to
cope with an anticipated doubling or even tripling of cargo volumes by 2020.
While virtually all of the media attention has been focused on lengthy delays in
unloading vessels and transporting containers to railyards near downtown Los
Angeles, exporters are likewise affected by congested ports for the simple reason
that inbound ships lying at anchor cannot load containers filled with perishable
agricultural exports. Such delays not only impose additional direct costs on shippers,
they risk undermining the confidence of overseas customers who are often able to
source the same goods they are importing from California from other regions of the
world. 8 In several instances, congestion in San Pedro Bay prompted the diversion of
vessels to other West Coast ports, a development which left exporters who had
7 Without completion of a multi- million dollar dredging project, it is problematic whether the
Port of Oakland could accommodate the latest generation of container ships.
8 A plan announced in November 2004 to establish a new rail connection between the Port of
Oakland and a transport facility in Shafter ( Kern County) promises to afford agricultural
shippers will access to maritime shippers that circumvents highway congestion in the San
Francisco Bay Area. The port has entered a three- way alliance with an intermodal operator,
Northwest Container Services Inc., and the city of Shafter, which developed the California
Integrated Logistics Center. Imported containers would be rail- shuttled to the Shafter facility.
Unloaded containers would be available for agricultural products to be shuttled back to
Oakland for export. Construction has been initiated on an intermodal yard near the Oakland
Army base to handle the new Shafter shuttle.
17
already delivered their cargoes to the Southern California ports with little choice but
to chase those ships up the coast.
Traffic congestion in and around seaports is not, however, a condition idiosyncratic
to Southern California. If anything, the problem is broadly endemic all up and down
the Pacific coast at a time when trade volumes are burgeoning. 9 In Northern
California, traffic problems linked to demographic trends have been especially unkind
to agriculture. The infamous absence of sufficient stocks of affordable housing in the
San Francisco Bay Area has been a major factor in propelling a population boom in
adjacent San Joaquin Valley counties, where the resulting suburban sprawl
increasing threatens valuable farm land. Yet, because many of those seeking less
expensive housing in the San Joaquin Valley continue to work in the Bay Area,
highways leading from the San Joaquin Valley into the East and South Bay have
become a commuter’s nightmare. More to the point, highways leading from the
farms and packing houses of the San Joaquin Valley to the Port of Oakland ( as well
as to Bay Area airports) have become among the most congested in the state. 10
Still, the situation in San Pedro Bay through 2004, which saw over 100 ships diverted
to other West Coast ports, could prompt permanent changes in trade routes. 11 The
ports' last cargo crunch, which began in July 2004 and ended in November, stranded
as many as 94 vessels at a time, up from the usual range of 30 to 50 ships. The wait
to unload stretched as long as nine days. With the expiration of U. S. quotas on
clothing and textile imports scheduled for January 1, 2005, it is expected that all
West Coast ports will see a dramatic increase in shipments of these products from
China, India and other East Asian sources. In short, the shipping crisis seen at the
9 See William Armbruster, “ US Infrastructure a big challenge to China trade growth.” Pacific
Shipper magazine, October 18, 2004. Armbruster comments that as much, if not more time is
required to transport a container between Chengdu, a city of nearly 9 million 1,500 miles up
the Yangtze River, and Shanghai as to transport the same container from Los Angeles to
Shanghai.
10 Leslie Fulbright, “ I- 580 home to 3 of Bay Area's worst traffic bottlenecks East Bay gridlock
fueled by growth in San Joaquin Valley,” San Francisco Chronicle, January 7, 2005.
11 The Los Angeles Times reported on November 18, 2004, that Southern California “ port
officials and shipping lines expect another surge of cargo after global tariffs that have kept a
tight cap on Chinese exports of textiles and apparel expire Jan. 1.” See “ L. A. Ports Unclogged
but Not in the Clear.”
18
Southern California ports during the second half of 2004 could become a permanent
condition.
On November 16, 2004, the Financial Times observed that “ express delivery
operators such as UPS and FedEx report more customers switching to expensive air
cargo for their most valuable products because of congestion elsewhere.” In a
November 2, 2004 report, the California Farm Bureau Federation noted that shipping
“ delays at the ports of Los Angeles and Long Beach worry orange exporters as the
peak shipping season looms.” 12 Maritime congestion is not limited to California
seaports. In 2004, Hyundai Merchant Marine and the " K" Line announced they would
halt service to the Port of Portland by the end of the year, leaving only Hanjin
Shipping to handle oceangoing container traffic along the Columbia River to
Portland. 13 Both lines are shifting to larger vessels requiring deeper channels than
the Columbia River port currently offers. The upshot, according to one prominent
transportation analyst, is that shippers may increasingly opt to “ overfly some of the
congested West Coast ports.” 14
2. Demand for the kinds of specialty crop products grown in California is
increasing. There has been a dramatic expansion of the worldwide market for high-quality
and typically high value- added food products grown and processed under
conditions conducive to wholesomeness and food safety. 15 Prosperity has been
spreading to ever- larger segments of populations in most of the world’s countries,
especially in those often classified as Newly- Industrialized Countries ( NICs). No
longer are significant markets for imported food products confined to the largest
metropolitan areas. With that prosperity comes more discerning and demanding
tastes for food products that are considered nutritious, wholesome and safe to
12 California Farm Bureau Federation, Food and Farm News. November 2, 2004.
13 “ Container Liners Pullout To Affect Western U. S. Farm Shippers,” Taiwan News, September
6, 2004.
14 Kevin Neels, vice president of Charles River Associates, quoted in “ China Provides Lift” by
Ed McKenna in Traffic World magazine ( December 20/ 27, 2004), p. 37.
15 According to a World Trade Organization report: “ Since the mid- 1980’ s there has been a
rather dramatic acceleration in the growth of world exports of highvalue and processed
agricultural products. The share of this dynamic product category in world agricultural trade
has increased from 39% in the early 1980’ s to 52% on average in 1995- 1997.” Market
Access: Unfinished Business ( Geneva: WTO, Special Study 6, 2001).
19
consume. As a June 2004 report from the Economic Research Service ( ERS) of the
U. S. Department of Agriculture observed:
“ High income- growth rates in developing countries portend higher
rates of fruit and vegetable consumption and trade in the future. In
the meantime, developed countries will dominate global consumption
and trade of fruits and vegetables, not only because of their high
income levels but also because of consumers’ increasing concerns
about healthy eating, which tend to increase fruit and vegetable intake
in their diets. The United States is well placed to take advantage of the
potential for greater horticultural trade.” 16
In an update issued in February 2005, the ERS forecast that U. S. horticultural
product exports this year would reach a record $ 14.5 billion. That revision largely
reflects generally higher prices due to increased foreign demand and a weaker dollar.
A further depreciation in the U. S. dollar, and continued strength in the global
economy support this forecast, which is up $ 1.2 billion from the previous year. 17
Historically, California’s food exports have gone to a small number of high- income
countries. According to the Agricultural Issues Center at UC Davis, “ California exports
agricultural products to almost 150 countries, but the 10 principal destinations
account for 85 percent of the export value, and the main four destinations— the
North America Free Trade Area ( Canada/ Mexico), the EU, Japan, and China/ Hong
Kong— account for more than two thirds of that total.” 18 While these are likely to
remain major markets for California food products, the dramatic expansion of middle
and upper- class populations in China as well as in a host of other developing
countries suggests the emergence of important new markets for California’s
agricultural exporters. The logistical challenge will be to ensure that California- grown
16 Global Trade Patterns in Fruits and Vegetables by Sophia Wu Huang et al. Agriculture and
Trade Report No. ( WRS0406) 88 pp, June 2004 ( Washington, D. C. USDA, Economic Research
Service), p. iv. The report further notes that: “ Demand- side factors, which include rising
incomes and the creation of a middle class that demands quality produce in all seasons and is
willing to pay, have had major consequences for trade.”
17 See Outlook for U. S. Agricultural Trade/ AES- 45/ Feb. 24, 2005 issued by the Economic
Research Service, USDA.
18 José E. Bervejillo and Daniel A. Sumner. “ California’s International Agricultural Exports in
2002” ( UC Davis: Agricultural Issues Center report no. 23, 2003), p. 5.
20
food products can be shipped to discerning consumers in geographically dispersed
markets. An economically vibrant China, for example, boasts 166 cities with
populations over one million ( compared with nine in the United States). Yet the
country is plagued with a shoddy surface infrastructure that will inhibit distribution to
metropolitan centers not directly served by a major sea or river port. Similarly, the
surface transportation infrastructure in Brazil, another fast- growing developing
economy, is notoriously deficient. 19 In India, nearly 35 metropolitan areas have
populations exceeding one million. More importantly, India’s recent economic boom
has been spreading to more and more of the nation’s second- tier cities. 20
USDA analysts expect economic growth in developing countries to exceed 6 percent
in 2004 and 5.5 percent in 2005. Asia continues to be the fastest growing region. 21
Overall growth in Asia is likely to exceed 7 percent in 2004 and 6 percent in 2005.
India is continuing rapid GDP growth in excess of 7 percent in 2004 and its growth is
expected to be near 7 percent again in 2005. Growth in South Korea and Southeast
Asia will be in the 5 to 6 percent range in 2005, while Vietnam will continue growing
at a rate over 7 percent.
The five major economies in Latin America-- Argentina, Brazil, Mexico, Venezuela,
and Chile-- are all experiencing strong growth. The region as a whole is likely to grow
around 4 percent in 2004 and 2005. Growth in Brazil is expected to reach almost 4
percent in 2004 and 2005 due in large part to growing exports to China. Argentina is
likely to have growth of around 7 percent in 2004 and near 4 percent in 2005. The
impact of peso depreciation on Argentine exports keeps Argentina a strong
agricultural export competitor through 2005. Mexico’s economy is strongly tied to the
United States. GDP in Mexico is likely to grow over 4 percent in 2004 and 2005.
Chile, which has followed a strong export- oriented policy, continues to have growth
of around 5 percent in 2004 and 2005.
19 “ Drive for Global Markets Strains Brazil's Infrastructure ,” The New York Times, October
27, 2004.
20 Saritha Rai, “ India’s Boom Spreads to Smaller Cities,” The New York Times, January 4,
2005.
21 USDA Economic Research Service, Outlook for U. S. Agricultural Trade/ AES- 44/ ( November
22, 2004).
21
GDP growth rates continue to be substantial in most of the countries of the former
Soviet Union. While Africa’s GDP growth has improved markedly to an average rate
exceeding 4 percent in 2004, performance varies considerably from country to
country.
Most pertinent was the standing of perishable items in a forecast of the fastest
growing air shipper industry segments, ranking behind capital equipment,
computers, and intermediate materials but ahead of telecommunications equipment,
consumer products and textiles. As the forecast’s authors conclude: “ The size of
perishables flows testifies to rising consumer demand for cut flowers, exotic fresh
seafood, and contra- seasonal vegetables.” 22
As the world's population and food consumption continue to expand, so will the
demand for the high- value products where California maintains a comparative
advantage. Indeed, during the 1990s, world trade involving high- value and
processed food products like those grown in California rose with particular vigor. 23
Nationwide, exports of all agricultural products grew more than three times as fast
as the total of all U. S. exports in the last year. The U. S. Department of Agriculture
has forecast record agricultural exports of $ 61.5 billion through Sept. 30. The United
States is the foremost exporter of fresh fruits and nuts and runs second in the export
of fresh vegetables.
Another demographic trend worth noting is the increasing urbanization of the world’s
populations. 24 According to a study prepared for the Asia- Pacific Economic
Cooperation Forum Ministerial Meetings in Bangkok in October 2003: “ The most
significant demographic change in the Asia- Pacific region in the next two decades will
be the rapid growth of urban populations. Future urban growth will test the efficiency
and capacity of the region’s food system to deliver a continuous flow of safe,
22 Brian Clancy and David Hoppin, “ After The Storm: The MergeGlobal 2004- 2008 World Air
Freight Forecast,” Air Cargo World, May 2004.
23 Tiffany Arthur, Colin Carter, and Alix Peterson Zwane, “ International Trade and the Road
Ahead for California Agriculture” in Jerry Siebert ( ed.) California Agriculture: Dimensions and
Issues ( University of California Giannini Foundation of Agricultural Economics, 2003), p. 127.
24 For a cursory survey of the history of urbanization, see Joel Kotkin, The City: A Global
History ( New York: The Modern Library, 2005), especially Part VI, “ The Modern Metropolis.
22
reasonably priced fresh and processed foods.” 25 [ Emphasis added.] The region’s
urban population is projected to grow by over 580 million people between 2000 and
2020, an increase of about 45 percent. During the 1990s, for the first time in history,
the region’s urban population grew larger than its rural population. Urban diets
typically differ from those of people living in rural areas, largely due to higher
incomes and the substitution of animal products, fruits, and vegetables for more
traditional food staples. In many urban areas in rapidly developing economies like
India and China, residents are also developing an increasing appreciation for food
products and dietary regimes normally associated with Western societies. 26
In the Far East, economic growth has been driven largely by fast- growing urban
agglomerations in coastal China, Indonesia, Thailand, Malaysia, and Vietnam. Levels
of urbanization in this region are not high by international standards ( at 36 percent
of the population in 2000), but they are set to rise dramatically, to over 50 percent
by 2025. By then, half a billion more people will live in urban areas. Cities drive East
Asia’s growth. Cities account for up to 70 percent of East Asian GDP growth. 27
Just fifty years ago, 103 cities worldwide had populations of more than a million
people, with New York and Tokyo the only two with populations over 10 million.
Today, there are 20 cities that have topped the 10 million mark, and an additional
428 are above one million. Since 1980, for example, Bogota has grown from 3.7 to
7.6 million people; New Delhi from five to 15 million; Lagos from 2.6 to 11.1 million;
Bandung from 1.8 to four million; Sana'a from 240,000 to 1.6 million; and Bamako
from 500,000 to 1.7 million. At the very top are Tokyo with a metro population of 35
million followed by Mexico City, Mumbai, Sao Paulo, and New York City. Overall,
three billion of the world's 6.2 billion people now live in cities. This is up from only
1.7 billion in 1980, and forecast to hit five billion by 2030. Rural populations,
meanwhile, have peaked and are expected to start declining by the end of the
current decade. The United Nations’ Department of Economic and Social Affairs
25 William Coyle, Brad Dilmour and William J. Armbruster, “ Where Will Demographics Take
the Asia- Pacific Food System,” in Amber Waves ( USDA ERS), June 2004.
26 See Monica Bhude, “ As Cash Flows In, Indian Goes Out to Eat, The New York Times, April
20, 2005.
27 Asian Development Bank, Japan Bank for International Cooperation and the World Bank,
“ Connecting East Asia: A New Framework for Infrastructure” ( March 2005), pp. 42- 46.
23
forecasts that almost all population growth expected for the world in the next thirty
years will be concentrated in the urban areas. 28
Exports are crucial to California fruit, nut and vegetable growers. Four of our
country's top 10 specialty crop exports -- almonds, wine, table grapes and raisins --
are grown principally in California. In 2002, over 90 percent of all table grapes,
lemons, processed tomatoes and garlic that the U. S. exported were produced in
California. More than 80 percent of the California almond crop -- over $ 1 billion
worth -- is exported. Fresh lettuce and strawberries, two other commodities grown
primarily in California, have increased their exports by 85 percent and 76 percent
respectively since 1999.
Exports to our traditional markets continue to grow. For example, fruit and nut
exports to the European Union were nearly $ 1.1 billion in 2003, a 33 percent
increase over 1999, while exports of fresh vegetables to Canada increased over 29
percent in the same time period.
Finally, given the growing importance of product differentiation in which California
agricultural exporters may find it useful to emphasize the issue of food safety, air
shipments of fresh produce minimize the risks associated with improperly shipped
edible products.
3. The business of feeding the world’s people is becoming increasingly
consolidated and standardized along Western marketing lines. The
multinational businesses that feed much of the world’s population are becoming
more and more concentrated and globalized. The trend toward greater and greater
consolidation in the wholesale, retail and food processing segments of the food
industry continues not only in North America and Western Europe but throughout the
world. In recent decades, there has been a distinct trend in the world’s food and
beverage industries toward larger and fewer enterprises in production, processing,
and distribution. Spurring this trend forward has been factors such as the ongoing
progress toward economic integration in Europe, the continued consolidation of North
American food processors, wholesalers and retailers through mergers and
28 United Nations, Department of Economic and Social Affairs, World Urbanization Prospects:
The 2003 Revision ( New York, 2004), p. 4.
24
acquisitions, and the imperative facing major North American and European
corporations to expand beyond their respective domestic markets, which especially in
Europe’s case, have limited growth potential. 29 According to one leading food
industry executive, both the globalization of the food industry and its consolidation
are also being driven by the need to satisfy the expectations of stock markets, which
have become an increasing source of capital for food companies. 30 What could be
called the first stage of consolidation in the global food and beverage industry, up to
about the mid- 1990’ s, has predominantly been a matter of larger companies like
Nestle, PepsiCo, Unilever, Danone, etc, steadily buying up smaller national or region
companies in their areas of core business and strengthening their global market
share in those areas.
At the retail level, chains like France’s Carrefour have been busily opening or
acquiring large stores in Asia and Latin America. In just the first six months of 2004,
Carrefour opened 21 new hypermarkets in Asia, bringing its total in that region to
165 – eleven more than it operates in Latin America and just 14 fewer than
Carrefour has in France. 31 Wal- Mart has more than 1,100 stores in Mexico, Puerto
Rico, Canada, Argentina, Brazil, China, Korea, Germany and the U. K. This includes
11 Supercenters in Argentina, 16 in Brazil and in Korea. The retailing giant plans to
open 15 new stores in China next year as it competes for a foothold against
Carrefour and the Metro Group. Wal- Mart already has 41 stores in 20 Chinese cities.
In Latin America during the 1990s, the transformation of the food retailing system
began in the 1980' s and accelerated in the 1990' s as countries opened their
economies, often to satisfy conditions for loans from the International Monetary Fund
29 By some estimates, the populations of several European countries are expected to shrink
over the next few decades unless immigration restrictions are liberalized. A 2003 report from
the Austrian Academy of Science in Vienna show that Europe’s population could decline by as
much as 88 million people if present trends continue for another 15 years. The population of
the European Union was about 375 million in 2000. See Mark Henderson, “ Europe shrinking as
birthrates decline,” The ( London) Times, March 28, 2003.
30 Reg Clairs A. O. is a former CEO of Woolworths Ltd. and Chairman - Supermarket to Asia
Board. His remarks were presented at the 2001 World Food and Agribusiness Forum in
Sydney, Australia.
31 Carrefour also has 218 smaller “ supermarkets” in Latin America. It is worth noting that,
prior to troubles arising from financial reporting irregularities, the Dutch multinational food
retailer, Royal Ahold, had a very strong presence in Latin America, the U. S. and Asia. It has
since been obliged to dispose of many of these stores.
25
and the World Bank. 32 As foreign investment flooded in, multinational retailers
bought up domestic chains or entered joint ventures with them. Supermarket chains
went from controlling 10 to 20 percent of the region’s retail food market to
dominating it, according to researchers at Michigan State and the Latin American
Center for Rural Development in Santiago, Chile. 33 By contrast, that degree of
market penetration took fifty years in the United States. While the process is
furthest along in Brazil, Argentina, Chile, Costa Rica and Mexico, the same trend is
occurring in smaller, poorer economies like Guatemala. The chains now dominate
sales of processed foods and their share of produce sales is growing, to as much as a
30 percent share in Argentina and a fifty percent share in Brazil.
According to a 2003 report published by the U. S. Department of Agriculture’s
Economic Research Service: “ The rapid expansion of supermarkets in Latin America
and Asia are both changing produce retailing and well as deeply transforming the
agrifood sector in these regions. The supermarkets have successfully established due
to their ability to offer consistent quality products at competitive prices. This has
been enabled by a decrease in costs due to consolidation of product procurement
and adoption of modern logistics, and an increase in food quality and safety due to
implementation of private and public standards.” 34
Just as in other industries which have engineered new forms of worldwide production
and distribution, the global food industry will likely place greater reliance on fast,
reliable and efficient modes of moving both raw materials and finished products from
one region of the globe to another. A premium will be placed on being able to meet
tight supply schedules. 35
32 See Thomas Reardon, C. Peter Timmer and Julio A. Berdegué, “ The Rise of Supermarkets
in Latin America and Asia: Implications for International Markets for Fruits and Vegetables” in
Anita Regmi and Mark Gehlhar ( editors). 2003. Global Markets for High Value Food Products,
Agriculture Information Bulletin, USDA- ERS.
33 Celia W. Dugger, “ Supermarket Giants Crush Central American Farmers, “ The New York
Times, December 28, 2004.
34 Ibid.. The authors define “ supermarkets” as self- service stores, whether in chains or
independent, that are typically from about 350 to 4000m2 in size and are equipped with three
or more cash registers. Hypermarkets are even larger establishments.
35 See Hoy F. Carman, Roberta Cook and Richard J. Sexton, “ Marketing California’s
Agricultural Production” in California Agriculture: Dimensions and Issues, Jerry Siebert
( editor), University of California Giannini Foundation of Agricultural Economics, 2003, pp. 89-
119. The authors specifically call attention to “ a recent trend throughout the developing world
26
4. The value of California’s farm exports will increase. California agriculture’s
progressive shift toward higher and higher value- added crops that command
premium prices will continue as its farmers strive to remain competitive in the face
of aggressive competition from foreign growers. As the value- to- weight ratio of
California farm products increases, air cargo becomes a more economically viable
alternative to maritime shipping, especially for “ vine- ripened” produce and other
perishable farm products where harvest- to- market delivery times are short and
where care in handling is at a premium. In a 2004 report from the Public Policy
Institute of California, the authors postulate that the rapidly changing composition of
international trade toward goods with higher and higher value- to- weight ratios
“ suggests an increasing reliance on airports relative to seaports.” 36 Organically-grown
produce should also continue to see increasing markets. 37 This trend could
accelerate if strategies to market California food products as distinctively wholesome
and nutritious prove successful. Smaller volume hyper- specialty crops which
command comparatively extravagant prices at gourmet markets and high- end
restaurants ( such as the strawberry variety known as fraises des bois as well as an
increasingly wide array heirloom fruits and vegetables) are also probably candidates
for air shipment. 38
away from wet markets and toward supermarkets [ that] bodes well for international fresh
produce trade, and hence, California producers.” The paper’s authors estimate that the 30
largest retail grocery chains now account for at least 10 percent of world food sales. “ Many of
these chains have stores located on several continents and their global procurement practices
and cold chain management investments and exigencies mean that these modern produce
departments must be kept full year- round.”
36 See Jon D. Haveman and David Hummels, California’s Global Gateways: Trends and
Issues ( San Francisco: Public Policy Institute of California, 2004, p. 45.
37 Ironically, there are those in the organic food sector who decry the use of air freight in
shipping produce to distant markets. Claims that “ Air freighting produce uses around 30 times
as much fuel as transporting it by sea. This not only produces 30 times the carbon dioxide
emissions, but also 50 times the emissions of hydrocarbons, which contribute to smog and
general poor air quality. Abel & Cole, an organic foods provider in the United Kingdom, plays
up its refusal to use air- freighted goods in its advertising. The Christian Ecology Link, another
UK organization, likewise decries the use of air cargo. http:// www. christian-ecology.
org. uk/ loaf- principles. htm
38 One California grower of the intensively flavored fraises des bois told The New York Times
that one crate of a dozen three- ounce baskets fetches as much as $ 50. He also stated that he
ships “ a few crates” by air to New York, primarily for the restaurant trade. See David Karp,
“ Strawberries and Dreams,” The New York Times, April 13, 2005.
27
5. Barriers to trade will continue to diminish. Efforts to liberalize both trade in
agricultural products and international air transport regulations will continue apace.
On the one hand, it is likely that current barriers to trade in agricultural products will
be reduced, creating new markets and expanding existing ones for California growers
and food processors. At the same time, there are solid prospects for continued
liberalization of air transport accords that should increase the likelihood that more
California municipalities will enjoy non- stop or direct air service to international
destinations. 39
U. S. trade negotiators have also been helpful in establishing new markets and
reducing barriers to old ones. For example, there has been a nearly 10- fold increase
in the amount of fruits and nuts exported to China. Meanwhile, fruit and vegetable
exports to South Korea jumped over 250 percent in the past five years. In the past
two years, the U. S. has negotiated free trade agreements with eleven countries:
Bahrain, Chile, Singapore, Morocco, Australia, Guatemala, Costa Rica, El Salvador,
Honduras, Nicaragua and the Dominican Republic. The combined population of these
countries represents a market of 117 million people. U. S. trade officials are also
working on agreements with ten additional countries: Panama, Colombia, Peru,
Ecuador, Thailand, and the five nations of the Southern African Customs Union
( Botswana, Lesotho, Namibia, South Africa and Swaziland). These new and pending
free- trade partners, taken together, would constitute America's third largest export
market and the fifth largest economy in the world. When enacted and implemented,
these free trade agreements should expand opportunities for California’s agricultural
exporters. For example, Australia has agreed to immediately remove tariffs on
imports of grapes and almonds, and Morocco has committed to phasing out its tariffs
on California walnuts and pears over the next five years. 40
39 While the definition of a non- stop flight is self- evident, there is frequent confusion over the
meaning of a ‘ direct’ flight. Unlike a non- stop flight, a direct flight involves one or more stops
en route to a final destination. However, passengers ( and cargo) remain on the originating
aircraft throughout.
40 Allen F. Johnson, “ Trade plays important role for California's Ag producers,” August 18,
2004, Ag Alert, a weekly publication of the California Farm Bureau. Ambassador Johnson is the
chief agricultural negotiator in the Office of the U. S. Trade Representative.
28
A Challenged Infrastructure
Although there is ample reason to expect that air freight will become an increasingly
attractive shipping option, especially for exporters of the high value- added specialty
crops that have become the hallmark of California’s agricultural economy, it is far
less certain how well the state’s international trade infrastructure will be able to
accommodate expected growth in the volume of air freight, especially on transpacific
routes. Even if concerns about terrorism do not yield security measures that severely
inhibit the carriage of air cargo, especially on passenger flights, 41 the air cargo
industry in this state faces considerable challenges.
The nation’s airline industry is in the grips of a daunting financial crisis that may see
the demise of one or more of the six “ legacy” carriers -- Delta, United, American,
Continental, USAirways and Northwest -- which have collectively provided the bulk of
the nation’s passenger and cargo air service. Low- cost carriers, today’s most
competitive airlines, offer low- fare service to passengers but contribute little to the
nation’s air cargo capacity. If anything, the quick turn- around business models of
most budget carriers are simply not conducive to the carriage of air freight. 42 For
example, at Los Angeles International Airport ( LAX), United Airlines carried half-again
as many passengers as Southwest Airlines in 2002 but handled over six times
the freight tonnage of the low- cost carrier. Similarly, American Airlines, which carried
just 13 percent more passengers as Southwest that same year, handled over 300
percent more freight. 43
Closer to home, there are growing concerns that California’s airports will find
themselves increasingly by- passed as international trade gateways as both U. S. and
foreign- flag carriers shift cargo service to better situated and more accommodating
41 Tom Ridge, former Secretary of the U. S. Department of Homeland Security, described
cargo security as “ a linchpin issue, not only for the security of our homeland, but also for our
economic security as well.” See his commentary “ Security Responsibilities” in Air Cargo World,
January 2005.
42 In the words of John Kasarda, professor of management at the Kenan- Flagler Business
School at the University of North Carolina: “ The key to airline profitability is keeping the plane
in the air -- that’s the only time you make money.” Quoted in Mark Skertic, “ Where the Skies
Are Cloudy All Day,” Chicago Tribune, December 28, 2004.
43 “ LAX Airline Market Share Summary For January 2002 To December 2002,” Los Angeles
World Airways website.
29
airports elsewhere in the country. 44 The historic stature of LAX and San Francisco
International Airport ( SFO) as vital entrepôts in America’s transpacific trade is being
dramatically eroded as more international flights over- fly the West Coast entirely.
This has been particularly evident in the case of SFO, which, between 2000 and
2004, saw the value of airborne imports fall by 35.4 percent while the value of
airborne exports ebbed by 41.9 percent. 45
At the same time, increasingly sophisticated logistical practices and ever- faster expedited
trucking operations ensure that international cargo can be flown to and from a variety of
“ secondary” airports throughout the U. S. and still meet desired delivery schedules. More
and more of the nation's air freight capacity is being moved inland, especially as
major importers like Wal- Mart, Costco, Target, and Home Depot establish huge new
distribution centers outside of but within easy reach of major metropolitan areas.
Further contributing to the shift away from use of traditional gateway airports is the
rise of integrated carriers ( most notably FedEx, UPS and DHL), which have generally
opted to avoid the congestion typically found at the nation’s larger, busier hub
airports. 46 As a result, airports such as Memphis, Louisville and Indianapolis have
achieved great prominence in the global air cargo system as hubs for the integrated
carriers. At the same time, ever larger volumes of transpacific air cargo are being
transshipped through Anchorage’s Ted Stevens International Airport because that
airport sits on a more direct route between Midwestern and East Coast cities and
airports in Japan, Korea, China and Taiwan. 47
44 See, for example, Aaron Karp, “ Cargo's New Gateways? Congestion at traditional U. S. west
coast hubs could push international freighter traffic to secondary airports,” Air Cargo World,
August 2004.
45 According to WISER, SFO’s export trade shrank from $ 41.8 billion in 2000 to $ 24.3 billion
in 2004. Its import traffic likewise declined from $ 46.9 billion in 2000 to $ 30.3 billion in 2004.
The drop in the value of international cargo handled at SFO was the most pronounced of any
of the nation’s top 25 international freight gateways. See U. S. Bureau of Transportation
Statistics, America's Freight Transportation Gateways Connecting Our Nation to Places and
Markets Abroad, 2004. See in particular Table 3. Percentage Change in the Value of
Merchandise Trade Handled by the Top 25 U. S. Freight Gateways: 1999 and 2003.
46 DHL, for example, recently announced that it would be establishing its West Coast air
cargo hub at March Global Port on the site of what was formerly March Air Force Base in
Riverside County. UPS has a hub at Ontario International Airport in San Bernardino County.
FedEx operates a hub at Oakland International Airport.
47 In a typical transshipping arrangement, smaller aircraft will carry cargos between
Anchorage and airports throughout the U. S. and Canada. Larger, long- haul aircraft carry
30
Then there is the issue of airport congestion. At a time when the volume of
shipments moving through California airports is expected to double or even triple by
2020, the state’s two principal international air gateways – Los Angeles International
and San Francisco International – face similarly severe constraints on their ability to
expand their cargo handling capacities. Yet the responses mounted by airport
officials and transportation planning agencies in Northern and Southern California
could not be more different.
The management of Los Angeles World Airports, 48 along with regional transportation
planners in Southern California, has devised a strategy that seeks to divert a
significant share of air cargo operations from LAX to Ontario International ( ONT) in
Riverside County or even to Palmdale Regional Airport in a fairly remote corner of
Los Angeles County known as the Antelope Valley. As yet, however, the strategy has
not generated the hoped- for level of enthusiasm from air carriers, passengers,
shippers, and freight- forwarders. As a result, LAX continues to monopolize
international air cargo traffic in Southern California, with a 99.5 percent share of the
value of all airborne merchandise exports flown from Southern California airports in
2004.49 ( Air transport planning in Southern California was thrown a new twist on May
17, 2005, when Los Angeles voters elected Antonio Villaraigosa as the city’s next
mayor. Villaraigosa had opposed an ambitious plan to expand Los Angeles
International that had been devised by outgoing mayor James Hahn. Villaraigosa had
campaigned instead for a broader regional air traffic strategy that would shift more
of Southern California’s air transport burden to other airports. Three days after the
election, however, the Federal Aviation Administration approved Hahn’s $ 11 billion
plan to expand and modernize LAX even as Villaraigosa renewed his commitment to
sharply scale back the massive project.)
cargos on the transoceanic routes. The connection between Anchorage and Tokyo’s huge
Narita Airport is especially vital since approximately half of all air freight moving from East
Asia to North America passes through Narita.
48 Los Angeles World Airports is a self- supporting branch of the City of Los Angeles and is
governed by a Board of Airport Commissioners whose seven members are appointed to
staggered five- year terms by the Mayor of Los Angeles with the approval of the Los Angeles
City Council. LAWA owns and operates four airports: LAX, Ontario International, Palmdale
Regional, and Van Nuys Airport in the San Fernando Valley, which is billed as the world’s
busiest general aviation airport.
49 LAX handled $ 33.9 billion in exports in 2004. The Southern California airport with the next
highest export volume was San Diego International with a mere $ 78.3 million in foreign
shipments.
31
Elsewhere in Southern California, efforts to provide air transport facilities commensurate
with the region’s relentless population and industrial growth have been less coherent. In
Orange County, hopes that El Toro, the former U. S. Marine base, might become the site
of a new regional airport were quashed by public opposition. Further south in San Diego,
officials in California’s second largest city are trying to resolve a long- standing
controversy over whether to build a new regional airport to replace Lindbergh Field or to
greatly expand Lindbergh’s capacity for both passengers and air cargo. Currently,
Lindbergh Field plays a negligible role in supporting California’s international trade. 50
Formally known as San Diego International Airport, the facility is the nation’s busiest
single- runway commercial airport. Despite its rapid population and industrial growth in
recent decades, the San Diego region has remained singularly dependent on airports
and seaports in Los Angeles County for its overseas transportation links. Even if the
community aggressively rallies behind a single airport option, 51 it likely could be several
years before the region could offer the kind of airport facilities that would attract
regularly scheduled air service involving destinations outside of North America.
In Northern California, SFO management has consistently rebuffed calls for formally
integrating flight operations at the Bay Area’s three major airports ( SFO, Oakland
International and Mineta San Jose International). As a result, far from collaborating
under a well- conceived master plan, airports within the Bay Area as well as in
neighboring counties in the San Joaquin Valley are likely to remain engaged in a hurly-burly
and potentially wasteful competition to lure air carriers, passengers, and cargo.
An Overlooked Mode of Transport
The task of ensuring that California has the international air cargo links its industries
need to remain competitive in a global economy is made more difficult by the fact
that few Californians are fully aware and appreciative of the vital role air cargo
50 The airport reports having handled 155,000 international passengers and just 583 tons of
international cargo in 2004. By contrast, SFO reported handling 7.6 million international
passengers and 278,545 tons of international cargo in 2004.
51 A public vote on this issue is scheduled for 2006. At present, a variety of options are being
weighed by a commission charged by the State Legislature with the task of recommending
final options for resolving San Diego’s airport dilemma to the region’s voters. The San Diego
County Regional Airport Authority was established by state law in 2003 to operate San Diego
International Airport and to address the region’s long- term air transportation needs. The
Airport Authority is governed by a nine- member appointed Board representing all areas of the
County.
32
services play in the Golden State’s export trade. Legislative hearings and
conferences convened to examine the state’s transportation system or the plight of
the goods movement industry often dwell exclusively on surface modes of transport.
Yet the truth is that, when measured by dollar value, California’s economy is
arguably more dependent on air cargo than on ships, trucks and trains. The reason is
simple: More of California’s merchandise exports are shipped by air than by either
sea or land ( Figure 1- 8). 52 Waterborne shipments typically account for less than one-fifth
of the total value of California’s merchandise exports. 53 The state’s huge
maritime complexes are principally conduits for imported goods and for the export of
bulky cargos or shipments with low value- to- weight ratios.
Figure 1- 8.
Figure 1- 8.
California Exports By Dollar Value
Share By Mode of Transport 1997 - 2004
( Source: WISER)
0% 20% 40% 60% 80% 100%
1997
1998
1999
2000
2001
2002
2003
2004
Air Sea Land
52 In 2004, airborne shipments accounted for 54.7 percent of California’s $ 110 billion
merchandise export trade according to data supplied by WISER. That was a historically
meager share of exports. In 2000, prior to the collapse of the dot. com bubble and the events
of 9/ 11/ 2001, air cargo’s share of California’s export trade was 65.1 percent.
53 In recent years, the maritime share of the state’s export trade has ranged from 14.1
percent in 2000 to 21.1 percent in 2003. In 2002, for example, exports accounted for just
16.8 percent of the total dollar value of international shipments through the Ports of Los
Angeles and Long Beach.
33
That situation is markedly different, though, in the case of California’s agricultural
export trade. The vast bulk of the state’s farm exports – whether calculated by
weight or by value - continue to move either by sea or by overland routes to Mexico
and to Canada. 54 Even so, it would doubtless surprise many Californians to learn
that, in terms of sheer tonnage, vegetables, fruits and nuts comprise the largest
single category of air freight exported through Los Angeles International ( LAX), the
state’s busiest airport. 55 For certain highly perishable, high value- added specialty
crops like cherries, strawberries, and asparagus, air shipments offer the only
practical means for supplying lucrative overseas markets. 56 In 2004, for example,
85 percent of the state’s fresh cherry exports reached their destinations by air, as
did 50 percent of the state’s exports of fresh or chilled asparagus. In general,
perishable products now account for about 20 percent of total U. S. food and
agricultural exports, and an even larger share of imports. 57
The Logistics of Air Cargo
Many if not most California policymakers are ill- informed about modern logistics.
What is more surprising is that such lack of understanding extends into the business
world to include the management of companies which routinely ship and/ or receive
large volumes of merchandise. Over the past decade or two, companies of all sizes
have tended to outsource their logistics functions. While beneficial economically,
such outsourcing has had the effect of diminishing the ranks of those who might
otherwise help promote the interests of the goods movement sector.
54 Although California ships agricultural products to nearly 150 countries, four markets — the
European Union, the North American Free Trade Area ( Canada and Mexico), Japan, and
China/ Hong Kong— account for more than two thirds of the state’s total farm export trade.
55 Measured by weight, farm products account for over 13 percent of the outbound cargo
handled by LAX, according to the website of Los Angeles World Airways ( LAWA). LAWA is the
entity charged with operating not only Los Angeles International Airport but also Ontario
International Airport, Van Nuys Airport, and Palmdale Regional Airport.
56 For the purposes of this study, the term Specialty Crop refers to any agricultural
commodity except cotton, feed grains, oilseeds, peanuts, rice, tobacco and wheat. California is
principally known as a producer of specialty crops and, as such, has a remarkably distinctive
agricultural economy, one that is far less reliant on government programs than is the case in
much of the rest of the country.
57 William Coyle, William Hall, and Nicole Ballenger, “ Transportation Technology and the
Rising Share of U. S. Perishable Food Trade” in Changing Structure of Global Food Consumption
and Trade / WRS- 01- 1 ( USDA: Economic Research Service, 2001), p. 31.
34
Although there are sound reasons to expect increased worldwide demand for
California specialty crop products, there is one issue that is seldom addressed by
agricultural leaders. How, specifically, do we transport the state’s farm products to
market. In this case, how does air transport serve California agriculture’s current and
future export marketing needs?
Air cargo is carried on all- cargo freighters, in the lower- deck holds or “ bellies” of
passenger aircraft, and aboard “ combis” – aircraft that are configured to carry both
passengers and freight on the main deck. Historically, about half of all air cargo has
been transported in the bellies of passenger planes. ( A November 2000 report by the
Bay Area Economic Forum stated that 58 percent of the air freight shipped through
SFO traveled in the bellies of passenger aircraft. 58) However, that share is
diminishing as major airlines expand their freighter fleets and as integrated carriers
like FedEx, UPS and DHL grab larger and larger shares of the air cargo trade. 59 Still,
for shippers of perishable commodities such as fresh fruits and vegetables, scheduled
passenger flights will often be the preferred option. For even though freighters offer
greater cargo capacity, passenger aircraft generally offer better reliability, greater
frequency, and more competitive shipping rates. 60 One major drawback for
exporters, though, is that international passenger flights typically leave from some of
the nation’s most congested airports, where surface access frequently pose
worrisome issues for shippers of perishable items.
The logistics of moving air cargo are more complicated than the business of
transporting passengers. It involves packaging, document preparation, arranging
insurance, picking up goods from shippers, facilitating customs clearance both at the
point of origin and at the destination, and completing final delivery ( Figure 1- 9). In
the late 1940s, the Berlin Airlift provided an extreme demonstration of the ability of
58 “ Air Transport and the Bay Area Economy: Phase Two,” Bay Area Economic Forum
( November 2000), p. 10.
59 The air transport industry customarily measures air cargo traffic in revenue mile tons
( RTMS). According to the Federal Aviation Administration, all- cargo carriers increased their
share of the international RTMs flown by all U. S. carriers from 52.0 percent in 1996 to 59.7
percent in 2004. That share is expected to increase to 63.6 percent by 2016. Note that the
FAA data do not include foreign carriers and do not reflect the value of the goods being
shipped. See the FAA’s Aerospace Forecasts: Fiscal Years 2005- 2016, p. III- 50.
60 See the comments of Scott Dolan, president of United Airlines, in the December 20/ 27,
2004 issue of TrafficWorld.
35
air cargo flights to circumvent barriers to surface transportation. Today’s logistical
barriers to goods movement more typically take the form of transportation
bottlenecks caused by an imbalance between growing volumes of trade and
perennially lagging programs to provide infrastructure commensurate with the needs
of shippers.
Even though California exporters may look to the air as an option to sluggish
conditions at the state’s maritime gateways, air cargo may not always prove to be a
panacea for congested and constricted sea lanes. Any appreciable increase in air
freight shipments – as is predicted for the next two decades – gives rise to a host of
vexing logistical and public policy issues. Ultimately, the key question is whether the
state’s airports will be able to accommodate higher volumes of air cargo. As we shall
see, the answer remains far from clear.
A number of recent studies have raised disturbing questions about California’s
international air cargo infrastructure. LAX and SFO currently dominate the
international air cargo scene in California, handling between them more than 93
percent of all airborne foreign trade entering or leaving the state. 61 Both airports face
serious ground access and capacity issues as well as strident political opposition to
expansion plans from neighboring communities and environmentalists. The master
plan guiding the $ 11 billion renovation of LAX allows millions of additional airline
passengers a year, but fails to provide more freeway lanes or significant mass- transit
projects to handle the expected crush. 62
61 See Chapter 4 for a detailed examination of California’s air cargo system.
62 “ LAX Traffic Crunch,” Los Angeles Daily News, November 20, 2004.
36
FIGURE 1- 9.
Figure 1- 9.
A Typical Agricultural Shipping Scenario
Grower
Packing House
Freight
Forwarder Air Carrier Integrator
Air Carrier Air Carrier
For the state’s agricultural shippers, the attractiveness of LAX and SFO lies chiefly in
the number and frequency of non- stop and direct passenger flights departing each
day for numerous destinations throughout the world. SFO serves 30 foreign airports
with 369 flights per week; London’s Heathrow and Tokyo’s Narita are the top two
destinations, with 35 weekly flights to each. 63
LAX is the world's fifth busiest passenger airport and ranks sixth in air cargo tonnage
handled. 926 scheduled weekly International Departing Operations to 64 foreign
destinations. Of these, 749 of the scheduled weekly operations are non- stop, 127 are
one- stop, and 50 are two- stop. 64
63 These figures, on the SFO website, were valid for June 2004.
64 These figures for LAX were valid as of November 4, 2004. They were obtained via email
from LAX flight operations center.
37
However, traffic congestion on streets and highways in the vicinity of LAX poses a
serious problem for California’s agricultural exporters. In recent years, shippers of
agricultural products have grown increasingly reliant on LAX. 65 ( See Figure 1- 10.)
The Southern California Association of Governments warned in a 2001 report that:
“ Failure to adequately address and plan for significant growth in airport demand will
not only result in major air and ground congestion, it will also seriously jeopardize
Southern California’s position as a national and international trade center.” 66 A more
recent review of the air transport situation in Southern California concluded that the
region’s airports “ threatened to become the Achilles’ heel of L. A.’ s trade future.” 67
FIGURE 1- 10.
Figure 1- 10.
Airborne Agricultural Exports
By Customs District
( In Millions of Dollars)
Source: U. S. Census Foreign Trade Division and WISER
0
100
200
300
400
500
600
1999 2000 2001 2002 2003 2004
San Francisco Los Angeles San Diego
65 In 2000, 43.0 percent of California’s airborne agricultural exports departed the San
Francisco Customs district as opposed to 55.5 through the Los Angeles Customs District. By
2004, however, the LA Customs District’s share of the state’s airborne export trade had
swollen to 74.9 percent, while the San Francisco Custom District’s share had dwindled to 24.2
percent. Much of this shift reflects a substantial increase in exports of food preparations and
other processed agricultural products through LAX, rather than a commensurable re- direction
of shipments of fresh produce from SFO to LAX. The available data suggest a greater
concentration of food processing activity in the Los Angeles area.
66 SCAG, Draft Regional Transportation Plan: Task Forces – Aviation ( February 2001), p. 1.
67 Steven P. Erie, Globalizing L. A.: Trade, Infrastructure and Regional Development ( Palo
Alto: Stanford University Press, 2004), p. 172.
38
Numerous studies have similarly determined that SFO is not adequately equipped to
provide the extensive global connections that Northern California businesses will
require in the years ahead. Indeed, the latest of these reports -- an April 2004 study
published by the San Francisco- based Public Policy Institute of California -- presents
compelling evidence that SFO’s competitiveness as an international air cargo hub has
been waning since at least the mid- 1990s. 68
The PPIC report echoes complaints about SFO’s air cargo operations that have been
voiced in recent years by freight- forwarders, customs brokers, airline officials, and
others involved goods movement. 69 In a January 2003 study for the Pacific Council
on International Policy, author 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.” 70 More
recently, a September 2004 commentary in Air Cargo World by the executive
director of the Airforwarders Association of America chastised SFO management for
its neglect of air cargo: “ San Francisco International Airport in particular is critical to
Northern California's economic success. But the management of SFO has fallen short
in ensuring that the airport's cargo infrastructure is as accessible for users as its
passenger facilities.” 71
What may be more ominous, though, is that the 2004 PPIC study also identifies
changes in global trade patterns that, by “ compromising the ability of California’s
68 Jon D. Haveman and David Hummels, California’s Global Gateways: Trends and Issues
( San Francisco: Public Policy Institute of California, April 2004. In particular, see pp. 47- 57 for
their discussion of “ Are California’s Gateways Keeping Up?”
69 For example, see “ Airports keep their terminals simple” by Ian Putzger, Journal of
Commerce, February 23, 2004. Putzger observes that: “ Tight space for cargo activities has
long been a problem at San Francisco International Airport. Some airlines use off- airport
terminals, and there is off- and- on talk about moving freighter operators to a less- congested
nearby airport.” For an earlier expression of the same concerns, see “ What about air cargo?
Air cargo carriers complain that San Francisco International Airport is a difficult place to do
business” by Chris Barnett, Journal of Commerce, March 12, 2001.
70 Sarah Bachman, Globalization In The San Francisco Bay Area: Trying to Stay at the Head
of the Class ( Los Angeles: Pacific Council on International Policy, The Western Partner of the
Council on Foreign Relations, January 2003), p. 1.
71 David E. Wirsing, “ San Francisco is a too- familiar example of airports that neglect the
needs of air cargo.” Air Cargo World, September 2004.
39
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. 72
Such findings have disturbing implications for agricultural exporters in Northern and
Central California. On the one hand, there is absolutely no question that the
presence of an efficient air cargo facility boasting extensive national and
international flight connections is an indispensable asset for any region whose
businesses aspire to participate in the global economy of the 21st century. On the
other hand, SFO’s ability to finance any substantive upgrading, updating or
expansion of its air cargo capacity may be in doubt. After more than three years as
the only major airport in California with a negative credit watch rating, 73 SFO saw its
credit outlook upgraded to “ stable” in January 2005 by the major bond rating
agencies. 74 Unfortunately, this marginal improvement in the airport’s credit status
has collided with a Federal Reserve Bank policy of gradually increasing basic interest
rates.
At a time when the volume of air cargo is expected to swell, that conclusion would
understandably cause air cargo carriers to migrate to other airports offering a higher
grade of service, greater convenience, and lower rents and fees. In that respect,
Anchorage is widely seen to be well- positioned to capture more of the air cargo
traffic flowing between the Pacific Far East and the major metropolitan areas of the
American Midwest and East Coast. Similarly, air freighters are even expected to
over- fly SFO to land at airports in Denver and Salt Lake City, locales that were once
considered part of SFO’s natural hinterland. To the extent that happens, the
frequency of flights to a wide variety of overseas destinations -- and hence the
competition between air carriers -- will diminish to the detriment of exporters.
72 Haveman and Hummels ( 2004), p. 56.
73 As of November 10, 2004, Standard & Poor’s assigned SFO a rating of A/ Negative. An
obligation rated ' A' is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated categories ( i. e., AAA
and AA). However, the obligor's capacity to meet its financial commitment on the obligation is
still considered strong. Negative indicates that the rating is more likely to be lowered than
raised.
74 SFO press release dated January 26, 2005.
40
And then there is the prospect of seeing even more of Northern California’s air traffic
load shift to Los Angeles International Airport and Ontario. According to one
consultant’s report, “ over one- half of the local air- eligible production” in the Bay Area
was trucked to LAX for international flights in 2001.75 Whether Northern California
shippers will be able to find sufficient trucking capacity at reasonable costs to move
goods to Southern California airports is problematic. Traffic congestion not only
poses all of the risks associated with the delayed shipment of perishable items; it
also cuts into the profitability of trucking companies and the earnings of drivers by
reducing the number of loads they can expect to carry within a specific time- frame. 76
As the 2004 PPIC report makes clear, however, there is a growing risk that
California’s entire trade infrastructure – both airports and seaports – will see
valuable cargos avoiding the state. That point was further underscored by new data
indicating a recent rise in the volume of containerized cargos from Asia being
shipped by sea directly to East and Gulf Coast ports, thus by- passing the West Coast
and land- bridge routes. 77 Such evidence reinforces a comment in another report
from the Public Policy Institute of California that “ it is not clear that there is enough
consideration of how the state trade infrastructure – in particular its airports and
seaports – fits with the nation’s or the state’s importing and exporting needs.” 78
If noise and other environmental issues stifle growth at the primary airports,
development will occur at secondary airports. Such was the case in Europe recently
when DHL canceled plans for a hub at Brussels Airport after the express carrier failed
75 An Origin of Movement export data set ( Series EA- 938) available from the U. S. Census
Bureau’s Foreign Trade Division indicates that just over one- third of value of air cargo exports
generated by companies in the Bay Area leaves the U. S. through SFO.
76 At a June 2004 trade logistics symposium in Oakland organized by the Bay Area World
Trade Center, one San Joaquin Valley agricultural shipper claimed that his company needed its
trucks to make two roundtrips per day from the Modesto area to the Port of Oakland in order
to justify its investment in maintaining its own trucks. He reported that, owing to traffic
congestion in the Bay Area, it was seldom possible for his truckers to make two trips per day.
As a result, the company was considering sending its European- bound export shipments by
rail to the Port of Houston.
77 Address by Stephen Petracek of Booz, Allen Hamilton at an international trade forum
organized by the Bay Area World Trade Center in Oakland, California, June 11, 2004.
78 Howard Shatz, “ Business Without Borders: The Globalization of the California Economy”
( San Francisco: Public Policy Institute of California, 2003), p. 87.
41
to win approval to operate additional night flights and larger aircraft. DHL has
instead chosen Germany's Leipzig/ Halle Airport as a European hub.
Here in California, it is not unusual for a community with an under- utilized airport
sporting an 11,000- foot runway to harbor hopes of becoming a major air cargo hub.
In a state that has seen the full or partial decommissioning of several military
airfields since the end of the Cold War, there is no shortage of such aspirations. Not
all, however, will realize their ambitions because, while the path to your door may be
a world- class runway, that is not nearly enough to attract the air carriers, freight-forwarders,
truckers, logistics specialists, and the rest of the complex infrastructure
needed to support a modern air cargo operation.
There are two primary determinants of which airports will emerge as major air cargo
facilities. The first involves what is effectively the overriding business imperative of
the air cargo industry: finding the best way of serving the needs and interests of
importers. The other determinant is demographic in nature. Very simply, air
transport services are drawn to centers of population and industry.
On the transpacific flights that account for the vast majority of international air cargo
moving into and out of California, the demand for cargo space is most intense and
the shipping rates are accordingly highest on the eastbound routes. By contrast,
aircraft returning from North America to the Far East typically confront a serious
“ back- haul” problem. With a substantially larger volume of goods moving eastward
than westward along transpacific air cargo routes, there is a resulting excess
capacity on the westbound routes from North America to the Far East. In what is
then effectively a buyers- market for westbound air cargo space, the revenues from
cargos transported westbound are often described as ranging from “ poor” to
“ disappointing.” ( Although data on unused air cargo capacity are not available, it is
instructive to note that at the nation’s busiest seaport, the Port of Los Angeles, over
60 percent of all outbound shipping containers have been empty in recent years. 79)
In short, the air cargo system is geared to serve the needs of those importing goods
into the United States. Airports that are not ideally situated by virtue of location or
79 The Port of Los Angeles reports that, in the 2003 calendar year, 63.74 percent of outbound
containers were empty, as opposed to just 2.03 percent of inbound containers. In the 2002
calendar year, 60.12 percent of outbound containers were empty, in contrast to 3.89 percent
of the inbound containers.
42
proximity to surface transportation networks to facilitate the rapid distribution of
cargos to end- users in markets throughout the United States would likely not
succeed in capturing new air cargo operations. Airports which principally aspire to
serve America’s export trade are missing a vital point. For the foreseeable future, air
cargo services for exported goods will essentially be generated as a by- product of air
cargo services designed to move imported goods.
The other primary factor in determining which communities will be rewarded with
greater air transport service is demographic. Cities with booming populations and
rapidly expanding industrial bases will invariably attract more airline passenger
service. California has a surplus of military- surplus airfields, most of which were built
far from population centers. Some of them are still located in remote areas of the
state and therefore have little prospect of attracting passenger air service. They
similarly are apt to have problems generating back- haul cargos for carriers flying
imported merchandise into the state. On the other hand, the state also features
numerous municipal airports serving metropolitan areas of varying sizes. In a state
with a fast- growing and sprawling population, some of these airports will grow along
with their communities. And while these airports will most likely see increased
passenger service, there will also be an increase in air cargo capacity, if only from
the cargo space that would be available aboard passenger aircraft. 80 In general,
airports serving large metropolitan areas can be expected to be more successful in
luring not merely air carriers but the complex infrastructure needed to support a
modern air cargo operation.
Air Cargo and Perishables
Perishables are estimated to comprise between 14 percent and 18 percent of the
world’s air cargo, according to one leading figure in the air freight industry. 81 They
also represent “ one of the fastest growing and most important sectors in air cargo.” 82
80 As we shall see, not all passenger carriers are created equal when it comes to the
provision of air cargo space on passenger aircraft. Chapter 3 of this report will discuss the
impact of low- cost airlines on the air cargo industry in some detail.
81 Christian Helms is a founder and board member of the Cool Chain Association, a non- profit
organization dedicated to improving the cool supply chain industry.
82 Frederik Jacobsen, President and CEO, Tampa Airlines Cargo, during his presentation
before The International Air Cargo Association meetings in Bilbao, Spain on September 16,
2004.
43
Perishable products include a broad range of low to very high value products,
including horticultural products as well as certain pharmaceuticals and chemicals. All
share the same sensitivity to time, temperature and treatment, the three main foes
of perishables. By some estimates, upwards of 30 percent of shipments perish
reaching the customer. 83
From the perspective of the freight- forwarder and the air carrier, perishable food
products present at least three distinctive problems. The first is that the trade is
generally seasonal. As opposed to businesses that generate a fairly regular flow of
cargo, agricultural shippers tend to enter the air freight market during a period that
is seldom longer than twenty weeks in any given year. ( The California Cherry
Advisory Board advertises Bing cherries from California as a “ 6- Week Vacation From
The Ordinary.”) Carriers are understandably reluctant to accord priority treatment to
shippers who are less than regular, year- round customers. Not surprisingly,
agricultural shipments are more apt to be bumped from flights in favor of a carrier’s
priority customers.
The second is the issue of the special handling generally required of perishable farm
products. Like anything needing pampering, both costs and hassle quotients
increase, often to the point that many freight- forwarders as well as air carriers are
leery of handling perishable shipments.
The third is a relatively poor revenue yield for the amount of space required to
transport agricultural products by air. Compared to products associated with the
state’s high- technology industries, food products tend to require greater volume of
space to transport the same amount of weight. A pound of cherries may weight as
much as a pound of computer chips, but the latter can be shipped in smaller
containers. An aircraft flying below its weight capacity because it is carrying cargo with
a relatively low value- to- weight ratio is not earning the carrier its maximum yield.
From the perspective of the grower- shipper or the freight- forwarder, not all airports
and air carriers are created equal. Interviews with shippers and freight- forwarders
83 Manuel Aragon, September 16, 2004 presentation before The International Air Cargo
Association meetings in Bilbao, Spain. Mr. Aragon is president of Teqflor, a Miami- based
company specializing in importing and exporting perishable products.
44
invariably yielded complaints and some genuine “ horror stories” about the cargo
handling procedures employed by certain airlines or about the risks of transporting
goods through specific airports.
Any significant growth in the demand for air cargo services from agricultural
exporters will test the resourcefulness of the air cargo industry In California. This will
be especially true for those fresh crops and processed food products requiring that a
cold- chain be maintained at every stage of shipment. Rising demand for air cargo
services will also challenge policymakers at both the state and local level to devote
more attention and resources to adapting California’s international trade
infrastructure to the increasing globalization of the world’s food supply.
Nearly all airborne agricultural exports from California now depart through two
airports, LAX and SFO. The roadways leading to both airports are among this state’s
most crowded. And there is absolutely no prospect that traffic congestion will
diminish. For agricultural shippers, traffic congestion poses a two- fold problem. The
more obvious is that perishable cargos may miss intended flights and be stranded for
several hours or even days in less than optimal storage conditions. The less obvious
problem is that the more time trucks spend in traffic, the more difficult it is for truck-owners
to realize a favorable return- on- investment. In general, though, traffic delays
en route to the state’s principal international airports unavoidably add to shipping
costs which, in turn, can make the party initiating the shipment less competitive in a
global market.
The most apparent solution – shifting more international air cargo operations to
airports closer to the state’s primary agricultural regions – may not be the eminently
sensible option it may initially seem. Approximately half of all air freight is carried in
the bellies of passenger planes. 84 In the case of perishable food items, the
percentage is reportedly even larger because passenger flights to any particular
overseas destination are more numerous and frequent than all- cargo flights and are
thus more attractive for shippers of time- sensitive products. This dependence on
passenger aircraft to move perishable goods suggests that the bulk of the air cargo
84 We should note that the balance may be shifting in favor of all- cargo flights. According to
the Federal Aviation Administration, the amount of international cargo ( measured in revenue-ton-
kilometers) flown on all- cargo aircraft rose from 49.3 percent in 1995 to 62.6 percent in
2003.
45
operations needed to service the needs of California’s agricultural exporters are likely
to remain centered at SFO and LAX until economic forces more powerful than a rising
demand from agricultural exporters drive a migration of cargo operations to other
California airports.
That does not necessarily imply, though, that other California airports will see few
international air cargo flights. There are reasons to expect that the air cargo
industry’s reliance on passenger aircraft may be growing more tenuous for economic
as well as security reasons. Indeed, the incestuous relationship between passenger
airlines services and all- cargo operations shows definite signs of waning in Europe.
There, public opposition to expanded ( and particularly night- time) use of existing
airports has been prompting air cargo operators to seek facilities more congenial to
air cargo flights. 85
An Air Cargo Airport for Agriculture?
In the 1980s, Farmington Fresh established a packing house for fresh produce
alongside a taxiway at Stockton Metropolitan Airport. The facility was ( and still is)
well- situated to serve the air transport requirements of San Joaquin Valley growers.
The venture proved to be a disappointment, however, in part because serving the
interests of California exporters has not been a foremost consideration in
determining which airports handle cargo. Serving the interests of importers, though,
is a very high priority. And it will continue to be so long as the U. S. maintains a
substantial merchandise trade deficit. The air cargo industry is principally geared to
transport goods from foreign producers and manufacturers to U. S. end- users and
their intermediaries.
If one were to establish one or more airports specifically designated to handle
agricultural exports, where in California should that facility be sited? The San Joaquin
Valley contains almost half the state’s farmland, nearly 70 percent of its cropland,
and 75 percent of its irrigated land. Six counties -- Fresno, Tulare, Monterey, Kern,
85 In the fall of 2004, DHL abandoned plans to build its international hub at Zaventem Airport
in Brussels in the face of local opposition to a plan that originally would have involved 34,000
night flights. Instead, DHL is considering Vatry, a cargo- focused airport built by the French
government northeast of Paris, and Leipzig in the former East Germany. According to
TrafficWorld magazine, DHL’s move “ will widen the gap in between passenger airline cargo
services and the freighter world in Europe, where several airports are focused on wooing cargo
operators away from the congested major airports.” ( November 8, 2004, p. 28.)
46
Merced and San Joaquin -- account for about half of California’s total value of
agricultural production. 86 But the Central Coast leads in the production of artichokes,
asparagus, broccoli, Brussels sprouts, cabbage, carrots, cauliflower, celery, garlic,
herbs, lettuce, mushrooms, peppers, and spinach, plus a number of more minor
vegetables. 87 Growing regions in Southern California likewise produce a wide range
of similar horticultural products.
Even if demand for air cargo services from California’s agricultural shippers continues
to surge, the level of demand will not, contrary to some hopes and expectations,
appreciable alter the current air cargo system. There is no reason to assume, for
example, that air carriers will initiate regular cargo service into a San Joaquin Valley
airport merely to serve agriculture’s shipping needs.
However, there are more powerful economic forces that may prompt airlines to shift
some portion of their international air cargo operations to airports other than SFO
and LAX. We have already alluded to the logistical liabilities associated with traffic
congestion around SFO and LAX. Another factor is that the growing population of
inland regions of the state will inevitably prompt airlines to offer more and more
flights to airports serving these regions.
Much will also depend on how a fundamental disagreement about the future of
aviation will play out between the world’s two principal aircraft manufacturers. Airbus
believes airlines want to resolve the problem of airport congestion by using much
bigger planes such as its enormous four- engine A380 to make more use of finite
landing slots. Boeing, however, thinks the bulk of future demand lies in airlines
wanting to fly passengers on more non- stop routes from more airports, thereby
taking the pressure off the ' hub' airports. With this vision in mind it dropped the idea
of developing an all- new successor to its 747 jumbo jet and instead developed the
787 ( known as the Dreamliner), a mid- sized plane with two engines tuned either for
long or short hops and capable of carrying between 200 and 300 passengers. The
86 Nicolai V. Kuminoff , Daniel A. Sumner and George Goldman, “ The Measure of California
Agriculture,” ( University of California at Davis Agricultural Issues Center, 2000).
87 Warren E. Johnston, “ Cross Sections of a Diverse Agriculture: Profiles of California’s
Agricultural Production Regions and Principal Commodities,” in Jerry Siebert ( ed.), California
Agriculture: Dimensions and Issues ( Berkeley: University of California Giannini Foundation of
Agricultural Economics, 2003), pp. 34- 35.
47
first 787 is expected to enter service in 2008. Airbus is meanwhile proceeding with
its super- jumbo A380, a plane that will carry 555 passengers on two decks and is
expected to enter service with Singapore Airlines in 2006. ( By late 2004, Airbus
seemed to be hedging its bet by announcing that it, too, would build a medium- sized
plane which it designated the A350. It would be a longer- range version of the
company’s A330.) 88
Introduction of the 787 and a possible Airbus competitor represents a boon for
airports such as Sacramento International Airport ( SMF) which could finally see the
advent of overseas flights. Although SMF is capable of handling larger aircraft, the
787 and A350 would provide a tighter fit between aircraft capacity and passenger
demand. Already, the catchment area served by SMF generates sufficient passenger
demand to warrant daily non- stop flights to London and five weekly non- stops to
Frankfurt. ( Demand for non- stop flights from SMF to the Far East is much weaker,
suggesting that Northern California’s passenger air traffic with the Orient will
continue to be funneled largely through SFO for the foreseeable future.) 89
The strong likelihood that airports in the San Joaquin Valley and Inland Empire might
see the introduction of non- stop passenger service to European destinations within
the foreseeable future is particularly intriguing in light of the recent emergence of
the European Union as California agriculture’s largest foreign market. According to
the Agricultural Issues Center at UC Davis, the EU in 2003 became, for the first time
in recent history, the number one destination for California’s agricultural exports,
accounting for about 25 percent of the total. Canada was the second largest market
for California exports with 23 percent of the total, and Japan was third with 15
percent. 90
88 On December 21, 2004, Spain's Air Europa became the first customer for Airbus's proposed
A350 when it signed an MOU for 10 A350- 800s, with options for two more. The aircraft are
scheduled to be delivered between 2010 and 2012. The version selected by Air Europa will
seat 245 passengers in a three- class configuration and will have a range in excess of 8,600
nautical miles ( 15,900 km.). Airbus also plans to offer a larger model, the A350- 900, which
will seat 285 passengers in three classes with a range of more than 7,500 nautical miles.
89 Data on passenger demand at SMF was provided by Fred Davis, an aviation industry
consultant to that airport.
90 “ California’s Agricultural Exports in 2003,” ( forthcoming).
48
Understanding the economic and practical considerations that constrain the air cargo
industry in California is a necessary prelude to appreciating how the industry can
best serve the needs of California’s agricultural exporters. Unfortunately, even the
packer/ shippers whose crops are most likely to be air- shipped to foreign markets
often have little appreciation of the logistics involved once the shipment leaves the
packing shed. 91
Most of California’s airborne export trade goes to the Far East and thus benefits from
the significant imbalance between eastbound and westbound trade across the Pacific.
With demand for cargo space on aircraft traveling from the Far East to the US
significantly greater than demand for cargo space on westbound flights, freight rates
are substantially less for cargos being air- shipped from the West Coast to markets in
the Far East. Air carriers, after all, have to fly their planes back to the Far East to
pick up premium- priced shipments, and attracting westbound shipments for “ back-haul”
has traditionally been a key concern. In effect, eastbound shipments subsidize
westbound shipments across the Pacific.
Whether this imbalance persists has profound implications for all California
exporters. Recent diplomatic pressure on China, Japan and other Asian nations to
permit their currencies to appreciate in value against the US dollar is likely to have
the unintended effect of increased transportation