The Role of Air Cargo in
California’s Agricultural Export
Trade: A 2007 Update
by Jock O ʹ Connell and Bert Mason
8/ 15/ 2007
Center for Agricultural Business
California Agricultural Technology Institute
California State University, Fresno
CATI Pub. # 070801
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California’s Agricultural Export Trade:
The Role of Air Cargo
A 2007 Update
Overview
In May 2005, the Center for Agricultural Business at California State University, Fresno published a
comprehensive study of the role of the use of air cargo services in transporting California’s agricultural
exports. 1 That study was based in part on state- of- origin export data available through the end of 2004.
This report updates that study by reviewing two additional years of export data and by revisiting the
earlier study’s examination of the steadily evolving nature of the air cargo industry, both within California
and internationally.
The principal conclusions of the original study remain unaltered. California continues to export over one
half- billion dollars in agricultural and other food products by air each year, primarily to destinations in the
Far East. Even though this represents a relatively modest share of the state’s overall food export trade,
the ability to ship products by air is vital to shippers of such perishables as fresh cherries, asparagus,
table grapes, strawberries, salad ingredients, and a wide range of organic fruits and vegetables. Air
freight is also a valuable mode of transport for a vast array of processed food products, food
preparations, and seeds for sowing horticultural plants and trees.
Looking ahead, worldwide demand for high value- added food products of the sort produced in California
is forecast to expand dramatically, especially in such fast- growing economies as China and India, where
the ranks of upper middle- class consumers are rapidly expanding and where multinational food retailers
are rapidly establishing a major market presence and are influencing the practices of indigenous food
vendors.
At issue is whether California’s growers, ranchers, dairies and food processors will have ready access to
these distant and increasingly dispersed markets. Fortunately, recent diplomatic progress in liberalizing
international aviation treaties combined with new advances in aviation technology are prompting both
1 “ The Role of Air Cargo in California’s Agricultural Export Trade,” by Jock O’Connell, Bert Mason and John Hagan ( Center for
Agricultural Business, California State University, Fresno and California Agricultural Technology Institute, May 2005).
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U. S. and foreign air carriers to position themselves to offer efficient and economical air freight services
linking California with an unprecedented number of foreign destinations. Within California, however,
government policymakers have been slow to grasp the crucial role of air cargo in linking California with
foreign markets and have been largely remiss in ensuring that the state’s exporters will continue to enjoy
ready access to the global economy via the state’s aviation gateways.
Measuring California’s Agricultural Export Trade
California is the nation’s leading exporter of agricultural commodities and food products. There are,
however, at least three different ways of measuring the value of that trade.
According to the most recent report from the U. S. Department of Agriculture: “ California remained the
top exporting state in fiscal 2005, far surpassing all others; its $ 10.2 billion of agricultural exports is up 7
percent, or $ 680 million, from 2004. California accounted for 16 percent of the total value of all U. S.
agricultural exports. The state leads the country in exports of vegetables and preparations, fruits and
preparations, tree nuts, dairy products, planting seeds, and ‘ other products.’ California’s exports of each
of these commodities are 2- 3 times higher than the next closest state. Nearly half of California’s ‘ other
product’ exports comes from wine, with the rest primarily from essential oils and nursery and greenhouse
products. Iowa remains the second ranked U. S. exporting state with total agricultural exports valued at
$ 4 billion— less than half the total agricultural export value for California.” 2
A somewhat more conservative estimate comes from the Agricultural Issues Center ( AIC) at the
University of California at Davis. Researchers at AIC employ a methodology they have devised and
refined over the years to derive the agricultural export figures officially cited by the California Department
of Food and Agriculture. In their latest report, AIC researchers found that the state’s farm exports in
2005 totaled some $ 9.3 billion, up from $ 8.2 billion in the preceding year. 3 Although richly informative
about the state’s leading farm exports and the overseas markets to which they are shipped, AIC’s trade
reports do not inquire into the mode of transport used to ship the state’s food exports.
As in our original Center for Agricultural Business report two years ago, this update uses a third measure
of California’s food export trade, one derived from data compiled by the Foreign Trade Division of the
U. S. Census Bureau from Shippers Export Declarations which by law must be filed in conjunction with any
2 “ U. S. Agricultural Trade Update— State Exports,” Economic Research Service, U. S. D. A., June 30, 2006, p. 2.
3 “ California’s International Agricultural Exports in 2005,” AIC Issues Brief Number 31, April 2007.
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export shipment valued in excess of $ 2,500.4 In addition to differentiating airborne from waterborne and
overland export shipments, the Census Bureau export data have the virtue of being available on a timely
basis, which enables this update to include export data for the entire 2006 calendar year. To capture the
full diversity of California’s agribusiness sector, the scope of inquiry in this report encompasses not just
the customary array of farm, ranch and dairy products but also a wide range of processed foods and food
preparations, many of which appear to be derived from agricultural goods produced in California.
We recognize that Census Bureau export data may include agricultural goods produced in other states
that were shipped abroad through one of California’s international trade gateways. That much is evident
from the fact that, while the state’s farm exports in 2005 were valued at $ 10.2 billion by USDA and at
$ 9.2 billion by AIC, the Census Bureau’s state- of- origin data used in this report show agricultural exports
in that year totaling $ 11.6 billion ( and $ 12.8 in 2006). As a measure of California’s agricultural export
trade, the data in this report are admittedly less precise than those published by AIC. Nonetheless, it is
worth emphasizing that both our original study and this update were undertaken for the purpose of
shedding new light on a mode of transport that is widely ignored in discussions of California’s agricultural
export trade. And for that specific purpose, Census Bureau trade data provide sufficient illumination.
California’s Half- Billion Dollar Airborne Food Export Trade
The Census Bureau’s state- of- origin data indicate that California’s airborne food export trade edged
above the half- billion dollar mark in 2003 and has since remained consistently above that level. As Exhibit
1 indicates, the state’s airborne food exports rose in nominal terms from $ 396 million in 1996 to a high of
$ 669 million in 2004, before falling back to $ 644 million in 2005 and to $ 579 in 2006. On an inflation-adjusted
basis, California’s airborne food exports rose by 48.0 percent between 1996 and 2004, before
falling off the two succeeding years. ( See Exhibit 2.) Even so, California’s airborne food export trade in
2006 was still -- in real terms -- 24.5 percent higher than it had been ten years earlier. 5
4 Data for this report were obtained from WISERTrade, a private company which produces the state- of- origin export data used by
the State of California. WISERTrade’s figures are derived from data compiled by the Foreign Trade Division of the U. S. Census
Bureau. In processing the Census Bureau data, WISERTrade seeks to compensate for certain shortcomings in the federal data
which generally have the effect of inflating the export totals for gateway states such as California, Texas and New York. Federal
regulations permit shippers considerable leeway in identifying the state in which an export shipment originated. For example, where
the state- of- origin is not manifestly evident, the shipper is allowed to identify the state where the merchandise is consolidated for
transport abroad as the state- of- origin. This explains why Louisiana is commonly ranked as the nation’s leading grain exporting
state. In California’s case, fresh cherries grown in Oregon and Washington but exported via San Francisco International Airport
because of a lack of sufficient air cargo lift in the Pacific Northwest are sometimes attributed to California. Conversely, California-grown
produce exiting the United States via another state might be attributed to that state.
5 Last year’s decline was in large part the result of lower than normal cherry harvest and a sizeable drop in airborne exports of a
category of food preparations involving fortified, concentrated fruit juices. The state’s cherry orchards were hit by a late season
freeze in 2006. According to the California Cherry Advisory Board, this resulted in a harvest that was down about 60 percent from a
normal season. The category known as Foods Preparations NESOI ( USDA HTS- Code 210690) principally includes fortified fruit juices
in concentrated form. ( NESOI is a bureaucratic acronym for “ not elsewhere specified or identified.”) Exports of these food products
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$ 0
$ 100
$ 200
$ 300
$ 400
$ 500
$ 600
$ 700
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
appear to have settled back to a historic level after a brisk rise in the preceding three years. Vagaries in weather ( not to mention
longer- term changes in climate) will always result in sometimes sharp fluctuations in trade in agricultural goods. In addition, many
elements of the state’s food processing sector are known to be aggressively pursuing offshore outsourcing strategies. In this case,
the data show that overall California exports of Food Preparations NESOI increased in 2006, thus indicating that more of this
category of goods is being shipped overland to Mexico and Canada and by sea to other destinations.
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$ 0
$ 100
$ 200
$ 300
$ 400
$ 500
$ 600
$ 700
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
To be sure, air cargo’s share of California’s overall agricultural export trade is comparatively modest. As
Exhibit 3 shows, airborne shipments have accounted for between 4.5 percent and 6.4 percent of the
state’s overall food trade over the past ten years. However, in weighing air cargo’s relative share of
California’s food export trade, two points should be stressed. First, shipping via surface modes of
transport is almost invariably much less expensive than transporting goods by air. Goods which lend
themselves to being moved at a more leisurely pace by truck or rail or by sea will typically be transported
by those modes. That applies to the more than half of the state’s agricultural exports which are
comprised of comparatively hardy commodities such as almonds, walnuts, pistachios, cotton, rice,
processed tomatoes, and wine – all of which adapt well to spending extended periods of time en route to
market. 6 Second, a substantial portion of California’s exports of perishable fruits and vegetables are
destined for Canada and Mexico, neighboring countries to which goods can be efficiently ( and most
economically) transported by truck and rail. Indeed, according to AIC’s latest report, these two partners
in the North American Free Trade Area by themselves accounted for 79.2 percent of California’s
vegetable exports and 41.1 percent of our fruit exports in 2005.
6 According to the UC Davis Agricultural Issues Center, these particular commodities represented seven of the state’s top ten
agricultural exports in 2006.
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0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
For growers of certain high value- added specialty crops such as cherries, strawberries, asparagus, fresh
salad ingredients, organically- produced perishables, and sowing seeds, the ability to ship products to
distant markets by air is immensely important, if not indispensable. In 2006, for example, fully 77.6
percent of California’s $ 60.0 million in fresh cherry exports travelled by air, as did 44.1 percent of the
$ 258.7 million export trade in seeds for sowing, 32.1 percent of the state’s $ 41.1 million trade in fresh or
chilled asparagus, 17.8 percent of the state’s $ 227.7 million trade in fresh strawberry exports, 16.0
percent of the $ 61.6 million trade in various fresh berries, and 15.6 percent of the state’s $ 70.0 million
onion and shallot exports. In addition, virtually all of the state’s exports of purebred breeding animals
were transported by air.
Even in the case of crops that are normally shipped abroad by sea, enterprising traders will often ship by
air in order to reap premium prices by being first on the market with, say, fresh peaches, oranges or
table grapes. Thus, while only 4.2 percent of the state’s exports of fresh grapes were transported by air
last year, that minor share still amounted to $ 20.2 million. And, as with all types of goods, air freight is
commonly used when expedited delivery is demanded by the customer or when normal supply chains
temporarily break down. Of the $ 990.5 million in exports of certain fortified fruit juice concentrates and
sweeteners from California in 2006, $ 41.6 million went by air. 7 ( Appendix A provides a breakdown of the
state’s top fifty airborne agricultural exports, which represented 92.7 percent of all airborne agricultural
exports from California last year.)
7 These products are categorized as Food Preparations NESOI ( a bureaucratic acronym for Not Elsewhere Specified or Indentified)
and are listed under the USDA’s HS- Code 210690.
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Although cherries have consistently ranked first among California’s airborne exports of fresh fruit, it is
indicative of the complex nature of agribusiness in this state that the leading airborne agricultural export
in 2006 was not one of the fruits, vegetables or nuts for which California agriculture is renown. Instead,
seeds for sowing many of those same vegetables and fruits ( as well as flowers) topped the list with
exports totaling $ 114.3 million, accounting for nearly twenty percent of the state’s airborne agricultural
export trade last year. Airborne exports of fresh cherries, by contrast, amounted to just $ 60.0 million last
year. Other important airborne exports in 2006 included wine ($ 21.8 million), various food preparations
($ 41.6 million), purebred breeding animals ($ 38.3 million), and bovine semen ($ 18.5 million).
Still, at least $ 10 million worth of each of the following fresh fruits and vegetables were exported by air
from California last year: cherries ($ 60.0 million), strawberries ($ 40.5 million), grapes ($ 20.2 million),
asparagus ($ 13.2 million), and onions and shallots ($ 10.9 million). Other fresh or chilled fruit and
vegetable exports exceeding $ 1 million in value in 2006 included: lettuce ($ 9.5 million), peaches and
nectarines ($ 8.0 million), sundry berries ($ 7.4 million), tomatoes ($ 6.1 million), chicory ($ 4.9 million),
guavas and mangoes ($ 1.8 million), melons and papayas ($ 1.6 million), sunflower seeds ($ 1.6 million),
and avocados ($ 1.0 million).
It is in the nature of agriculture that there are often sharp year- to- year fluctuations in harvests and
shipments of any particular crop or commodity to any specific country. In addition to the vagaries of
weather, changes in tariffs schedules, the lowering or raising of other trade barriers, or politically- inspired
re- interpretations of import regulations can all have profound effects on trade flows in as politically-sensitive
and tightly- regulated an area of commerce as agricultural trade. For this reason, it is generally
more enlightening from an analytical standpoint to ferret out observable trends over a number of years.
Based on their average export value over the last three years ( 2004- 2006), the following rank as
California’s leading airborne agricultural exports:
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•)
• Food Preparations NESOI ($ 105.3 million)
• Seeds for Sowing Vegetables ($ 82.2 million)
• Fresh Cherries ($ 73.1 million)
• Fresh Strawberries ($ 35.8 million)
• Purebred Breeding Animals ($ 26.4 million)
• Fresh Grapes ($ 22.1 million)
• Asparagus ($ 19.0 million)
• Seeds for Sowing Flowers ($ 17.7 million)
• Bovine Semen ($ 15.9 million)
• Wine ( 14.8 million)
• Fruit Seeds for Sowing ($ 12.4 million)
• Lettuce ($ 9.5 million)
• Onions and Shallots ($ 8.8 million)
• Live Horses ($ 8.6 million)
• Fresh Miscellaneous Berries ( 7.9 million)
• Fresh Fruit NESOI ($ 7.6 million)
• Peaches and Nectarines ($ 6.9 million)
• Fresh Tomatoes ($ 4.7 million)
• Chicory ($ 3.8 million)
• Guavas and Mangoes ($ 1.9 million
Although exports of most of the items on this list have either been increasing or at least have remained
stable in recent years, the trend lines are not all in a positive direction. Fresh cherry exports were off in
2006 due to untimely storms as were asparagus shipments. The most abrupt and substantial fall- off in
exports involved edible food preparations generally derived from fruit juices, which surged dramatically
between 2002 and 2004 but which have since returned to earlier levels. ( The rise and fall of exports of
this category of products from California was similarly evident across all modes of transportation as well
as in overall U. S. agricultural export trade.)
Primary Overseas Markets. As Exhibit 5 makes abundantly clear, Japan is by far the largest national
market for California’s airborne agricultural exports. In 2006, Japan’s imports of airborne agricultural
products from California equaled the combined value of airborne shipments to the next five largest
foreign markets. Most of the principal destinations of California’s airborne agricultural export trade are in
the Far East, with Japan ranking as the single largest market with an average 30.6 percent share of
California’s airborne agricultural exports over the latest three years ( 2004- 2006). 8 South Korea, China,
and Taiwan all currently number among the top ten overseas markets. Interestingly, the second and third
largest customers are the United Kingdom and Australia. A more limited airborne agricultural export trade
is conducted with Continental Europe and Latin America. Not surprisingly, given the efficiency of modern
trucking and rail operations within North America, there is comparatively little airborne agricultural trade
8 Because of year- to- year variations in the rankings of the chief destinations of California’s airborne agricultural export trade, our
overall rankings are based on the mean of the latest three years of data, 2004- 2006.
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with Canada and Mexico, despite the fact that these neighboring countries ranked among the top four
worldwide destinations for California’s overall farm exports in 2005.
Japan
U. K.
Australia
Korea
China
Netherlands
Taiwan
Italy
France
Hong Kong
With some exceptions, the 2006 pattern of export markets has remained stable in recent years, as Exhibit
6 demonstrates. The one most notable aberration occurred with the dramatic surge and then equally
dramatic decline in airborne food exports to China in the years from 2002 through 2005. That fluctuation
appears to have been due almost entirely to a sudden rise in airborne shipments of fortified fruit juice
concentrate and sweeteners followed by an equally abrupt decline.
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$ 0
$ 50
$ 100
$ 150
$ 200
$ 250
2000 2001 2002 2003 2004 2005 2006
Japan
U. K.
Australia
Korea
Netherlands
Taiwan
China
Italy
France
Canada
Future Trends and Prospects
Looking ahead, there are several reasons to expect that California’s agricultural exporters will continue to
make appreciable use of air cargo. Chief among those are the following:
● Worldwide demand for high- quality and typically high value- added food products grown and
processed under conditions conducive to wholesomeness and food safety has been expanding
dramatically. Heavily- publicized episodes involving tainted food products both in the United States and
abroad have elevated public concern over the safety of the food supply. This development offers a
decisive marketing advantage to those growers and food processors able to demonstrate that they
operate in accordance with the most exacting food safety standards in producing food products that are
both nutritious and safe to consume.
● Multinational food companies and food retailers have been aggressively embracing sourcing and
logistics practices that place a heavy burden on transporting produce over vast distances in a timely and
reliable fashion, particularly as they continue making relentless inroads into the food markets of
developing economies worldwide.
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● California agriculture’s relentless 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 perishable or high
value- to- weight ratio products for which air transport can be considered economical.
● On- going efforts to liberalize trade in agricultural products should continue to open new markets
while expanding existing markets for California farm exporters. At the same time, progress in negotiating
new air transport agreements with key U. S. trading partners should open new and more convenient air
routes from California to a larger number of overseas markets.
● The increasing reliance ocean carriers have been placing on huge mega- ships able to carry vast
numbers of freight containers is limiting the ability of ocean- carriers to reach many of the new,
geographically dispersed markets that have been emerging in developing countries, often in interior
regions far from the nearest major seaport.
● A substantial trade imbalance between the U. S. and Asia ( and especially China) will likely persist,
thus ensuring that westbound shipping rates will remain suppressed as air carriers struggle to fill planes
with a sufficient “ back- haul” of goods moving from North America to the Far East.
● A new generation of medium- size, long- range aircraft featuring fuel efficient engines typified by
the Boeing 787 “ Dreamliner” ( and by a possible competitor in the Airbus 350) will begin to enter service
in 2008. By 2020, when substantial numbers of these planes will be in service worldwide, it is expected
that airlines will be offering non- stop or direct international flights between an increasing number of so-called
“ second- tier” airports here and abroad.
On the downside are several factors which could impede robust growth in California’s agricultural export
trade.
● Until very recently, jet fuel prices had been rising precipitously, a serious development for all
transportation industries but especially so for one in which fuel costs represent a disproportionately large
share of operating expenses. Rising fuel costs have had a two- fold impact on the aviation sector. First,
the fuel surcharges carriers have been obliged to impose on shippers have led many shippers to migrate
to surface modes of transport. Second, rising jet fuel costs have slowed the recovery of financially-strapped
U. S. carriers. Although airlines here and abroad are desperately seeking to replace older
equipment with new, much more fuel- efficient aircraft, this process will necessarily take a number of
years.
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● Environmental concerns, currently being manifested primarily in Europe, may spur some nations
to restrict aircraft operations thought to be harmful to the earth’s protective ozone layer. In the near
term, this concern is most likely to affect air transport to, from and within the European Union.
Ultimately, though, air transport in the United States is also apt to be affected.
● Ground access to California’s principal international air cargo gateways -- Los Angeles
International ( LAX) and San Francisco International ( SFO) -- is becoming increasingly problematic with
each passing year for all exporters but especially for shippers of perishable products.
● Although steadily larger shares of international air cargo are being transported by the so- called
integrated carriers ( most notably FedEx, UPS, and DHL), it is not entirely clear that these carriers will
aggressively pursue business involving perishable agricultural products. Agricultural exporters may
therefore remain dependent on air freight services provided by combination carriers ( i. e., airlines which
transport cargo in the “ bellies” or lower holds of passenger aircraft).
● Should terrorists succeed in planting an explosive device in the cargo hold of a passenger airliner
anywhere in the world, Congress will likely act quickly to either ban third- party freight from passenger
aircraft entirely or require such onerous inspection procedures as to make shipping perishable produce
aboard passenger aircraft no longer viable.
Recent Developments on the International Air Cargo Scene
Open- Skies Agreements
Recent months have witnessed substantial progress in liberalizing air transport agreements between the
United States and the European Union and the initiation of talks with China to eliminate many restrictions
on air transport between the U. S. and that nation. Historically, national governments have granted
selected foreign carriers the right to operate a fixed number of flights per week to specified destinations
within the host country. These arrangements were typically arrived at through bilateral negotiations and
frequently reflected the desire of governments to protect the interests of each nation’s principal airlines,
some of which were government owned. Even when market forces warranted an expansion of air service
between two countries, the details had to be negotiated by the respective governments. Open- skies
accords, by permitting market forces and the airlines themselves to more directly determine the selection
of international air routes, bring closer the prospect of direct or even non- stop air service linking Europe
and Asia with California airports other than the traditional international gateways at LAX and SFO.
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On April 30, 2007, U. S. and European Union officials formally signed the first- stage of a US- EU open skies
accord which will take effect next March 30. The pact replaces restrictive agreements dating back to the
1940s and allows airlines for the first time to offer service from any city in the 27- nation EU bloc to any
U. S. city and vice versa. There are no restrictions on the number of flights, aircraft used or routes. This
agreement will open competition on more international routes and is expected to result in lower
passenger fares and cargo tariffs. Although the initial response of most US carriers will be to increase
flights from existing hubs, EU carriers seem more intent on initiating new point- to- point flights. Ryan
Airlines, the Irish discount carrier, recently announced plans to begin non- stop transatlantic service using
Boeing 787 and Airbus 350 aircraft. EU carriers may focus on starting service to secondary airports within
the catchment area of existing international gateways like New York’s JFK and Chicago’s O’Hare which
are growing increasingly congested.
Meanwhile, it appears the U. S. may be retreating from earlier efforts to persuade China to agree on a
firm timetable for starting formal open- skies negotiations. The Chinese had indicated such talks could
start within five years. U. S. transportation officials, who had wanted to begin talks as early as next
spring, are instead now focusing on pressing the Chinese to grant a dramatic increase in flight
frequencies between the two nations. The latest Chinese offer would move scheduled 2008 frequency
awards forward to this year and would grant seven additional frequencies in 2009, 2010, and 2011. The
U. S. is now reportedly asking for 21 additional frequencies in 2008 and 2009, 14 extras in 2010 and
2011, and then 21 additional flights every year until full open- skies is achieved. All of these additional
awards would be on top of those scheduled in the existing agreement, which was signed in 2004.
Developments in Aviation Technology
A good deal of media attention has been lavished on the Airbus 380, the super- jumbo aircraft developed
to replace the Boeing 747. The first passenger version of the A- 380 will enter service later this year and
will eventually provide several of the world’s airlines with the ability to fly more than 800 passengers
between the relatively small number of airports capable of handling the behemoth. Airbus had plans for a
freighter version of the aircraft, but delays in meeting deadlines for delivering the first A- 380 prompted
the cancellation of orders for that plane. In addition, several industry analysts have raised questions
about the need for an air- freighter of that size. ( It was to have a payload capacity of 150,000kg with a
range of 10,410km. The upper deck, which would have a maximum width of 5.92m, was designed to
accommodate 17 pallets, while the main deck, maximum width 6.58m, was intended to hold 28 pallets
and the lower deck 13 pallets.) Although there are no current orders for a freighter version of the
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aircraft, the passenger version will by itself add to cargo capacity on long- haul routes linking San
Francisco International ( SFO) and Los Angeles International ( LAX) Airports to major destinations abroad.
Two years ago, we pointed to the impending introduction of a new generation of long- range, medium-sized
jet liners that hold the potential for revolutionizing air transport by linking larger and larger numbers
of city- pairs, including U. S. cities which had hitherto not enjoyed direct air links with foreign destinations.
Specific attention was drawn to two such aircraft, the Boeing 787 and the Airbus 350.
Management and financial problems have slowed the Airbus 350 program. Having banked heavily on its
super- jumbo A- 380, Airbus underestimated demand for smaller aircraft that allowed airlines much more
flexibility in serving widely- separated markets. Its belated decision to develop an aircraft to meet the
capabilities of Boeing’s 787 came at a time when the European aircraft manufacturer was encountering
severe production difficulties with its A- 380 that not only tarnished the company’s reputation but
constrained its ability to finance development of the A- 350.
Boeing, meanwhile, has enjoyed remarkable success in securing orders for its 787, even though the plane
will not actually be flight- tested until July 2007. As of April 2007, Boeing had booked about 500 firm
orders for versions of the 787. Once deployed in appreciable numbers, the 787 ( and A- 350, if it is ever
built) will provide airlines with the ability to transport passengers and freight over huge distances using
new, fuel- efficient engines. The A350, with a problematic development history, is scheduled to enter
service in 2013, nearly five years behind the Dreamliner. Boeing says it is planning to deliver the first of
567 Dreamliners on order beginning in May 2008.
The arrival on the aviation scene of these new aircraft dovetails with the advent of open- skies
agreements that will permit the full utilization of these planes to serve an ever- widening range of
markets.
The Expanding Role of Integrated Carriers
Integrated air carriers are those companies like FedEx, UPS and DHL which provide door- to- door air
cargo services. They are distinguished from air carriers which essentially offer only airport- to- airport
transport, leaving to the shipper ( or more likely a freight- forwarder or another third- party logistics
provider) to arrange ground transportation to and from airports.
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The role of the primary integrated carriers has been growing more and more prominent in transporting
air cargo internationally. They are expanding beyond expedited delivery services for small parcels and
documents. They are also increasing their penetration of key overseas markets such as China.
FedEx has established its Asian Pacific hub at Guangzhou’s Baiyun International Airport in Southern
China. The transport hub, covering a total area of 82,000 square meters, will have a capacity of 179,000
express packages, or more than 1,800 tons per day by the year 2010. Guangzhou is the gateway to the
Pearl River Delta, a manufacturing region that takes up 30 to 40 percent of China's foreign trade. The
Pearl River Delta ranked second in the domestic air cargo handling market, next to the Yangzi River
Delta.
The UPS International Air Hub at Pudong International Airport in Shanghai will be the first constructed by
a U. S. carrier. Scheduled to open next year, the new hub will be built on a 1 million square foot site and
will operate around the clock, throughout the year. The carrier will increase cargo load capacity to
Shanghai by switching its planes from the MD- 11s in current service to Boeing 747- 400s. Service will
ramp up over time with sorting capacity projected to reach 17,000 pieces per hour by 2012. The hub will
link all of China to the UPS international network through Shanghai. Service will continue from there to
the rest of Asia, Europe and the Americas. In the mix are points in China served by UPS through services
provided by an all- cargo airline, Yangtze River Express. Yangtze operates 24 dedicated movements each
week, while UPS has 76 weekly takeoffs and landings in Shanghai.
In January 2007, DHL Global Forwarding announced that it had become the first international forwarder
to obtain a China Air Transport Association domestic airfreight license, allowing the company to provide
service to 17 Chinese cities.
The Back- Haul Issue
Airlines customarily refer to outbound cargo as “ front- haul”, while cargo carried aboard returning flights is
termed “ back- haul”. However, on international routes -- especially transpacific routes – where the
preponderance of trade in recent years has been inbound into the United States, outbound shipments
from airports in California and elsewhere in the U. S. are often referred to as back- haul, regardless of
where the aircraft involved are home- based. Even U. S. flag carriers such as United Airlines complain of
the difficulty of obtaining sufficient amounts of back- haul cargo for flights departing SFO or LAX for
destinations in the Far East.
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In 2006, inbound cargos constituted 61.6 of the total international freight tonnage handled at LAX, up
from 58.7 percent in 2000. AT SFO, inbound shipments in 2006 accounted for 58.7 percent of total
international freight tonnage, up slightly from 56.5 percent in 2000.
Measured in dollar value, though, the issue of back- haul appears to be less acute. SFO in 2006 handled
some $ 63.8 billion in two- way international trade, of which inbound cargos represented 53.8 percent or
$ 34.3 billion. That is not far off inbound cargo’s 52.9 percent share of international freight at SFO in
2000. At LAX, by contrast, the value of outbound or back- haul has generally exceeded the value of
inbound in recent years. In the years from 2000 through 2006, there was just one year ( 2004) when the
value of imported goods exceeded the value of exports. More typically, as in 2006, back- haul’s share of
the $ 79.0 billion in international air freight that passed through LAX exceeded the value of inbound
cargos 51.9 percent to 48.1 percent.
Unfortunately, this is largely immaterial to air carriers, who base their freight charges on weight and
space. Since 2000, inbound tonnage into SFO and LAX has ranged from a low of 58.0 percent of two- way
international trade to a high of 61.0 percent, which was recorded in 2006.9 To attract cargos on flights to
the Far East, air carriers have generally been obliged to offer much lower shipping rates for Asia- bound
shipments. At times, the differential has been quite substantial, with the per kilo rate charged for Asia-bound
shipments occasionally dipping to as low as 20 percent of rates charged for cargos being
transported from Asia to California. A forthcoming study commissioned by the California Department of
Food and Agriculture will explore the implications of the back- haul issue for California agricultural
exporters.
The Air Cargo Situation in California
Our 2005 study featured an extensive examination of the air cargo industry within California. It was our
contention then that one major impediment to growth in the state’s airborne agricultural trade was the
uneven quality of the state’s aviation infrastructure and the reluctance of most policymakers to address
the issue of airport capacity. Little has happened in the past two years to alter this conclusion. For
several years now, aviation industry analysts have been drawing attention to the fact that, despite
forecasts calling for ever- increasing levels of international passenger air travel as well as growing
volumes of international air cargo, efforts to expand the capacity of the state’s airports to handle more
9 By comparison, the back- haul issue is somewhat more severe for ocean- carriers. At the Ports of Los Angeles and Long Beach, for
example, empty containers represent approximately 65 percent of all outbound container traffic.
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passengers and freight have been frequently frustrated by airport expansion foes. In this decade, local
opposition has thwarted plans to establish new commercial airports at the former El Toro Marine Base in
Orange County and at the Miramar Marine Base in San Diego County. Most of the state’s existing airports,
including Los Angeles International and San Francisco International, have had growth limits or restrictions
on the timing and frequency of flight operations imposed upon them.
California’s commercial airports are most always operated by municipal or county governments in concert
largely with the Federal Aviation Administration, which exercises authority over the nation’s airways and
which provides ample doses of financing for airport projects. By comparison, the role of state government
has historically been relatively minor, even though the Division of Aeronautics within Caltrans has been a
persistent voice in reminding local and regional officials of the importance of considering the effects land-use
planning decisions can have on the long- term viability of airport operations around the state.
With respect to international trade, most state and local policymakers appear to almost instinctively
associate foreign trade with the activities of the state’s principal seaports. For example, the much-heralded
Goods Movement Action Plan, which the Schwarzenegger administration has formulated and is
seeking to implement, focuses largely on facilitating the movement of shipping containers through the
adjacent Ports of Los Angeles and Long Beach and, to a lesser extent, the Port of Oakland in the San
Francisco Bay Area. By contrast, the plan is all but silent on the role of air transport.
The inability of state policymakers to grasp the role of airports in linking California industries with the
global economy is difficult to fathom. The fact that scarcely a television news report or a newspaper
article about foreign trade seems complete without at least one iconic depiction of a bustling seaport or a
fully- loaded container ship may help explain why most Californians seem to associate international trade
with the waterfront. Yet, as Exhibits 7 and 8 clearly attest, the majority of California’s merchandise export
trade has long been airborne.
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Overland Airborne Waterborne
0%
10%
20%
30%
40%
50%
60%
70%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Overland Airborne Waterborne
This failure to appreciate the role of air cargo as a critical economic asset has consequences. In
California, virtually all of the state’s airborne foreign trade passes through just two gateways, Los Angeles
International Airport ( LAX) and San Francisco International Airport ( SFO). The two airports have long
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maintained an effective monopoly over the state’s foreign airborne trade. In 2006, for example, LAX and
SFO together handled no less than 97.5 percent of all airborne international trade entering or leaving the
state.
Yet both airports face severe constraints on their ability to cope with 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.
Perhaps even more significant is the fact that highway access to both facilities has grown increasingly
congested, posing a particular problem for shipments of perishable commodities, but generally driving up
ground transportation costs and thereby further adding to the challenge of remaining competitive in the
world market. Ironically, at a time when air carriers are willing to offer attractive shipping rates to haul
cargos back to overseas destinations, something as mundane as highway congestion can easily stymie
the shipment. After all, the combination carriers most commonly used by California’s agricultural
exporters operate primarily as passenger carriers who are expected to leave on schedule. A truckload of
perishable fruit or vegetables delayed by traffic may not be able to find an alternative connection, leaving
an overseas customer disappointed and perhaps inclined to look for other suppliers.
To better manage increasing air cargo traffic, aviation and surface transportation planners in Southern
California have sought – so far with limited success - to encourage air carriers to shift more air cargo
activity away from LAX to other regional airports, most notably Ontario International Airport. 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 Bay Area’s three major airports.
There is little doubt that a substantial portion of the state’s international air cargo capacity will eventually
migrate away 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 burgeoning population and industrial centers
in California’s Inland Empire and Central Valley. It will also be shaped by investment decisions made by
the integrated carriers who are poised to seize larger and larger shares of the international air cargo
market.
Ontario International Airport ( ONT) continued to see very rapid growth in 2006, with a 45.0 percent gain
to 35,879 tons. ONT is the west coast hub of all UPS air freight operations and is also a major distribution
point for FedEx. A new, 110- acre air cargo complex should further add to ONT's attractiveness as an air
cargo airport.
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Several inland airfields from Sacramento’s Mather Field in the Central Valley to March GlobalPort in the
Inland Empire have also been aggressive in promoting themselves as future air cargo hubs. Clearly, not
every airport will succeed. Worldwide, approximately half of all air cargo continues to be transported in
the bellies of passenger aircraft, and 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. 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 the San Bernardino and Riverside Counties, two of the fastest growing
counties in California. Perhaps more critically, the two airports also happen to be regional hubs,
respectively, for UPS and DHL. ( The FedEx hub for Southern California is at LAX.) Despite its nominal
status as California’s second most populous city, San Diego will likely continue to depend on airports in
other jurisdictions for the bulk of its international air cargo needs.
In Northern California, Oakland International once seemed poised to gain larger shares of the San
Francisco Bay Area’s international air cargo traffic. But SFO will likely remain Northern California’s
dominant hub for international flights so long as passenger aircraft carry a substantial portion of air cargo
traffic. Expectations that more of Northern California’s air cargo burden would shift to Oakland were
effectively derailed by Oakland International’s latest Master Plan, which proposes to accommodate only
the growth of air cargo carriers currently operating from the East Bay airport.
In the Central Valley, Sacramento International Airport ( SMF) appears to have the greatest potential for
becoming an important conduit 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. ( There
appears to be much less call for flights to Asian destinations.) 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 or direct service between non- hub airports.)
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Both Sacramento’s Mather Airport and Stockton Municipal Airport have retained consultants to help
secure regularly scheduled air freighter service to the Far East. In both cases, the consultants concede
that the prospects for success in the near- term are fairly remote. There is some expectation, though,
that, should additional airlines be granted rights to fly between China and the United States, these
airports could become serious contenders given their proximity to the Bay Area and the rapid growth of
population and industry in the Central Valley. Airlines denied adequate landing rights or gate space at a
region’s primary airport will frequently opt to provide service to a secondary airport within the same
region.
For growers and other exporters of agricultural products in the Central Valley, the initiation of overseas
flights out Stockton or either of the two Sacramento airports would offer easier and more direct access to
some foreign markets. The ability to ship produce aboard passenger aircraft flying from SMF to one or
more European destinations would open a new channel for supplying the European Union’s growing
demand for California food products. Given that the EU now buys approximately one- fourth of
California’s farm exports, the advent of direct or non- stop service to Europe could be a significant
development for California growers and food proecessors. 10
Projections should come with caveats. Although proximity to a major metropolitan area presents a
powerful lure for air transport providers, public opposition to the noise, air pollution and surface traffic
congestion associated with expanded flight operations can easily thwart airport expansion or construction
plans. In addition, many growers are justifiably nervous about the risks of crop infestation from pests or
diseases that return flights might carry with them. Such an assault – either incidental or deliberate –
could prove devastating to agricultural production in California. Appropriate prophylactic measures will
have to be devised to protect the state’s farm economy.
10 Omid Rowhani and Daniel Sumner, “ California International Agricultural Exports in 2005” ( U. C. Davis Agricultural Issues Center,
April 2007).
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Appendix A. Top 50 California Airborne Agricultural Exports
2004- 2006
Source: WISERTrade, U. S. Census Bureau
TOTAL ALL COMMODITIES 669,094,304.00 644,146,027.00 578,914,779.00
1 120991 VEGETABLE SEEDS FOR SOWING 77,906,300.00 86,077,364.00 82,646,383.00
2 80920 CHERRIES, SWEET OR TART, FRESH 91,500,659.00 81,365,977.00 60,036,813.00
3 210690 FOOD PREPARATIONS NESOI 174,009,808.00 100,449,641.00 41,567,586.00
4 81010 STRAWBERRIES, FRESH 30,641,701.00 36,400,302.00 40,450,184.00
5 10110 PUREBRED BREEDING ANIMAL 7,712,419.00 26,456,154.00 38,338,367.00
6 220421 WINE, FR GRAPE NESOI & GR MUST W ALC, NOV 2 LITERS 7,235,669.00 15,279,695.00 21,764,194.00
7 350790 ENZYMES AND PREPARED ENZYMES, NESOI 9,860,202.00 13,733,602.00 21,754,035.00
8 80610 GRAPES, FRESH 24,190,089.00 21,781,744.00 20,235,003.00
9 120930 SEEDS HERBACEOUS PLANTS PRNCPLY FLOWERS, FOR SOWNG 16,245,629.00 17,913,832.00 18,931,741.00
10 51110 BOVINE SEMEN 13,094,968.00 16,019,173.00 18,534,402.00
11 210610 PROTEIN CONCENTRATES & TEXTURED PROTEIN SUBSTANCES 11,543,376.00 17,492,978.00 18,045,749.00
12 70920 ASPARAGUS, FRESH OR CHILLED 22,203,056.00 21,718,500.00 13,231,038.00
13 120999 SEEDS, FRUIT AND SPORES USED FOR SOWING, NESOI 12,660,309.00 11,727,956.00 12,714,004.00
14 350400 PEPTONES, OTHER PROTEINS & DERIV ETC; HIDE POWDER 5,723,922.00 7,153,558.00 12,241,493.00
15 70310 ONIONS AND SHALLOTS, FRESH OR CHILLED 6,042,265.00 9,446,797.00 10,855,347.00
16 81090 FRUIT NESOI, FRESH 5,331,129.00 9,102,324.00 8,504,315.00
17 70511 HEAD LETTUCE ( CABBAGE LETTUCE), FRESH OR CHILLED 2,524,644.00 5,907,877.00 8,008,644.00
18 80930 PEACHES, INCLUDING NECTARINES, FRESH 5,712,997.00 6,926,742.00 7,966,994.00
19 330210 MIXTURES ODORIFEROUS SUBSTANCE USE FOOD/ DRINK IND 16,534,357.00 8,308,116.00 6,477,908.00
20 70200 TOMATOES, FRESH OR CHILLED 3,307,797.00 4,523,609.00 6,133,152.00
21 81290 FRUIT & NUTS PROVISIONALLY PRESERVED INEDIBLE NESO 22,080.00 51,252.00 6,024,597.00
22 190190 MALT EXTRACT; FLOUR, MEAL, MILK ETC PROD ETC NESOI 1,890,325.00 1,129,175.00 4,928,073.00
23 70529 CHICORY, EXCEPT WITLOOF, FRESH OR CHILLED 2,248,352.00 4,119,546.00 4,887,452.00
24 81020 RASPBERRIES/ BLCKBERRIES/ MULBERRIES/ LOGANBERRS FRSH 4,763,429.00 4,231,028.00 4,360,296.00
25 130219 VEGETABLE SAPS AND EXTRACTS, NESOI 5,067,713.00 5,480,187.00 3,929,530.00
26 121190 PLANTS & PARTS ETC FOR MEDICAMENTS ETC NESOI 1,818,751.00 4,990,100.00 3,863,192.00
27 60110 BULBS, TUBERS, CORMS, CROWNS & RHIZOMS ETC DORMANT 4,166,429.00 3,464,466.00 3,380,519.00
28 81040 CRANBERRIES, BLUEBERRIES, ETC, FRESH 1,490,554.00 2,064,037.00 3,010,779.00
29 10190 LIVE HORSES, ASSES, MULES AND HINNIES, NESOI 3,272,380.00 19,721,645.00 2,809,188.00
30 81120 RASPBERRIES/ BLCKBERRIES/ ETC UNCOOKD/ COOKD WATER FZ 569,721.00 650,256.00 2,453,756.00
31 200990 MIXTURES OF FRUIT AND/ OR VEGETABLE JUICES 250,648.00 76,057.00 2,129,738.00
32 71339 BEANS NESOI, DRIED SHELLED, INCLUDING SEED 615,286.00 1,752,885.00 2,119,963.00
33 10310 SWINE, LIVE, PUREBRED BREEDING ANIMALS 2,644,186.00 2,061,592.00 1,812,412.00
34 80450 GUAVAS, MANGOES AND MANGOSTEENS, FRESH OR DRIED 1,854,206.00 2,029,584.00 1,774,027.00
35 80719 MELONS( EXCEPT WATERMELONS) AND PAPAYAS, FRESH 295,262.00 192,397.00 1,599,929.00
36 70990 VEGETABLES, NESOI, FRESH OR CHILLED 2,086,064.00 2,242,402.00 1,598,325.00
37 120600 SUNFLOWER SEEDS, WHETHER OR NOT BROKEN 697,681.00 1,027,594.00 1,584,967.00
38 220429 WINE, FR GRAPE NESOI & GR MUST WITH ALC, NESOI 493,967.00 658,996.00 1,545,059.00
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39 430180 FURSKINS NESOI, RAW, WHOLE 342,695.00 799,527.00 1,508,262.00
40 70519 LETTUCE, EXCEPT HEAD LETTUCE, FRESH OR CHILLED 6,680,086.00 3,946,760.00 1,486,466.00
41 71090 VEGETABLES MIXTURES, RAW/ COOKED BY BOILING, FROZEN 237,359.00 345,218.00 1,337,027.00
42 71290 VEGETABLES NESOI & MIXTURES, DRIED, NO FURTH PREP 1,168,168.00 1,124,991.00 1,331,973.00
43 180620 CHOCOLATE PREP NESOI, IN BLOCKS ETC. OVER 2 KG 881,837.00 1,027,135.00 1,145,203.00
44 400121 NATURAL RUBBER IN SMOKED SHEETS 1,074,662.00 1,306,085.00 1,131,759.00
45 230990 ANIMAL FEED PREP EXCEPT DOG OR CAT FOOD, RETAIL PK 830,738.00 1,042,338.00 1,094,288.00
46 60210 LIVE PLANT CUTTINGS AND SLIPS, UNROOTED 440,404.00 430,214.00 1,065,210.00
47 170490 SUGAR CONFECTION ( INCL WH CHOC), NO COCOA, NESOI 959,730.00 1,321,639.00 1,061,105.00
48 80440 AVOCADOS, FRESH OR DRIED 672,317.00 974,970.00 1,015,426.00
49 80510 ORANGES, FRESH 643,441.00 988,651.00 980,037.00
50 350290 ALBUMIN & ALBUMIN DERIVATIVES, NESOI 666,884.00 1,366,478.00 973,099.00