http://citywatchla.com/lead-stories-hidden/5975-la-ports-face-challenge-from-energized-gulf-coast
By Joel Kotkin, November 5, 2013
SOCAL WAKEUP CALL-In
this strange era of self-congratulation in California, it may be seen
as poor manners to point out tectonic shifts that could leave the state
and, particularly, Southern California, more economically constrained
and ever more dependent on asset bubbles, such as in real estate. One of
the most important changes on the horizon is the shift of economic
power and influence away from the Pacific Coast to the Gulf Coast – the
Third Coast – a process hastened by the imminent widening of the Panama
Canal. Over time, this could represent a formidable challenge to our
status as a critical global region.
It is easy to live in Southern California – particularly in the
more-affluent, coastal sections or the middle-class inland valleys – and
hardly know how critical international trade is to our regional
economy. Invisible to denizens of Malibu or Newport Beach, the ports of
Long Beach and Los Angeles together account for almost 40 percent of
U.S. container imports. Along with Hollywood, and our climate, it
represents arguably the region's greatest asset.
Overall, the ports are the critical linchpin of the roughly 500,000
jobs tied to logistics,
warehousing and trade services. These jobs, notes economist John
Husing, provide a wide range of generally higher-paying blue-collar
employment compared with, for example, hospitality or retail. This is
critical in a region with a large undereducated, but motivated,
workforce.
Southern California's emergence as the nation's largest trading
center has been unlikely, tied more to ingenuity and ambition than
natural geography. Unlike its West Coast rivals – San Diego, Seattle
and, most particularly, San Francisco – the Los Angeles region does not
boast a great natural harbor. Its construction, starting in the early
decades of the previous century, was completely man-made and conceived.
By the 1980s, sparked by a shift of trade from Europe to Asia, the
ports of Los Angeles and Long Beach started to overtake, in merchandise
trade value, New York, which had dominated U.S. trade since the first
decades of the 19th century. Along with trade came business connections,
direct air travel and a surge of Asian immigration. Today, Los Angeles,
with
roughly 1.5 million Asians, ranks first among America's counties for Asian population, while Orange County, with
more than 530,000 Asian residents, ranks third, just behind the Santa Clara-Silicon Valley region.
Wider canal coming
These advantages, human as well as geographic, are critical to the
region's global status.
But this could change, in part due to the expansion of the Panama Canal
– set for completion in late 2014 or in 2015 – which will open to Asian
businesses the opportunity to send megaships directly to the Gulf Coast
or the Southeast.
“Trade will shift,”
predicts Khalid Bachkar, a professor at the California Maritime Academy.
There are other challengers to our supremacy, including port
expansions in both Western Canada and Mexico that could offer newer
facilities and rail connections directly within their own countries and
the vast U.S. market. But the greatest challenge seems likely to
come from the Gulf, which offers excellent access to trains that carry goods directly to the vast majority of the United States.
Demographic trends will also play a role. In the 1970s and 1980s, the
Pacific Coast seemed
like the premier growth market, but high housing prices, taxes and
regulatory restraints – and, most importantly, outmigration – have
slowed regional business growth.
In the next four years, notes
Pitney Bowes,
Houston is expected to have the largest household growth in the
country: some 140,000 people, an increase by 6.7 percent. Most of the
other fast-growth regions in the nation – Dallas-Fort Worth, Austin,
Texas, Raleigh-Cary, N.C., San Antonio, Jacksonville, Fla., and
Charlotte, N.C. – are located either along the Gulf or are natural
markets for their ports.
In contrast, Los Angeles is projected to grow by only 1.5 percent and Orange County by less than 2 percent the next four years.
Critically, the Gulf is, for the first time, attracting a critical
mass of Asians. Over the past decade, Houston has enjoyed some of the
nation's fastest growth in Asian population,
up some 70 percent,
and its Asian community is now the eighth-largest in the country.
Houston's Asian population is now growing three times as rapidly as that
of the San Francisco or Los Angeles areas.
Energy exports
At the same time, the expansion of oil and natural gas production in
Louisiana, Texas and the Plains makes the Gulf ports major players in
the emergence of the U.S. as an energy exporter. The Gulf Coast also is
home to many of the nation's largest industrial investments, including
from overseas.
The Port of Houston, for example, posted a
28.1 percent jump in foreign trade in 2012, and trade at reached records levels at the Port of New Orleans (I work as a consultant in that city).
Agriculture has also been on a roll in terms of exports, and
50 percent of the nation's grain shipments
through Louisiana ports. Combined with rising energy and industrial
growth, the Third Coast now claims a growing share of U.S. trade. Since
2003, the value of exports from the Gulf ports has more than tripled;
the region's share of U.S. exports over that period grew from roughly 10
to nearly 16 percent.
Once an industrial backwater, the Gulf region has attracted new steel
plants, petrochemical plants and facilities involved in everything from
airplanes to food processing. All these locations export such items as
cars and chemicals, and all import goods, such as car parts and iron
ore. According to
Site Selection magazine,
the Gulf includes four of the top 12 states – led by No. 1 Texas, No. 7
Louisiana, No. 10 Florida and No. 12 Alabama – in attractiveness to
investors. Texas and Louisiana ranked first and third among the states
for new plants.
Standing pat
Ultimately, this is a challenge that our region cannot afford to
ignore, particularly with completion of the Panama Canal expansion in as
soon as roughly a year. In anticipation, ports along the Gulf, as well
as in the Southeast, are almost all improving and expanding their ports.
In contrast, Southern California ports – largely because of labor and
environmental concerns – may be slow to make the
“intense capital improvements,” such as dredging and new road connections.
This largely results from environmental pressures that, notes
economist Husing, are not nearly as powerful along the Gulf or in the
Southeast. A history of labor disputes by highly paid, politically
powerful California port workers also has reinforced the notion that the
LA area ports are becoming an increasingly unreliable place to do
business.
The Third Coast is also positioned to benefit from commerce with
Latin America, the Gulf's historic leading trade partner. Latin
America,
notes Bill Gilmer, has been home to many of the world's fastest-growing economies. Since 2002, about 56 million people in Latin America,
according to the World Bank, have risen out of poverty.
Trade with these partners – including Mexico – are ramping up
growth in Houston,
as well as other Gulf ports. Brazil, notes Jimmy Lyons, has risen to
become a trading partner of Mobile, Ala. Strong Latin immigration to
virtually all the Gulf cities, particularly Houston and, increasingly,
New Orleans, can only strengthen these economic ties.
Southern California, with its vast Hispanic population and proximity
to Mexico, also should be able to serve as a hub for this trade, but
this can only happen if the region attaches greater priority to port
development. Historically, this region was built by people taking risks
on big infrastructure – covering everything from the water delivery
systems to the port and freeways – that literally paved the way to
economic progress, and growth.
The
key question now
is: Do we still have the spirit and willingness to build, as our
competitors are on the Third Coast, the Southeast, Mexico and Canada. If
we fail to meet the challenge, Southern California
could surrender desperately
needed potential sources of new employment and a critical linchpin to
our continuing status as one of the world's great global centers.