Statement Submitted

To

Subcommittee on Transportation, Infrastructure, and Nuclear Safety

Environment & Public Works Committee

Subcommittee on Surface Transportation

And Merchant Marine

Commerce, Science and Transportation

Committee

U.S. Senate

September 9, 2002

 

Mr. Chairman and members of the subcommittees, the Los Angeles County Economic Development Corporation (LAEDC), a private nonprofit, 501(c)3, is pleased to present this overview of goods movement in Southern California. We appreciate the opportunity to offer this statement as part of legislative hearing record being developed by the U.S. Senate in preparation for the reauthorization of TEA-21.  We greatly appreciate the interest and focus of the respective full Committees in the issues surrounding TEA-21. In addition, we are very appreciative of the leadership demonstrated by Senator Barbara Boxer and Senator Diane Feinstein and the great economic and environmental benefits TEA-21 has brought to California’s transportation system 

 

This statement is based from four public policy and transportation studies: the Southern California Freight Management Case Study (enclosed); the Alameda Corridor East Train Study (enclosed); the 60-Mile Circle (available at www.laedc.org the week of September 16th); and the forthcoming On-Trac Corridor Trade Impact Study, 2002. Together these studies, coordinated by the LAEDC, paint a remarkable picture of a region with a rapidly growing population, burgeoning international and domestic trade, and a looming trade transportation capacity crisis that has both local and national implications. Southern California is America’s gateway to the Pacific Rim, and our nation’s international trade is growing rapidly. Yet, Southern California’s infrastructure is inadequate to handle this rising tide of trade, and the region will need federal assistance and creative solutions to finance the required improvements.

 

Today we would like to briefly introduce you to the region, describe its key population and trade trends, and summarize the region’s infrastructure capacity shortfalls.

 

Regional Overview

 

Southern California, the five-county region comprised of Los Angeles, Orange, Riverside, San Bernardino and Ventura Counties, operates on a scale normally associated with states and even countries. At 17 million people and growing, more people live in Southern California than in all of Florida, currently the fourth most populous state in the union. Despite its reputation for making movies and little else, Southern California employs more than a million people in manufacturing. Powered by core strengths in aircraft, biomedical technology, business services, food, furniture, metal fabrication, motion pictures and television production, textiles and apparel and tourism, the region produces over $600 billion in goods and services annually. This places the region’s gross domestic product tenth in the world among countries, just behind Canada and Brazil and ahead of Mexico, Spain, India, South Korea and Australia. Home to almost 200 different nationalities and cultures, Southern California is one of the most diverse places on earth.  The region is one of the top tourist destinations in the country, and thanks to its combination of wealth, size and reputation for trend setting, comprises one of the world’s most important consumer markets.

 

Regional Trends and Resulting Capacity Shortages

 

Population and trade growth are the two key trends affecting the region. The five-county Southern California region will add more than 5 million people between 2000 and 2020. This is roughly equivalent to the combined populations of the Cities of Los Angeles and San Diego, or twice the population of Chicago. Much of the growth will be internally generated: In addition to having the largest population base among the 50 states, California also has one of the highest rates of natural increase (births minus deaths as a share of total population). Internal population growth will be supplemented by immigration. California has the highest rate of net international migration of any state, helping make Los Angeles a modern Ellis Island.

 

Two shocking implications of this growth: First, at current rates of automobile ownership, five million more people will add about 2.7 million private vehicles to the region’s already congested freeways. Second, just to maintain the status quo, population growth of more than five million people will require adding twice the infrastructure and services that exist in present-day Chicago. For every school in Chicago, Southern California will need to build two.

 

In terms of trade, Southern California has emerged as a leading global trade and transshipment center because of its massive internal market, heavy investment in world-class trade infrastructure, and its new role as the distribution center for U.S.-Pacific Rim trade.  The massive internal market draws trade both for final consumption and for inputs in valued-added products ranging from shirts that are labeled and placed on hangers to parts that are used in manufacturing.  These two factors help to pull in still more trade, and drive up the percentage of international cargo that makes its first stop in Southern California. With so much cargo destined here in the first place, it makes sense for shippers to use the region as a distribution center for the rest of the United States. This role is confirmed by data from the Los Angeles Customs District, which recorded almost one-quarter trillion ($230 billion) dollars in trade for year 2000.

 

The $230 billion in trade is an underestimate since it is merchandise trade only, therefore excluding some of the region’s core strengths such as motion pictures, tourism, and financial services. The number is also low because it is based on port of entry only, thereby excluding the region’s NAFTA trade with Canada and Mexico, which travels primarily by truck and rail and thus is counted in border areas such as San Diego, Laredo and Detroit. Even still, the value of merchandise trade at the L.A. Customs District is expected to almost triple to $661 billion, 2000-2020. We’d like to quickly describe the growth trends and capacity issues for the region’s ports, railroads, freeways and airports.

 

Ports – The Ports of Los Angeles and Long Beach are the busiest in the nation, together handling one-third of all container traffic in the United States and an astonishing 65 percent of all container traffic on the West Coast.  With a combined container throughput of 9.5 million Twenty-Foot Equivalent Units (TEU) in 2000, they were the third busiest container facility in the world, behind only Singapore and Hong Kong.

 

The long-term trend in container traffic at the ports has seen steady growth, though the pace has slowed in recent months. As recently as 1998, the Alameda Corridor Transportation Authority (ACTA) conservatively forecast year 2000 container traffic of 5.6 million TEUs (twenty-foot equivalent units).  The actual total was 9.5 million TEUs; no one, including the ports, anticipated that container traffic would grow so fast.

Container traffic on the Alameda Corridor East (see geographic map in Rail Corridors section) is now expected to almost double by 2010, and then double again to 32 million TEUs by 2025. For perspective, consider that a single large ship typically carries 6,000 TEUs. That is enough containers, placed end to end, to build a wall of boxes more than twenty miles long. The forecast growth may seem incredible, but if anything, it is probably conservative. Indeed, for the past ten years, traffic levels have consistently surpassed previous estimates.

 

Rail Corridors – Driven by the rising tide of trade flowing through the ports, easterly bound rail traffic is expected to rise dramatically over the next twenty-five years. The newly constructed Alameda Corridor – a 20-mile, high-speed, completely grade-separated train route connecting international trade via the ports and the rail yards just east of downtown Los Angeles – will handle some of the international increases. Yet the Alameda Corridor is only the first link of a massive regional mainline rail corridor network. Domestic and international trade at the two rail yards east of downtown is the starting points of the Alameda Corridor East. This eastbound corridor carries about three times the cargo of the recently completed Alameda Corridor because the intermodal rail yards receive more international goods by truck from the ports and even more domestic or locally produced goods for movement to the rest of the United States. The short answer is that Alameda Corridor East carries about 23% of the United States waterborne international trade and is the only corridor in Southern California that carries both domestic and international goods through the region to and from the rest of the United States.

 

Alameda Corridor East

(Union Pacific and Burlington Northern Santa Fe Mainlines)

 

As seen in the above graphic, the two rail corridors connect the downtown rail yards with the transcontinental rail network: the Alameda Corridor East (San Gabriel Valley Corridor), via the Union Pacific (UP) tracks through the San Gabriel Valley into San Bernardino and Riverside Counties, and the Alameda Corridor East (OnTrac Corridor), which follows the Burlington Northern Santa Fe (BNSF) mainline through densely populated northern Orange County into Riverside and San Bernardino Counties.  Freight and commuter trains also share the tracks of both corridors, further complicating efficient mobility. The OnTrac Corridor, going through the City of Placentia, carries 50% of all eastbound rail cargo and is the only rail artery used by the United Parcel Service to move cargo to Midwest and East Coast destinations. OnTrac Corridor train traffic will rise 210 percent, 2000-2025, while the San Gabriel Valley Corridors train traffic will increase 236 percent over the same period. Rail traffic on these routes, at more than one train every ten minutes, will easily surpass current capacity, barring major improvements, in the next 3-5 years. Intermodal lift capacity in the region – the facilities that transfer containers between trucks and trains – is greatly constrained. Demand for intermodal lifts is expected to exceed capacity within the next 5 years. Simply put, in just a few years, a shortage of intermodal capacity and additional passenger trains will mean more trucks on the already congested freeways. At the same time, additional freight trains will translate into more cars on the freeway. Without additional capacity it is a no-win situation for local commuters, the other forty-nine states, and the U.S. Treasury. Local commuters will be impacted because they will reach unbearable congestion. The other forty-nine will see job growth slow because Southern California consumers will see more difficulty receiving goods through eastbound rail corridors, and the U.S. Treasury because the customs revenues collected on imported international goods – an unbelievable one percent of all U.S. Treasury revenues comes from customs duties – will likely slow or decrease due to inefficient freight mobility in Southern California. Currently about half of those customs revenues are collected on goods going through Southern California’s transportation systems.

 

Freeway System – On the freeways, the number of vehicle miles traveled in Southern California has been rising faster than population growth. “Rush hour” has become an oxymoron in Los Angeles. The peak travel period has crept up to six hours per day, during which the average travel speed drops to 35 miles per hour.  The Texas Transportation Institute annually surveys road congestion in metropolitan areas across the U.S., and Los Angeles has had the worst congestion every year since 1982.  The latest survey reveals 85% of all lane miles are congested, with almost half classified as “extremely congested.”  As a result, on a per capita basis, the region wastes more hours (56) annually stuck in traffic than anywhere else in the country.

 

Some freeways handle up to 40,000 trucks daily, and with heavy truck traffic expected to rise 65 percent, 1995-2020, they may soon handle up to 80,000 truck trips daily. Owing to their size and operating characteristics, trucks use a much greater share of freeway capacity than their numbers might suggest. Already, heavy trucks use 45 to 60 percent of capacity on certain freeways, most notably the I-710. Since trucks move 81 percent of all tonnage originating in Southern California (according to the 1997 Commodity Flow Survey), increasing freight flows will mean more trucks on the freeways.

 

Airports – Southern California’s economy is increasingly dependent on airports. Many of the region’s leading industries – from tourism to manufacturing to biotechnology – depend on air travel and air cargo. Even businesses that don’t rely on air cargo directly benefit from the enhanced business connections and opportunities made possible by direct flights to and from our key overseas trading partners. The region’s exports increasingly travel by plane. In 1995, 54 percent of regionally produced exports (by value) were shipped by air, and the percentage is higher today.  Indeed, LAX handles more exports by dollar value each year than the Ports of Los Angeles and Long Beach combined.

 

LAX is already extremely busy. In 2000, LAX was the third busiest passenger airport in the world, after Atlanta (ATL) and Chicago (ORD). Similarly, LAX was the third busiest cargo airport in the world behind only FedEx-hub Memphis (MEM) and Hong Kong (HKG). Although air demand dipped following the September 11, 2001 tragedy, the impact on long-term air travel trends is expected to be slight. Air traffic demand has been skyrocketing, outpacing population growth. Estimates from the Southern California Association of Governments (SCAG) suggest air passenger demand will almost double from 82 million annual passengers (MAP) in 1998 to 157 MAP in 2020. Air cargo volume is expected to triple from 2.8 million annual tons in 1999 to 8.9 million tons in 2020. Preliminary, post-9/11 revisions suggest these levels will be reached two to three years later than previously estimated, with passenger growth delayed more than cargo. Overall, the region faces a capacity crisis; particularly now that it seems certain that an airport will not be built at El Toro in Orange County.

 

Congestion is a problem across all modes of transportation. The region will struggle to accommodate future freight operations; 10-15 year lead times for financing and constructing upgrades to infrastructure are almost guaranteed; current intermodal facilities at local ports and rail yards will reach capacity within 5 years; and without major investments, the rail lines east of downtown Los Angeles will be so congested the rail network will effectively cease to function. These problems will be exacerbated by congestion on the roads. Air cargo facilities, for example, rely on trucks to feed shipments to the airport and deliver airfreight to its final destination, yet traffic is terribly congested in the vicinity of LAX. Congestion threatens both domestic and international trade moving through the region, and the quality of life for people who live there.

 

National Implications

 

Southern California’s trade transportation infrastructure should be of great concern to the rest of the United States because the region’s global gateways and trade corridors act as conduits for two-way domestic and international surface trade between Pacific Rim nations and every region of the United States. Let’s take a quick look at the OnTrac Corridor Trade Impact Study (2002) for two-way domestic and international surface trade during the year 2000 between California and regions of the United States.

 

The international trade figure for each region represents the two-way trade between other regions of the United States and overseas customers and suppliers that travel via the UP and BNSF train routes that comprise the Alameda Corridor East. The domestic trade numbers represent commerce between California and other states. Roughly half of the domestic trade between California and other states will originate or be consumed in Southern California (based on Southern California’s share of the state’s GDP). International trade diversion to other ports of entry is cost prohibitive since half of all international goods would still need to be delivered to Southern California. This means that over 20% of all U.S. waterborne trade is consumed locally in Southern California, or 45% of all customs revenue that is generated in the United States goes through Southern California, or .5% of all the revenues of the United States Treasury is collected via customs duties on products imported through Southern California each year.

 

The Northwest states (WA, OR, MT, ID and WY) received and sent international trade via the Alameda Corridor East in 2000 valued at $2.2 billion dollars. Domestic trade between the Northwest and California for the same year was $60.4 billion.  For the Great Plains states (ND, SD, NE, KS, MN, IA and MO), the comparable figures were $8.6 billion and $42.4 billion. The numbers for the Great Lakes states (IL, WI, MI, IN, KY, OH and WV) were $25.0 billion and $69.4 billion. For the Atlantic Seaboard (CT, DE, ME, MD, MA, NH, NJ, NY, PA, RI, VT and VA), the figures were $34.4 billion in international and $74.6 billion in domestic trade. In the Southeast (AR, AL, GA, FL, LA, NC, SC, TN and MS), the numbers were $16.0 billion international and $71.7 billion domestic. For Texas and Oklahoma, the numbers were $12.1 billion international and $54.2 billion domestic. And finally, for the Southwest states (CA, NV, AZ, UT, CO and NM), international trade moving through the Alameda Corridor East rail routes was valued at $98.0 billion and domestic trade with California was worth $80.3 billion. The Southwest was the only region where the international trade was larger than the domestic only because California’s international trade is included, but California’s domestic trade with itself (worth $1.3 trillion in 2000) is not included in the $80 billion regional total.

 

 


All these billions of dollars in domestic and international trade represent the value in two-way trade to other regions of the country and highlight the importance of efficient movement of goods through Southern California for the entire country. The domestic surface trade between California and the other states, worth tens of billions of dollars annually, dwarfs the enormous international trade flows. California consumers represent one of the largest markets for goods produced by other U.S. states. Thus, investing national funds in efficient transportation networks in California is actually in other states’ interest. For example, Montana sells Californians about $1.5 billion of domestic products each year and receives about $10 million of international trade through Southern California ports and corridors. Iowa, on the other hand, sells Californians about $5 billion worth of products each year and only buys about $300 million of Californian products in return. So, a lot of jobs depend on Southern California’s appetite for products and all the Federal money spent on trade transportation infrastructure in Southern California will ensure that the goods produced in other states continue to reach their California customers in a timely way; may reduce warehousing cost through logistics strategies like “just-in-time” delivery; and will speed goods to and from overseas to destinations throughout the United States.

 


Reauthorization of TEA-21 and Freight Policy

 

During the deliberations by your respective subcommittees regarding the reauthorization of TEA-21, we urge that you give strong consideration to the following proposals for federal action to enhance the efficient movement of goods and freight on the nation’s transportation system:

 

1)               Freight movement should be considered a major policy focus and high priority in the TEA-3 legislation;

2)               A dedicated category of federal funding should be established to support freight related transportation infrastructure.  Particular support should be given to trade corridor improvements, similar to the Alameda Corridor East extension program in Southern California, and other similar global gateways throughout the country.  In addition, support should be given to the implementation of intermodal connectors, including connectors designed to improve ground access at international airports;

3)               Increased funding flexibility should be extended to existing TEA-21 funding categories, including CMAQ, providing access to freight related infrastructure, including rail grade-crossing and lowering improvements;

4)               Consideration should be given to new and innovative funding sources, including direct user-based fees, similar to the financing arrangement used for the Alameda Corridor project. Another concept we urge you to review is the earmarking of the incremental growth in custom revenues going through the nation’s corridors and global gateways.  These added funds should be targeted to support unfunded infrastructure improvements in communities that are directly related to the growth of two-way domestic and international trade;

5)               New policies and provisions, including changes in federal tax policy to encourage public private transportation partnerships, including an enhanced role for Class I railroads serving the nation’s most severely congested corridors; and

6)               Establish an Office of Freight Policy and Implementation in the Office of the Secretary of Transportation.  One option would be to expand the current responsibilities of the Office of Intermodalism, and place the management responsibility with the Under Secretary of Transportation.

 

Mr. Chairman, thank you for the opportunity to submit this statement for the legislative record associated with the reauthorization of TEA-21.