The Winter 2010 issue of Inland Empire Outlook described the Inland Empire’s strategic role transporting goods from the Ports of Los Angeles and Long Beach to the rest of the country, and noted that the logistics industry (the part of the supply chain that provides for the efficient distribution of goods) is a critical component of the region’s economy. Unfortunately, the Inland Empire’s heavy reliance on logistics has been a drawback during the Great Recession because the downturn has been marked by a sharp decline in imports, and imports drive the region’s logistics industry. Overall, U.S. imports declined by 11.5 percent during this period and the nation’s trade-related employment fell by 7.8 percent. To analyze how the recession has affected imports in the Inland Empire, we have studied passenger and cargo traffic at Ontario International Airport (ONT) and incoming container traffic at the Ports of Los Angeles and Long Beach. \

Ontario International Airport: Trends in Passenger and Cargo Traffic

Ontario International Airport is a major regional gateway for UPS and FedEx in the southwest and a trans-Pacific trade hub with China and other countries in Asia. As the recession progressed, Ontario airport suffered declines in air passenger traffic and air cargo volume.

Air passenger traffic through Ontario airport fell from a peak of 700,000 in August 2007 (roughly 4 months before the onset of the national recession in December 2007), to approximately 332,000 passengers in a dramatic 40 percent decline over the past two years. This decline in air passenger traffic helps explains why several airlines (including JetBlue and Express Jet Airlines) have eliminated routes in and out of Ontario.

Meanwhile, air cargo processed at Ontario Airport declined by approximately 30 percent, or 140,000 tons per year, between 2007 and 2009. Cargo volumes were 9.7 percent lower in 2008 when compared to 2007, and fell by almost 20 percent between 2008 and 2009. Air cargo tonnage dropped from a high of 45,000 tons in October 2007 to 30,000 tons in May 2009; November 2009 saw the lowest cargo tonnage (29,500 tons) since the beginning of the recession. Since air cargo mainly consists of light-weight, high-value merchandise goods, such as high-tech electronics and medical equipment, the decrease in overall tonnage may not fully reflect the loss in dollar value. An upswing in cargo volumes in late 2009 resembled a sighting of economic “green shoots,” but the subsequent months suggest this was a mirage. It is possible that the results were affected by seasonal patterns.

The decline in air cargo traffic mirrors the two phases of the recession: the initial decline began with the recession’s onset in December 2007 through September 2008, and then fell to lower levels from September 2008 (when Lehman Brothers imploded) through October 2009. We believe that the Great Recession ended in the United States as a whole either in June or July of 2009. Not surprisingly, the air cargo volumes began to stabilize in the following months as imports mirrored the improving national picture.

Ports of Los Angeles and Long Beach: Trends in Incoming Container Traffic

Monthly volume of containers processed in the Ports of Los Angeles and Long Beach is measured in TEUs, which stands for “twenty foot equivalent units” or twenty-foot long cargo containers. The processed container volume at the ports reached a peak of 1.4 million TEUs in September 2007, but fell to 732,000 TEUs in February 2009—a drop of 47.6 percent. The decline was not uniform over time. The initial drop-off occurred before the onset of the national recession, but the steepest decline happened after the Lehman Brothers collapse in September 2008. Note that the February 2009 volume was lower than at any time since 2003. Clearly the decline in U.S. income was a major cause of the slump in incoming container traffic. However, it is also necessary to consider the impact of oil prices and the strength of the U.S. dollar to get a more complete explanation.

The drop in trade volume seriously affected trade-related employment in the Inland Empire, which has declined 12 percent since December 2007. It may also have had spillover effects on manufacturing employment in the Inland Empire, which fell by nearly 20 percent over the same period. Although trade volume at the Ports of Los Angeles and Long Beach has been picking up in recent months, trade-related employment has yet to follow. While imports through the Ports of Los Angeles and Long Beach have grown by almost 30 percent and 40 percent since February of last year, trade related employment has been decreasing by an average 0.4 percent every month for the past year and does not give hope of a “green shoot” soon. By comparison, manufacturing employment in the Inland Empire has leveled out at 92,600 jobs, but does not signal an impending increase.

There is some indication that employment and trade volume will show improvement with the recent increases in U.S. GDP. The nation’s GDP grew by 2.2 percent for the third quarter of 2009 and 5.6 percent for the fourth quarter. The growth in national GDP is due in part to rising exports—but exports are not a large factor in the Inland Empire economy. Instead, a significant rise in imports would be needed to produce a noticeable improvement in trade-related employment in the Inland Empire. Even then, experience suggests that there will be a lag between an increase in imports and a surge in trade related employment.

Finally, a more complete understanding of the health of the logistics industry can be gained by studying the movements of goods through interstate arterials. We plan to pursue this analysis in a future issue of the Inland Empire Outlook. This more advanced analysis will be possible by looking at movements in the Pulse of Commerce Index (or “trucker tracker”) recently developed by the UCLA Anderson Forecast and Ceridian Corporation, a business services company. This index is a real time measure of economic activity for the United States, and collects data on the amount of gasoline purchased by truckers at over 25,000 gas stations across the United States. Hence, it resembles the flow of blood in the veins of the body. Trucker Tracker is a useful indicator of economic activity in the United States, as well as in regions such as the Inland Empire, because the data are available at the zip code level and for stretches of interstate highways. The Inland Empire Center is developing an Inland Empire Pulse of Commerce Index that covers San Bernardino and Riverside Counties. The new index will provide valuable real time information on economic activity in the Inland Empire and provide insights into the region’s logistics industry.

Rather than looking at U.S. GDP, which is published only quarterly and with a delay, or State/IE GDP, which is published only at an annual frequency, the Pulse of Commerce Index will provide frequent updates on the flow of goods that run through the Inland Empire.