California’s Containerized Exports: Between the Farmyard and the Junkyard

By Jock O’Connell

Politicians in Sacramento are exceedingly fond of touting California as one of the world’s largest and most technologically advanced economies. It’s a justifiable boast. As of the first quarter of this year, the state’s Gross Domestic Product was pegged at $3.569 trillion by the U.S. Bureau of Economic Analysis. That would put the Golden State in fifth place between Germany and the United Kingdom in the World Bank’s latest ranking of national economies by nominal GDP.

Yet, despite the state’s premier status in global economics, politicians in Sacramento have seldom given international trade much serious thought. Apart from the solid bipartisan support for all expenses-paid fact-finding missions abroad, lawmakers have been generally indifferent to trade issues.

In a way, that’s perhaps all for the good. For several years, the State Legislature annually persuaded itself that, if the budget of the world’s fifth largest economy could allow for just one state trade promotion office anywhere abroad, that office had to be in Yerevan, the capital of landlocked Armenia, then the world’s 124th largest economy. Chalk it up as a triumph of constituent politics over sound public policy.

Lately, though, state government leaders have gotten themselves riled up over the matter of California Farm Exporters v. Foreign-Owned Ocean Carriers. The central allegation being made by the putative plaintiffs in the case is that the major shipping lines serving California’s ports have been giving exporters of the state’s agricultural cornucopia short shrift by prioritizing the return of empty shipping containers to Asian factories.

Never mind that the chief incentive for expeditiously returning those metal boxes to Asia has been the elevated level of demand for Asian goods from American retailers and manufacturers. That aspect of the transpacific trade has been played down in favor of a different narrative as exporters’ complaints find their way into a barrage of editorials lamenting the imbalance between the daunting number of empty containers leaving the state’s ports and the much smaller number of outbound containers that actually contain cargo.

The usual, albeit simplistic conclusion is that much more of the Golden State’s abundant economic output should be in those outbound boxes. Surely, the handwringers fret, there’s a more than ample supply of goods produced by California businesses that should have found a place in those 5,000,734 empty TEUs that were shipped out of the Ports of Long Beach and Los Angeles through August of this year. Well, I’m here to argue that maybe there really isn’t.

Let’s begin by dispensing with some terribly inaccurate notions that afflict most public discussions about California’s place in the world economy.

First, although California may be among the world’s largest economies, it’s one that has long chosen to focus more on the provision of services and not so much on the production of tangible goods to sell to the rest of the world.

In 2000, California was the origin of 15.3% of America’s merchandise export trade. By last year that share had fallen to 10.0%. Through July of this year, it has slipped to 9.2%. At the turn of the century, California accounted for 14.5% of America’s manufactured exports and 11.0% of its non-manufactured exports (chiefly agricultural produce and raw materials). By this year, those shares have declined to 9.2% and 6.0%, respectively. And the trend is nowhere near positive. This June, the state’s share of the nation’s overall merchandise export trade fell to 8.9%, its lowest level since state-of-origin trade statistics were first published in 1987. In July, it slipped even further to 8.7%.

Second, most of the goods that California businesses export go nowhere near the state’s seaports.

Through the first seven months of this year, California’s merchandise export trade was valued at $108.92 billion. Of that, $29.53 billion or 27.1% was destined for Mexico and Canada, the state’s two largest export markets. And a vanishingly meager 0.2% of that trade involved containerized ocean shipping.

Of the $79.39 billion in California exports that went to countries other than our immediate neighbors, $49.31 billion or 62.1% traveled as air freight. That shouldn’t come as a surprise, although it usually does. If anything, it should be expected of an economy that produces a lot of stuff with the high value-to-weight ratios characteristic of technologically sophisticated goods. It is also not at all unusual for a state in which the cost of doing business strongly encourages the production of goods—even agricultural goods—that command premium prices.

But, when nearly every news report about foreign trade features a photo of a towering crane perched over an enormous container ship, it would certainly shock most every Californian to learn that, in dollar terms, Los Angeles International Airport currently accounts for more of the state’s exports than do the Ports of Los Angeles and Long Beach combined. And, if that were not sufficiently astonishing, the value of exports from San Francisco International is nearly double the value of exports from the Port of Oakland across the bay.

Third, while oceanborne containers may do the heavy lifting, they carry only about 20% of the value of California’s merchandise exports.

Last year, airborne exports of California products weighed in at 602,855 metric tons. By contrast, marine containers carried 18,571,583 metric tons of California cargo abroad. But tonnage is not the same as value.

Last year, containerized exports of California goods by sea totaled $35.08 billion or 20.1% of the state’s overall export trade. (That, it turns out, is actually high by national and West Coast standards. For the country as a whole, containerized exports by sea accounted for 14.7% of America’s $1.19 trillion merchandise export trade through July. Regionally, oceanborne containers have carried 11.7% of Washington State’s exports and 7.1% of Oregon’s. In all three West Coast states, airborne exports were significantly higher in value than containerized exports.)

So, what kinds of Made-in-California goods travel abroad in seaborne containers?

As Exhibit B below indicates, the trade is dominated by commodities that emerge from California’s farmyards and junkyards. Last year, agricultural commodities and food products accounted for 35.8% of the containerized tonnage shipped overseas by California exporters. Waste & Scrap materials accounted for another 43.4%. Together, these two categories of exports represented 79.2% of all containerized export tonnage exported by California businesses in 2021.

In more specific tonnage terms, the Golden State’s top five containerized exports (at the 4-digit HS code level) last year were: (1) Waste and Scrap Paper; (2) Waste and Scrap Metal; (3) Forage Crops; (4) Tree Nuts; and (5) Petroleum Products.

How, then, do California’s government officials and the proprietors of California’s seaports hope to fill more export containers?

One hears the occasional proposal for a National Export Strategy but with the details generally left to the imagination. We’ve tried that course before, with so-so success. (See, for example, Obama’s 2010 National Export Initiative which sought to double U.S. exports in five years. In the end, exports in 2015 were only 18.8% higher than they were when the initiative was launched.) One conundrum proponents face is that policies designed to boost exports in general may not necessarily produce the outcome officials would really like to see, namely more loaded outbound TEUs.

Still, there is an obvious imperative for ports to look beyond junkyards and farmyards for merchandise to stuff into containers. Reliance on the existing mix of containerized export commodities is likely to yield fewer outbound loads. The Waste and Scrap materials that have historically been the backbone of the state’s containerized export trade are now less and less welcomed abroad. In addition to becoming more discriminating about the quality of the scraps they accept from us, more and more of our trading partners are becoming quite prolific in generating their own waste and scrap. As for agricultural products, there’s that small matter of an extended period of drought that shows little sign of abatement. Plans for exporting higher volumes of California farm products might best be studied while fingering rosary beads.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.