1. Supply Chains, Globalization and the Future of Goods Movement in California Randolph Hall Epstein Department of Industrial & System Engineering USC Viterbi School of Engineering October 24, 2004 Lake Arrowhead Conference

2. Rise of Globalism Primitive Primitive Emerging Cities (10,000 years) Emerging Cities (10,000 years) –Innovations: agriculture, metal tools Industrialization (200 years) Industrialization (200 years) –Innovations: steam power, telegraph,parts Data (50 years) Data (50 years) –Computers, Comm, Web

3. Then People locate near food and water People locate near food and water People move, not goods People move, not goods Produce to meet needs of own community Produce to meet needs of own community Little specialization Little specialization Little spread of knowledge Little spread of knowledge Little movement of goods Little movement of goods

4. Now Urbanization Urbanization Larger agglomerations of production Larger agglomerations of production Greater specialization Greater specialization Larger cities Larger cities Fast spread of knowledge Fast spread of knowledge Transportation over larger regions Transportation over larger regions

5. Factors Favoring Trade Resources (e.g., oil, coal) Resources (e.g., oil, coal) Climate (e.g., water, food, timber) Climate (e.g., water, food, timber) Scale economies (e.g., flu vaccines) Scale economies (e.g., flu vaccines) Regional Specialization (planes, computers, cars) Regional Specialization (planes, computers, cars) Wages Differentials (clothing, consumer products) Wages Differentials (clothing, consumer products)

6. Example Sources Oil: Middle East Oil: Middle East Food: Chile Food: Chile Airplanes: France Airplanes: France Cars: Detroit Cars: Detroit Clothing: China Clothing: China

7. Enablers Containerization, super-sized ships Containerization, super-sized ships Air travel efficiency Air travel efficiency Communication/IT Communication/IT Financial Markets Financial Markets IP regularization IP regularization Trade agreements Trade agreements Security Security

8. The Drivers International Markets International Markets Overcoming national, cultural, language barriers Overcoming national, cultural, language barriers Efficient transportation Efficient transportation Communication/control Communication/control

9. Centers of Innovation Could They Exist Without Trade? Hollywood Hollywood Silicon Valley Silicon Valley Detroit Detroit New York New York Seattle Seattle Bombay Bombay Paris Paris

10. Can Drive for Trade be Reversed? Resources: unlikely Resources: unlikely Climate: artificial climate? Climate: artificial climate? Scale economies: rapid prototyping? Scale economies: rapid prototyping? Regional Specialization: tele-presence? Regional Specialization: tele-presence? Wages Differentials: free immigration? Wages Differentials: free immigration? Otherwise: If Barriers are Recreated

11. What Do We Transport the Most? Can We Do it Less? Water: live near the source? Water: live near the source? Food: less choice? Food: less choice? Oil: drive less? Oil: drive less? Timber products: live near the source? Timber products: live near the source? Electronics, Clothing: automation, immigration? Electronics, Clothing: automation, immigration? Autos: economies of scope; less choice? Autos: economies of scope; less choice?

12. Supply Chain Steps Idea Generation Idea Generation Extraction Extraction Storage Storage Transformation Transformation Assembly/Dis-assembly Assembly/Dis-assembly Transportation Transportation

13. Characterization Where? Where? Which step? Which step? By Whom? By Whom? How much? How much? Vertically Integrated: Ford River Rouge Today: Globally Sourced, Great Range of Business Arrangements, Choice

14. Example Design Generated in San Jose Design Generated in San Jose Chip Fabricated in Phoenix Chip Fabricated in Phoenix Product Assembled in China Product Assembled in China Product Consumed in Chicago, passing through Los Angeles on the Way Product Consumed in Chicago, passing through Los Angeles on the Way

15. Sub-region Source: Large Consumption, Weak Scale Economies, High Transport Cost

16. Central Regional Source: Must Compete for Central City Sites

17. Outside Region Source: Effect of land costs

18. Distant Source: Trade Pass Through Region

19. Can We Reduce Trade Through a Region? Less Trade: A Step Backward in Innovation Less Trade: A Step Backward in Innovation Alternate Port: outside region? Alternate Port: outside region? –Natural harbors –Infrastructure investment –Barriers to some transport routes –Large % locally destined –Employee/Industry Base

20. Within Region Rail?

21. The Future Goods movement is product of 10,000 year trend of innovation Goods movement is product of 10,000 year trend of innovation Trade is likely to increase Trade is likely to increase Trade will continue to use West Coast ports, especially Long Beach, Los Angeles Trade will continue to use West Coast ports, especially Long Beach, Los Angeles Goods Movement Will Consume an Increasing Share of Transport Infrastructure Goods Movement Will Consume an Increasing Share of Transport Infrastructure

22. Moderating Factors Far more road capacity is consumed by passenger travel than goods movement Far more road capacity is consumed by passenger travel than goods movement Goods movement often occurs outside the automobile peak, sometimes in a counter commute direction Goods movement often occurs outside the automobile peak, sometimes in a counter commute direction Issue is somewhat localized Issue is somewhat localized Pass through traffic is more likely to be on rail Pass through traffic is more likely to be on rail

23. What to Do Hard to Avoid Capacity Increases Hard to Avoid Capacity Increases Cost Efficiency Should be Considered: single use roads are expensive to build, and do not maximize utilization Cost Efficiency Should be Considered: single use roads are expensive to build, and do not maximize utilization Market Solutions for Allocating Capacity: cost-effective, but will it ever fly? Market Solutions for Allocating Capacity: cost-effective, but will it ever fly? Should minimize negative impacts : noise, crashes, pollution Should minimize negative impacts : noise, crashes, pollution