You can strike gold on the West Coast

The West Coast attracts distribution-related industries through its capable labor force, business-friendly tax codes, and proximity to Asian markets.

By Jim Thomas -- Logistics Management, 5/1/1998

To speak of the West Coast is to speak of diversity. From towering redwood forests to vast deserts, from sandy beaches to mountains, the Left Coast is home to some of the most picturesque terrain on the planet. The solitude of Big Sur is balanced by the bustle of cosmopolitan living in some of the world's richest cities. It is a true melting pot of cultures, where people are as likely to celebrate Cinco de Mayo or the Chinese New Year as they are the Fourth of July. It is home to the lumber, agriculture, wine, and other industries

that are centuries old, yet it is the birthplace of the high-technology industry. It is the thrill of the San Francisco 49ers or the Seattle Supersonics, and the agony of the Golden State Warriors.

In a global economy, it is no surprise that so many prefer to do business in a region where so much of the world meets. The West Coast is North America's pipeline to the Pacific Rim economies. "We're sometimes called the East Coast of Asia," jokes Jesus Arredondo, assistant secretary of the California Trade and Commerce Agency. His state leads the nation in exports, which were valued at $109.5 billion in 1997. By comparison, second-place Texas reported $84 billion in exports.

Distribution-related industries thrive on the West Coast for a number of reasons, including an educated labor force, business-friendly tax systems, and of course, its transportation infrastructure and proximity to Asian markets. Many companies, particularly those serving the high-tech industry, prefer to keep their inventory on the West Coast, says Rick Ballantyne, director of global distribution services for Seattle-based Expeditors International. Ballantyne, a veteran of Sun Microsystems Inc., says that his former company meets the demanding overnight delivery needs of Asia and the United States thanks to the high frequency of flights originating from California. "We always shipped by air," says Ballantyne. "We would lose a third of our product life if we shipped by ocean."

The West Coast distribution operation offers two other advantages for Sun. It keeps distribution near manufacturing and it reduces inventories. "Once you set up a second distribution center, say, in Singapore, then you add the cost of that site and its buffer inventories," says Ballantyne. Besides, such a site would not reduce transportation costs: Sun would still depend on airfreight to satisfy its other Pacific Rim customers.

Epson America Inc. ships 4,000 containers each year from Indonesia, the Philippines, and Japan through the ports of Long Beach, Calif., and Portland, Ore. Kingland Woo, warehouse manager at Epson's Carson, Calif., facility, says that the West Coast may replace Miami as the company's gateway to Latin America. "It makes sense because most of our products for Latin America come from Asia," notes Woo. "The shift could save us between $3 million and $5 million in transportation costs."

Take the High Road

A world-class transportation infrastructure supports the West Coast. Interstate 5 runs from Canada to Mexico supporting trade with both North American Free Trade Agreement partners. (Aside from Japan, Canada and Mexico are California's two largest export markets.) This interstate highway connects the coast's ports and business centers, from Seattle, Tacoma, and Portland in the north, to San Francisco and Oakland (via Interstate 80), Los Angeles/Long Beach, and San Diego in the south.

The ports of Long Beach and Los Angeles handle more containers than any other North American ports--a total of 5.7 million twenty-foot equivalent units (TEUs) in 1996. "The Port of Long Beach is the most modern in the world, and Los Angeles, Oakland, and San Francisco are moving in that direction," says Arredondo. Oakland, Seattle, Tacoma, and Portland are among the continent's busiest containerports.

Interstate 90 runs from Seattle to Spokane, Wash., and then continues east through Wyoming, South Dakota, Minnesota, and Wisconsin all the way to the East Coast. From Portland, Interstate 84 runs southeast and connects to Interstate 15 in Utah. Interstate 80 connects the coasts, starting in the San Francisco Bay area and ending in Newark, N.J. Farther south, Interstate 40 runs from San Bernadino to North Carolina.

The West Coast continues to be the recipient of major transportation-project funding. The Alameda Corridor, a freight rail project stretching 20 miles from the ports of Los Angeles and Long Beach to the railyards in Los Angeles, will cost about $2 billion, according to the latest figures from the U.S. General Accounting Office. Major construction is scheduled to begin in 1999 and finish in 2002.

Economic development representatives cite the West Coast's work force as one of its greatest assets. Oregon's high-school seniors have ranked first on the Scholastic Assessment Test (SAT), the standard college entrance exam, for five consecutive years. More than 83 percent of Washington state's residents have graduated from high school. California's state system of higher education is "unparalleled," says Arredondo.

State by State

This work force produces an impact felt around the world. The top 100 businesses in California include such household names as Mattel Inc., Atlantic Richfield, BankAmerica Corp., Hilton Hotels, Herbalife, Gap Inc., Ross Stores, Clorox Co., Callaway Golf Co., Walt Disney Co., and Charles Schwab. High-tech households will recognize Sun Microsystems, Hewlett-Packard, Intel Corp., Cisco Systems, Oracle Corp., and PeopleSoft. The Golden State's $96 billion in direct-foreign investment ranks first in the nation. This is no coincidence as California promotes exports and foreign investment through 10 foreign offices located in Europe, Asia, and Mexico.

Oregon attracts business by offering a number of benefits. The Beaver State provides tax exemptions for large investment projects, enterprise zone property-tax abatement, workforce recruiting and training, and tax credits for pollution control, energy conservation, research, and dependent care. The state does not impose a sales tax, unitary tax, inventory tax, motor vehicle excise tax, business and occupations tax, or any direct levies on intangible products such as stocks or bonds.

Oregon traditionally has relied on the timber industry, but food processing and high technology have increased in importance. Due to the absence of sales tax, Portland exceeds Seattle in retail sales, although Seattle's population is nearly 70 percent larger.

The growth has contributed to the health of the Portland International Airport, the fastest-growing and least-congested airport on the West Coast. Federal Express flies the only direct, small-package United States/Asia route out of the airport. Portland is the West Coast's second-leading wholesale trade and distribution center behind Los Angeles. The Oregon Economic Development Commission points out that the state's seaports are located one to two days closer to east Asia than are California's ports.

Washington has expanded from a traditional base of agriculture, forestry, aerospace, and transportation services to electronics, scientific instruments, environmental services, machinery development, recycling, and tourism. This diversification has reduced the Evergreen State's sensitivity to cyclical changes in individual industrial sectors. Washington offers businesses and residents the lowest electricity costs in the nation. The state recently attracted such world-class companies as Intel, Matsushita, Taiwan Semiconductor, and SEH America.

Last year Seattle was ranked first in Fortune magazine's list of the 10 best U.S. cities for business and family life. Reader's Digest found Spokane to be one of the most family-friendly cities in the United States.

Washington exempts companies from state tax on the construction of warehouses of no more than 200,000 square feet. For larger new facilities, companies are exempt from 50 percent of the sales tax on machinery and equipment.

The state's tax system has remained stable since 1935. There is no unitary tax, no inventory tax, no personal income tax, and no tax on interest, dividends, or capital gains.

The Future and You

Looking to the future, the West Coast has become a global leader in bio-technology. Its state governments aggressively promote a number of business incentives, including financial assistance, workforce training, and tax credits. For global companies, the West Coast offers another advantage: Its business day overlaps with those of Japan and Frankfurt, Germany.

Ballantyne of Expeditors International recommends that before companies select a distribution site, they consider a number of factors, including freight costs, the number of available carriers, duty costs, warehouse costs, startup costs, taxes, ease of import/export, area politics, and workforce quality and availability. Follow Horace Greeley's advice only after you understand these intangibles.

Editor's note: To read previous articles in the Freight Gateways series, which was launched in January 1998, visit Logistics' Web site (www.logisticsmgmt.com).