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Is Southern California Too Dependent on Logistics?

ISEA Map

A map created by the researchers at the Institute for Spatial Economic Analysis shows specialization in logistics employment within Southern California by ZIP code.

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Is Southern California Too Dependent on Logistics?

New study finds large dependence on logistics jobs for Inland Empire and the corridor spanned by I-10 and CA-60, which could be a risky bet for Southern California.

Logistics is a bell-weather industry: if the economy hums, lots of goods need to be stored and shipped. If the economy goes down, logistics businesses suffer in tandem. So it seems having a large share of logistics jobs located in a region ensures that the region will do just as fine as the overall economy. However, that’s not quite true, argue researchers at the Institute for Spatial Economic Analysis (ISEA) in their most recent analysis.

The service industry generally needs fewer logistics support than manufacturing. Thus, an economic recovery driven by manufacturing would benefit the logistics industry more; one driven by the service sector would benefit the logistics industry less. This is why researchers at ISEA wanted to know how different areas in the U.S. in general and in Southern California in particular depend on the logistics sector (see http://isea.redlands.edu/newsfor an interactive map of the U.S.).

Of course, the researchers were well aware that the Inland Empire and the ports of L.A. and Long Beach are heavily logistics oriented. But they were still stunned to what degree that played out in terms of the numbers.

A ZIP code level analysis showed that in certain ZIP codes, the share of the logistics industry employment was approximately 20 times the Southern California average (for this analysis, comprising the counties of Los Angeles, Orange, San Diego, Riverside, San Bernardino, Ventura, Kern and Imperial). Single ZIP codes with that magnitude of shares in logistics employment would not imply a risk bet— however, that they found an entire corridor highly specialized in logistics spanned by two major traffic arteries, the I-10 and the CA-60, indicates a substantial dependence of the region on the performance of the logistics industry.

The researchers measured this using what is called a Location Quotient— an index number that compares a certain location's share of employment in an industry to the regional or national average. A Location Quotient of 1 implies that employment share in this area in logistics is the same as in the nation. Thus, a location quotient of 40 implies that it is 40 times as high.

The importance of this finding becomes apparent in the light of some recent events and policy initiatives. President Obama's call for substantially increasing U.S. exports would benefit the logistics sector and thus those areas where it is strong. A stalling global economy, as feared by many investors in the stock market these days, or a further increase in fuel prices from kerosene to diesel burned in ships' engines would clearly hurt the sector and the region.
This is why betting on logistics alone is risky for any region—and it was a bet, as the ISEA analysis reveals, that the Inland Empire, parts of L.A. county, as well as Kern and Imperial counties were willing to undertake.

On the other hand, researchers argue that the logistics sector can help to propel local economies with industries that make extensive use of logistics, such as certain specialized manufacturing industries with a large import or export share. Those local industries can leverage that specialization as a competitive advantage relative to competitors in regions with a lower specialization in logistics.

The researchers’ results and the maps generated can be used by businesses for operational decision making such as carrier selection and development of transportation strategy, as well as strategic decision making by complementary businesses as well as city-level policymakers.

What ISEA research has shown:

In Southern California, seven out of the top 10 ZIP codes that specialize in logistics employment are concentrated in the Inland Empire. This is possibly indicative of space constraints in the coastal California cities as well as the higher cost of commercial real estate in those cities.

Additionally, the highly specialized logistics ZIP codes in the Inland Empire are blessed by easy access to numerous freeways, rail yards, airports and intermodal transportation infrastructure. The employment share of logistics in each of these ZIP codes is at least 17 times higher compared to the average employment share of logistics in Southern California comprising the counties of Los Angeles, Orange, San Diego, Riverside, San Bernardino, Ventura, Kern and Imperial. Clearly, the Inland Empire can legitimately claim to be a hub of logistics.

Their analysis of logistics employment specialization in Southern California reveals the presence of highly specialized ZIP codes in the Inland Empire in cities such as Fontana, Rialto, Chino, Bloomington, Moreno Valley and Mira Loma in transportation, warehousing or both. In fact, the top six ranks in warehousing specialization are all occupied by ZIP codes within cities in the Inland Empire. This indicates the predominance of warehousing in the Inland Empire. ZIP codes that specialize in transportation are also located in cities across coastal California such as Los Angeles, Ventura and South Gate. This can be explained by the proximity of these ZIP codes to large ports—Long Beach and Los Angeles. Location quotients as well as transformed location quotients in Tables 1 and 2 indicate the extent of specialization in logistics overall and in transportation and warehousing separately.

Table 1: Top 10 ZIP codes specialized in Logistics Employment in Southern CA

Rank ZIP code Location Quotient Transformed LQ City
1 90052 126.0194 0.9998741 Los Angeles
2 93005 62.71181 0.9994916 Ventura
3 91980 38.78133 0.9986711 Tecate
4 92316 29.38766 0.9976869 Bloomington
5 92337 25.00964 0.9968076 Fontana
6 92355 22.57335 0.9960827 Fontana
7 91334 21.72449 0.9957712 Los Angeles
8 92138 21.32605 0.9956121 San Diego
9 90280 19.42347 0.9947128 South Gate
10 91752 17.87475 0.9937599 Mira Loma

Table 2a: Top 10 ZIP codes specialized in Transportation Employment in Southern CA

Rank ZIP code Location Quotient Transformed LQ City
1 92331 81.6945 0.9997004 Fontana
2 92551 64.82742 0.9995242 Moreno Valley
3 92377 52.38673 0.9992715 Rialto
4 91708 48.40576 0.9991468 Chino
5 91752 42.20479 0.9988778 Mira Loma
6 92570 36.9214 0.9985339 Perris
7 92153 31.40763 0.9979746 San Diego
8 90631 26.98755 0.9972578 La Habra
9 91749 23.05189 0.9962434 La Puente
10 93536 18.25089 0.9940137 Lancaster

Table 2b: Top 10 ZIP codes specialized in Warehousing Employment in Southern CA

Rank ZIP code Location Quotient Transformed LQ City
1 90052 59.17541 0.9994290 Los Angeles
2 92331 38.48178 0.9986503 Fontana
3 92551 32.88416 0.9981522 Moreno Valley
4 93005 29.44783 0.9976963 Ventura
5 91752 28.27387 0.9975013 Mira Loma
6 92377 25.79122 0.9969978 Rialto
7 91708 23.50576 0.9963868 Chino
8 91980 18.2107 0.9939873 Tecate
9 92570 17.6416 0.9935944 Perris
10 92316 17.35932 0.9933851 Bloomington

Caveats: As described in the analysis report, employment data used for analysis and mapping at the national and regional (Southern California) level comes from two different time periods. It would be ideal if both datasets belonged to the same time period. Furthermore, it is pertinent to note that the computation of location quotients at the ZIP code level does not take into account the size of a ZIP code in terms of its actual area. Since logistics businesses impose space constraints, large ZIP codes offer more space to locate a logistics business thereby increasing the potential for specialization. This can be accounted for by including a non-trivial adjustment for geographic area in the computation of location quotients. For data sources and methods, see their national analysis report at http://isea.redlands.edu/analysis.

Acknowledgements: The first author acknowledges significant computational assistance provided by Professor Johannes Moenius, ISEA Director. Maps were prepared by Serene Ong, GIS Analyst, The Redlands Institute, University of Redlands.

ABOUT THE INSTITUTE FOR SPATIAL ECONOMIC ANALYSIS (ISEA)
The Institute for Spatial Economic Analysis (ISEA) offers science and research based spatial analysis and forecasts of economic phenomena. ISEA serves regional, national and global communities in their needs to better understand how socio-economic phenomena affect and are affected by their communities and the space they live in. More information and previous ISEA publications can be found at http://isea.redlands.edu/. You can follow ISEA on twitter @iseaRedlands.

Report by Avijit Sarkar, Associate Professor and Faculty Affiliate, Institute for Spatial Economic Analysis (ISEA), University of Redlands School of Business and Johannes Moenius, Associate Professor, Institute for Spatial Economic Analysis (ISEA), University of Redlands School of Business.

Contact johannes_moenius@redlands.eduavijit_sarkar@redlands.edu  
 


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