Logistics in California: the Most Important Part of the State Economy You’ve Never Heard Of

When the global COVID-19 pandemic struck in early 2020, one of the most dramatic effects it had on everyday life was a series of drastic consumer product shortages. A vast range of stuff from computer chips to toilet paper to amoxicillin to champagne and even tampons all became difficult to find at the onset of the worldwide public health crisis, which dragged on for three full years.

There are thousands, even millions of supply chains. An estimated 450 million people around the world work on some aspect of a supply chain, according to the United Nations.

The reason? Health restrictions and quarantine requirements aimed at slowing down transmission of the new and deadly coronavirus also caused breakdowns in the “supply chain.” But what exactly is that?

Before the pandemic, unless you were a serious policy wonk, a university business professor or a professional supply chain management expert, you probably never had a reason to so much as utter the term. With the onset of COVID-19 and its accompanying economic upheavals, suddenly the phrase “supply chain” began appearing on Twitter and TikTok, in New Yorker cartoons and Onion headlines—and perhaps most of all on corporate shareholder earnings calls.

A report by the business data analytics firm Factset found that in the third quarter of 2021, S&P 500 firms dropped the term “supply chain” on their earnings calls more times than at any point in the previous 10 years, with 342 mentions. The pre-pandemic high was 191 in 2019.

The Most Important Industry You’ve Never Heard Of

In a way, however, to call it “the supply chain,” is a misnomer. The reality is, there are thousands, even millions of supply chains. An estimated 450 million people around the world work on some aspect of a supply chain, according to the United Nations. 

A supply chain is a network, perhaps better described as an ecosystem, of all of the entities, elements and factors that, when they line up just right, allow products to go from creation to consumers. That includes acquiring the raw materials, then transporting and storing them; manufacturing products from those raw materials; more transportation, more storage, and finally sale to the consumer.

Spending on the various aspects of logistics worldwide topped $9 trillion in 2020, almost 11 percent of total Gross Domestic Product around the globe.

In truth, a typical supply chain doesn’t really end with the sale of a product. Customer service, repairs and returns are all part of the supply chain too. Supply chains not only get products into the hands of consumers, they keep the economy running.

As the pandemic made uncomfortably clear, extra pressure on supply chains can have serious, negative effects on the economy. According to research by the Federal Reserve Bank of San Francisco, supply chain disruptions can cause inflation and are responsible forabout 60 percent of the higher-than-expected inflation of 2021 and 2022.

Even under normal circumstances, managing the dizzying complexities of a supply chain is not a task for beginners. There is an entire industry—itself an intricate amalgam of several separate but interreliant industries—devoted to keeping supply chains running smoothly and efficiently. [The logistics industry employed about 383,000 workers in Southern California alone by the end of 2020.] [Best to have statewide numbers] 

The industry played an important role in California’s speedy economic recovery from the pandemic, especially in the Inland Empire, where rapid growth in warehousing and the trucking that goes along with it caused that region of San Bernardino and Riverside counties to outpace the rest of the state with its pandemic-era growth.

Spending on the various aspects of logistics worldwide topped $9 trillion in 2020, almost 11 percent of total Gross Domestic Product around the globe.

The trucking industry accounts for about 46 percent of logistics costs worldwide; storage—mostly in warehouses—comprises another one-third, according to the supply chain news site FreightWaves.com. Transportation by ships, aircraft, and trains takes about 14 percent, with various miscellaneous logistics functions—which can include customer service, product returns and so on—taking up the rest.

A Brief History of Logistics

The actual term “logistics” originated in the military, which uses it to refer to the highly complex systems, resources and processes involved in moving large armies from place to place in distant locations around the world. This of course also requires large-scale movements of weapons, supplies, food and other material necessary to fight a war, or even train for one.

The iconic quote on the subject, “In war, amateurs talk strategy, but professionals talk logistics,” is sometimes attributed to Napoleon, sometimes to Alexander the Great 2,200 years earlier, and sometimes to the World War II American General Omar Bradley. Whoever said it, it appears that following World War II, coinciding with the birth and rapid growth of what President Dwight D. Eisenhower called the “military industrial complex,” the term “logistics” was appropriated by the business sector.

Military logistics is pretty straightforward. Its only function is to take a country’s resources—natural, industrial and human—and turn them into whatever that country needs to fight a war. Commercial logistics focuses on supporting the goals of a particular business, which usually involves the need to make a profit. Unlike in the military, this means that maximizing efficiency and controlling costs are essential to business logistics.

Logistics Go High-Tech

The computer revolution of the 1980s revolutionized commercial logistics, and the advent of the internet in the following decade went even further in automating and controlling almost every aspect of the supply chain. But the first great leap occurred in 1974 with the introduction of the Uniform Product Code, or UPC, better known as the “bar code.”

The online retail giant Amazon, which has led the way in applying sophisticated technologies to commercial logistics, is even now using drones to reduce delivery times.

Where previously, each item in a supply chain had to be recorded in writing and monitored by eyeballs at every stage from storage in a warehouse through shipping and delivery, the bar code allowed a quick scan via a laser or photographic device—saving large amounts of time and money. One analysis in 1999 found an annual savings of $17 billion to the grocery industry alone, simply by use of the UPC to trace and record inventory.

By 2023, the UPC seemed rather primitive compared to artificial intelligence, blockchain tech and ordinary objects that are modified to hook up to the internet, the so-called “Internet of Things.” All of those innovations are now coming into use for commercial logistics. The online retail giant Amazon, which has led the way in applying sophisticated tech to commercial logistics, is even now using drones (in some locations) to reduce delivery times to as little as one hour between placing an order and a product arriving at a customer’s home.

Inside its warehouses, Amazon is uses robots to move boxed-up items that have been ordered by customers online, and in 2022 the company began using its new system, known as Sparrow (previous Amazon robotic devices were called “Robin” and Cardinal”).

The new robot army, Amazon says, uses computer vision and artificial intelligence to recognize millions of different items, which it then pulls off shelves and moves into place for packaging and shipping. Amazon also, of course, maintains its own fleet of trucks.

Logistics, the Economy and the Environment in California

Though the company is headquartered in Seattle, Amazon is a major force in the California logistics industry. Its 35 warehouses—or fulfillment centers—in California number more than in any other state. (Texas is second with 28.) As of 2021, Amazon employed approximately 170,000 people in California, also more than in any other state. (Again, Texas placed second at 95,000.)

A coalition of about 60 community, environmental, labor and other advocacy groups in March 2023 sent a letter to Gov. Gavin Newsom calling for a moratorium on new warehouse construction in the Inland Empire.

In October of 2022, Amazon announced plans to hire another 10,000 employees to staff their California warehouses—7,000 in the Inland Empire, where the logistics sector added 62,500 jobs between February 2020 and December 2022. According to data compiled by the Robert Redford Conservancy for Southern California Sustainability at Pitzer College in Claremont, the Inland Empire region added about 1,100 new warehouses between 2010 and 2022, making a total of 9,467 warehouses of at least one acre each—covering 55,583 acres total.

The Central Valley has also been subject to a logistics industry explosion. From 2013 to 2018, according to data compiled by the University of the Pacific Center for Business and Policy Research in Stockton, the combined t​​ransportation, warehousing and utilities sector grew by a stunning 74.3 percent in San Joaquin County. By comparison, the runner-up in that time period was construction, growing 39.1 percent in those five years.

The federal Bureau of Economic Analysis found that the Stockton-Lodi metro area has the second-highest concentration of logistics and transportation jobs in the country (behind Laredo, Texas). Amazon, Safeway, Costco, FedEx, and Home Depot are just a few of the companies with large warehouse distribution centers in San Joaquin County. Amazon has one in Stockton, with a second planned, and two in Tracy. 

In California, the “trade, transportation and utilities” sector—which encompasses the core of supply chain logistics—is the second-largest industry in the state, accounting for 14.5 percent of GDP. Only the finance and insurance sector is bigger, at 19 percent, according to data from the State Assembly’s Committee on Jobs, Economic Development and the Economy.

That data point is not too surprising considering, according to the Redford Conservancy data, trucks make more than 1.5 million trips to and from just those Inland Empire warehouses every day. The city of Ontario, home to 664 warehouses, leads the way with 95,000 daily truck trips.

While that amount of heavy logistics activity may be good for generating economic activity, it definitely creates a health hazard. Those daily truck runs release 1,459 pounds of diesel particulate matter, or soot, which has been identified by both the state and federal governments as a cancer-causing, toxic air pollutant. Soot produced by trucking also causes asthma and other respiratory illnesses.

A coalition of about 60 community, environmental, labor and other advocacy groups in March 2023 sent a letter to Gov. Gavin Newsom calling for a moratorium on new warehouse construction in the Inland Empire. The cities of Colton and Norco, as well as nearby Pomona, have already temporarily halted new warehouse building on their own. But as of six months later, Newsom had not said whether he supported a region-wide halt, and he had not declared the public health state of emergency that the groups requested.

In San Joaquin County, air pollution in some regions is as high as the state’s top 1 percent of all communities, mainly due to diesel fumes from trucks bringing deliveries to and from the region’s warehouses.

San Bernardino County Supervisor Curt Hagman wrote a January 2023 op-ed for the San Bernardino newspaper the Sun, arguing that the region needs not fewer warehouses, but more.

Attorney General Rob Bonta negotiated a new deal with the city of Stockton. Under the “Mariposa Deal” the city must draft a municipal law governing warehouse development by the end of 2023. The agreement came in response to the new Mariposa Industrial Park Project, which would create seven warehouses totaling 3.6 million square feet and covering 206 acres off of Mariposa Road. The new industrial park must also convert its in-house truck fleet to electric vehicles and install enough charging stations to power them.

The city ended up with the deal because, according to a statement from Bonta’s office, it had “failed to adopt all feasible mitigation measures as required by the California Environmental Quality Act.”

Local politicians have been more definitive. San Bernardino County Supervisor Curt Hagman wrote a January 2023 op-ed for the San Bernardino newspaper the Sun, arguing that the region needs not fewer warehouses, but more.

“If we fail to keep pace with the growing demand for additional warehouse space, the result will be immediate and far-reaching throughout the Inland Empire,” Hagman wrote. “Loss of good-paying jobs, less affordable housing, fewer environmental benefits and community infrastructure improvements, not to mention the gains other jurisdictions will make at our expense.”