Business Update with Mark Lacter

Shipping companies; Space X

KPCC's business analyst Mark Lacter talks about how shipping activity seems to be picking up; he also talks about how Hawthorne-based SpaceX will try to launch an unmanned supply capsule into space.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, for shipping companies, this is the most wonderful time of the year… why is that?

Mark Lacter: Steve, you’ve heard the commercial for UPS that changes the lyrics from the tune “That’s Amore” to “That’s Logistics”?

Julian: Come on, Dean-o, sing it.

Lacter: Uh, no. But logistics is a big deal for the economy – not just UPS. It’s really a catch-all term referring to goods that are being moved or in the process of being moved. It could involve traffic at the ports, or rail activity, or the warehousing of merchandise that’s in the process of being transported. It’s certainly become important for the Inland Empire because that area is so well situated to interstates and rail lines. Actually, logistics was one of the reasons why places like Riverside and San Bernardino took off back in the 1990s – huge amounts of stuff that had to get from one spot to the other.

Julian: We know that didn’t continue.

Lacter: When spending stopped three years ago the economy took a nosedive (the Inland Empire housing market is in shambles and unemployment has topped 15 percent in some places). But something potentially important is happening: Several developers are proceeding with plans to build eight warehouses totaling almost 5 million square feet. (Some of them had bought land at inflated prices and just had to hold on until the market improved.) The facilities are being built “on spec,” which means that the developers do not have tenants lined up. But the fact that these projects are happening at all would indicate that there is greater demand for warehouse space, and that’s a good thing.

Julian: Now, to be clear, is the logistics business is anywhere near what it was before the recession?

Lacter: No it’s not, and to give you an idea, lease volume in the Inland Empire fell from 35 million square feet in 2005 to only about 20 million in 2008. This year it’s expected to run about 30 million, so you are starting to see parts of the logistics business showing signs of life. The question, of course, is whether the strong consumer spending we’ve seen this holiday season will continue into 2012. The latest economic forecasts from UCLA and Chapman University expect some improvement next year. But again, a lot will depend on the willingness of consumers to spend, which is the only way warehouses and rail cars are going to be full.

Julian: Let’s look at another kind of transportation activity – to space.

Lacter: This is quite the aerospace success story Steve, and it’s happening at a Hawthorne company called Space Exploration Technologies Corp.; SpaceX for short. Last week, NASA announced that SpaceX will try to launch an unmanned supply capsule into space. It’ll link up with the International Space Station, and then splash down in the Pacific – in one piece if all goes well. It will be the first time that a private company will attempt a cargo run to the Space Station.

Julian: What’s the company’s goal?

Lacter: Within a few years, they want to ferry astronauts to the Space Station (NASA is resorting to the private sector now that the Shuttle program has been retired). SpaceX is run by Elon Musk – he’s the guy who also runs the electric car company Tesla, he was co-founder of PayPal, and he is known for his audacious ideas (he’d really like to send humans to Mars, though they’ve had a problem finding a rocket powerful enough for the launch). Musk is also known for establishing an entrepreneurial culture, which means that he wants his workers to feel as if they have some skin in the game – that they’re involved in the decision-making process.

Julian: Is that working?

Lacter: Well, they’re willing to work longer hours at a lower pay grade than if they were at one of the big aerospace companies. But the place is attracting a lot of young engineers. Actually, SpaceX is considered much closer to Silicon Valley in terms of organization – it’s run like a business, not some big bureaucracy. For now, the company has about 1,500 employees – most of them locally based – which isn’t all that many people given the work that’s being done. But there’s plenty of room to grow, so if things go well, it could be the starting point for a new generation of aerospace workers in Southern California. But first things first – they need to get that cargo to the Space Station. The launch date is set for early February.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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