Portal economy to lead the way

December 11, 2008

Bob Fernandez, Philadephia Inquirer

 

Philadelphia's economic strength derives from its niche as a circulator of money, people, goods, ideas and data bytes.

 

From a superefficient produce terminal pumping 70 million cases of apples, lettuce and Asian pears throughout the East Coast to Comcast Corp.'s data-operations center tracking the nation's Internet pulse, there's something going on in Philadelphia.

 

Call it the Portal Economy. It may sound wonky, but could this niche in the national economy become Philadelphia's growth edge, linking its glory days of sailing ships and railroads with the new Philadelphia of high-speed data, universities and fresh fruit?

 

The region, it seems, is resurgent in institutions that circulate money, people, goods, ideas and data bytes - the basic buildings blocks of the modern metropolis.

 

Think of your body. When you exercise and the blood pumps oxygen to arms and legs, brain and heart, you feel good. It's the same way with an economy. When the economic arteries are pumping with people and money and goods, commerce booms.

 

Millions more passengers are flying out of Philadelphia International Airport, thanks to new competition from discount airline Southwest Airlines Co. that began in May 2004.

 

The new produce terminal, now under construction near the auto mall, will triple the volume of fruits and vegetables.

 

Center City, the region's commuter and nightlife gateway, or portal, has been revitalized with new high-rises, restaurants and condos.

 

Colleges and universities are investing tens of millions of dollars into expansion for higher enrollments, bringing students into the region and supplying them to companies and institutions as educated cogs in the global economic wheel.

 

The Delaware River ports are expected to get a jolt of growth from the long-delayed channel-deepening project on the Delaware River.

 

Then there's Comcast's new national data backbone built from "dark fiber," or transmission lines installed by other companies in the dot-com days.

 

"We have sectors that are not recession-proof, but are not as susceptible to the vagaries of an economic downturn. It's one of the benefits of not having a lot of factories," said John Estey, the chairman of the Philadelphia Regional Port Authority and Gov. Rendell's former chief of staff. "We'll weather this storm better than most. Not as good as everyone, but better than most."

 

"We have a pretty stable set of diverse companies at this point," Richard Voith, senior vice president and part-owner of Econsult Inc. in University City. "We are real strong in these portal institutions."

 

A recession and a financial crisis are grinding away at the nation's job market, and a Portal Economy will suffer with weaker trade and less economic activity. Students will not have the money, or access to loans, to attend college; fewer cargo ships will sail up the Delaware River; businesspeople will teleconference and stay home.

Still, there is some cause for regional optimism.

 

Among the 20 largest metro areas, the Philadelphia region's unemployment ranked 10th, according to recent figures from the Bureau of Labor Statistics. The Detroit area had the highest, at 8.9 percent, and Washington the lowest, 4.1 percent. The Philadelphia area's was 5.9 percent. The figures predate the October financial crisis.

 

Incredibly, the region's job-growth rate beat that of Boston and San Francisco - hubs of the dot-com boom and bust - since the 2001 recession and ranked 13th of 20 metro areas in this period.

 

Housing prices have fallen in the Philadelphia area, but less than in other places, according to real estate groups, and the local service industry is muffling some of the nation's economic blows.

That is not to say it is a smooth road.

 

The Philadelphia region has not really boomed economically in some time and lacks a culture of commercializing new technology. A major corporation, Rohm & Haas Co., is being bought by the Dow Chemical Co., and another big company, GlaxoSmithKline P.L.C., leans toward North Carolina for its future.

 

Poverty and education underattainment head the list of social problems, especially in Philadelphia. A $1 billion hole has opened in the city's five-year budget.

 

But here are two curious facts: The city's sales-tax receipts are holding up relatively well - they are flat! - and its job market is tracking the region.

 

"The one thing that people notice is that Philadelphia is a little more reactive and adaptive than its reputation as an old manufacturing center would make it seem," said David Bartelt, a Temple University professor of urban studies and geography. "We have a complex economy that survives booms and busts better than other areas."

Some of that complexity comes from the fact that this is a three-state region with more than five million people and well-developed infrastructure. Even if old, the infrastructure is there for the upgrade, experts point out.

 

BRAIN PORTAL

 

Colleges and universities are a multibillion-dollar industry, delivering educated workers to companies here and nationwide. Enrollment at four-year universities in the metro area grew 20 percent in the last decade, according to federal education data crunched by the American Council on Education at The Inquirer's request.

There are marquee college brands. Penn. Drexel. Swarthmore. Temple. St. Joseph's. But the big gains came at the smaller, off-label brands.

 

Chestnut Hill College boosted its student body 80 percent in the last decade to 2,417 students.

 

Gwynedd-Mercy College enrollment jumped 91 percent to 3,285 students.

 

Neumann College enrollment soared 140 percent to 3,492 students from 1,454 ten years earlier.

 

The Franciscan-affiliated college in Aston, Delaware County, is renovating and expanding with a $23 million project. Among its new construction: the Center for Sport, Spirituality and Character Development (a gym).

Founded in 1965 as a commuter college, Neumann added male students in 1980 and opened dorms in 1996. That same year, Neumann expanded its sports programs.

 

Rosalie M. Mirenda, the college's president, who began her career as a nursing instructor at Neumann in 1973, said Neumann recruited from a 15- to 20-mile radius in the early 1990s. It broadened recruiting to a 50- to 60-mile radius. The New England and Canadian markets opened to Neumann with its men's and women's ice hockey teams.

 

Neumann keeps its tuition lower than does its private independent peers, Mirenda said. Tuition is $19,750 and room and board is an additional $7,200.

 

The Franciscans believe in respect for individuals, loving relationships, and service. But as for hockey, Mirenda said: "We're competitive, and we want to be."

 

PEOPLE PORTAL

 

Ten to 15 years ago, the Philadelphia airport was a dump.

 

"We were well-known for the highest fares and a lot of delays," said Charles Isdell, director of aviation at the airport. "It was not a good story."

 

In 2000, Philadelphia ranked as the ninth most-expensive airport, with an average fare of $191.

In May 2004, discount giant Southwest Airlines launched its service at the airport, forcing incumbent US Airways Group Inc. to compete on price and service. By last year, Philadelphia had fallen to the 21st most-expensive airport (out of a total of 30) with an average fare of $141.

 

Passenger traffic broke 25 million, or the airport's "natural ceiling" (perceived maximum capacity) in 2004 and 30 million in 2005.

 

This year, passenger traffic will remain flat at 32 million and Isdell expects traffic to decline 5 percent in 2009 because of the recession. But the Federal Aviation Administration forecasts a rebound to 40 million passengers by 2015.

 

The airport is completing a $300 million project in the D and E Terminals. Designers are conceptualizing a $100 million project in fast-growing Terminal F for commuters.

 

Commuter traffic more than tripled between 2001 and 2008. International air traffic grew 40 percent in the same period.

 

To stay healthy, Isdell said, the airport has to care for the profitability of both the US Airways hub and discount-fare Southwest. "It's a balancing act. We can't let Southwest get too big," Isdell said.

 

As for congestion, he said, the delay curve could rise sharply - tracking an imaginary line with his hand. He is hoping a fifth runway, at an estimated cost of $2 billion to $3 billion, will eventually help.

 

VEGGIE PORTAL

 

In five decades, the Philadelphia Regional Produce Terminal in South Philadelphia has not had a protracted vacancy or a layoff, said Sonny DiCrecchio, the executive director.

 

George Manos, of T.M. Kovacevich Inc., a fruit distributor, notes that schoolchildren are taught three things: brush your teeth, wear a seat belt, and eat fruits and vegetables.

 

Growth, baby, growth. That's what Manos and DiCrecchio see.

 

This year, the terminal reached a deal with Brian O'Neill, a major developer, to construct a new $218.5 million center on former junkyards near the South Philadelphia auto mall. O'Neill planned a Wal-Mart and a Lowe's for the site but those plans fell through.

 

The new produce terminal, which has received substantial state subsidies, is expected to open in late 2010. It will be the size of 16 football fields and have a glassed-in concourse for wholesale shoppers.

The terminal, said DiCrecchio, will reduce spoilage by 40 percent because of a centralized refrigeration system and create several hundred jobs.

 

The city could become the Rotterdam of the East Coast, boasted Manos.

 

FREIGHT PORTAL

 

For 15 years, State Rep. (and former longshoreman) William F. Keller has hoped for an expansion of the Delaware River ports. Now it seems so close he can taste it, like the Chilean fruit unloaded at the Philadelphia docks.

 

He has sponsored legislation in Harrisburg to make more land - as much as 300 acres - available to prospective port operators at the Southport terminal, which will be operated south of the Walt Whitman Bridge.

More land means more port jobs, Keller said. The Philadelphia port has been stuck in niche businesses and now could expand into containers, he said. "New York is totally blown out. They are landlocked. They have no room to expand," Keller said.

 

Four consortiums of shipping and warehousing companies are approved to bid on construction of the Southport Marine Container Terminal, which could cost $500 million to $750 million, officials say. They are anticipating more ship traffic on the river with the deeper channel.

 

Dominic O'Brien, senior marketing representative, noted that the Philadelphia area has 13 FDA food-inspection sites for imported food, more than double the number of inspection sites of any other U.S. port.

 

MONEY PORTAL

 

On the average day, 350,000 people log on to Vanguard.com to check balances or rebalance retirement investments.

 

In the midst of the stock market plunge in October, the number soared to 650,000 to 700,000. Vanguard has data centers in King of Prussia and Philadelphia. Vanguard itself is in Malvern, Chester County.

 

Bill McNabb, president and chief executive officer, said he thought online financial-education videos will be the next new thing for Vanguard. "We were a virtual firm before the term existed," he said.

 

DIGITAL PORTAL

 

In a 350-employee office building in Mount Laurel, Comcast employees such as Debra Macey track the data traffic and quality on the world's largest converged video, voice and data network. If there is congestion, they can tweak the system.

 

The idea, said John Schanz, executive vice president, is to catch slower Internet speeds or tiling on a TV picture before customers do.

 

Comcast maintains 560,000 miles of fiber and cable lines and 116,000 optic nodes that deliver services to 25 million customers.

 

The cable giant has quietly built a massive data network that rings the inside of the United States like a track loop. Some of this was "dark fiber" - unused data-transmission lines - available after the dot-com bust. Comcast bought it at a discount.

 

Comcast is not the only digital portal. Sebastian Moser is the general manager of 1&1 Internet Inc. in Chesterbrook, a division of a German Web-hosting giant. Moser opened the company's office in Chesterbrook in 2003 with himself and one other employee. Today there are about 100 employees, with an average age of 28, who run a business that hosts about 700,000 U.S. Web sites. The computer servers are in Kansas.

 

Moser chose the Philadelphia suburbs for the U.S. subsidiary headquarters because the German company needed to be on the East Coast. The time difference with California was too great. Boston and New York were too expensive. Washington was not considered, and Moser crossed Miami off the list because of hurricanes.

 

Moser has had no problem finding employees for 1&1 Internet. But he is disappointed that he cannot easily tap into the city's labor market of college students. "If I had to do it again, I would get an office smack in the middle of the Drexel campus," Moser said.

 

This talk of economics and portals may be tantalizing for a region that hung its head for so long. But it will not stop the hard times in 2009. For that, past recessions may be the best guide.

 

Downturns have hurt the city more than its South Jersey or Pennsylvania suburbs. Philadelphia lost 6 percent of its job base, or about 44,300 jobs, in the early-1980s recession. There are no comparable figures for the suburbs.

 

A recession a decade later washed away 8.5 percent of the city's job base. Suburban areas, along with Wilmington, lost 3.9 percent.

 

In the wake of the dot-com bust, the city emptied of 1.8 percent of its jobs. The areas outside Philadelphia lost less than 1 percent.

 

One threatened industry in the current recession is pharmaceuticals. These companies hired thousands of researchers, marketers and sales reps in the 1990s for high-paying jobs. But the companies have retrenched as they lose patent protections on blockbuster drugs and face competition from generics.

 

"It's not Silicon Valley - hey, that's true," said William Stull, chairman of Temple University's economics department and co-author of a 1991 book on postindustrial Philadelphia. "But it's not Detroit or South Dakota. We don't have huge blips in home prices, but we don't have tremendous layoffs from General Motors. There's nothing flashy, and there are no splashy industries."

 

Said Steven Wray of the nonprofit Pennsylvania Economy League: "The next year will be rough for everybody. . . . You just hope that people don't get so hunkered down that they don't look to the future."

 

David L. Cohen, chairman of the Greater Philadelphia Chamber of Commerce and an executive vice president at Comcast, said the Philadelphia region seemed on its way to having a "reasonably vibrant 21st-century economy."

 

 

 

 

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