U.S. Infrastructure Investment Lags as Alternative Trade Lanes Emerge

Written by Cathy Morrow Roberson, founder and chief analyst of Logistics Trends & Insights. This is one in a series of periodic guest columns by industry thought leaders.

For decades the U.S. has shortchanged spending on roads, bridges and other transportation infrastructure. As a result, the nation has slid to 16th globally in quality of overall infrastructure in the latest ranking by the World Economic Forum. Among others, we are now behind Denmark, Luxembourg, Spain and Portugal.

This is a growing national concern. Consider the following:

  • One in 10 bridges is deemed structurally deficient.
  • Half the locks along the country’s inland waterways are more than 50 years old.
  • In 2012, almost 14,000 dams were considered a high hazard.
  • Many ports and harbors are not prepared for the larger, new-generation Panamax ships.

The American Society of Civil Engineers estimates that the U.S. needs to pour $1.7 trillion into the country’s surface transportation by 2020. Meanwhile, the need grows. Trade rose at a 2.7 percent compound annual growth rate from 2010 to 2015. Much of that growth is coming in new regions of the U.S. that lack the infrastructure needed for efficient commerce.

Whether you agree with it or not, the North American Free Trade Agreement, or NAFTA, is behind much of this growth.

The total value of trade in NAFTA goods increased at a 3.1 percent compound annual growth rate from 2010 to 2015. Mexico gained the most during this period, increasing 5.1 percent, compared to 1.5 percent for Canada. Mexico’s gains provide an interesting lesson as manufacturers from the U.S. and Asia alike expanded operations there to take advantage of both lower labor costs and NAFTA trade benefits.

It’s important to note that although there are over 75 land ports along the U.S.-Canada border and more than 25 along the U.S.-Mexico border, freight traffic crossings remain heavily concentrated at just a few major gateways.

Commercial trucks crossing into the United States at the busiest gateways — Detroit on the Canadian border and Laredo, Texas, on the Mexican border — generate heavy north-south truck traffic from Detroit through to Memphis, Tenn., and from Laredo through to San Antonio. This concentration affects traffic and congestion at the borders as well as along major transportation corridors such as I-35, which has the dubious title of the most congested interstate in Texas.

Meanwhile, companies such as Samsung are opting to skip the lines at the border and instead ship goods from Mexico to Miami. This saves four or five days of transit time and about 25 percent of all-inclusive costs compared to the traditional routes moving goods across the U.S.-Mexico land border, Miami port officials say.

Samsung’s Mexico-to-Miami shipping route is a good example of the growth that is being recorded for Eastern and Gulf Coast ports. This type of transport has extended throughout these regions. Ports including New York/New Jersey; Virginia; Savannah, Ga.; and Houston saw record shipping volumes last year.

While some of this is an outgrowth of the labor and other issues that negatively affected West Coast ports in 2015, it appears to be a long-term trend. One reason is the opening of the expanded Panama Canal later this year. And remember, more than 60 percent of the U.S. population resides east of the Mississippi River.

Moreover, Eastern and Gulf Coast ports have made investments to expand facility space as well as to automate services to improve efficiency. Railroads such as Norfolk Southern and CSX are partnering with port authorities to build inland ports to reduce congestion and to move goods closer to customers. Examples of this strategy include the inland port in South Carolina, which is close to the BMW auto factory in Spartanburg, and the inland port in Cordele, Ga., a privately operated facility serving the port of Savannah.

The way consumers shop also is creating new infrastructure needs. Call it the “Amazon effect.”

Amazon has over 100 fulfillment centers throughout the U.S. The locations of these facilities bring the Internet-based retailer within 20 miles of 31 percent of the U.S. population and within 20 miles of more than half of its same-day delivery market, according to estimates from investment banker Piper Jaffray.

Other companies are following suit, and as a result local deliveries are increasing. This adds additional burden to an already stressed road system and could result in greater carbon emissions. That’s why delivery companies such as FedEx and UPS are incorporating more alternative-fuel vehicles into their fleets while new entrants into the delivery market, including Amazon, are using bicycles as additional modes of transport.

The American Trucking Associations and IHS Global Insight forecast a 28.6 percent increase in freight tonnage by 2026. Trucking will remain the dominant mode of freight transportation, with over 60 percent of the share of total tonnage. Intermodal freight will be the second-fastest-growing mode, at a 4.5 percent annual rate through 2021.

As freight tonnage grows and trade lanes shift, infrastructure investment will be hard pressed to keep up. Alternative solutions such as private investment may be needed to keep freight moving efficiently throughout the country. The nation needs to move quickly to rebuild and expand its roadways, bridges, ports and rail systems, or else the U.S. will continue to drift down the World Economic Forum’s infrastructure ranking.

The result will be higher expense for shippers and rising prices for consumers.

Editor’s note: Cathy Morrow Roberson is the founder and chief analyst of Logistics Trends & Insights, an Atlanta-based logistics and supply chain consulting firm. Roberson has more than 15 years of experience in the logistics market, including 10 years with UPS Supply Chain Solutions.


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