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Released: June 25, 2008
Infrastructure Issues: Faster, Better, Safer Transportation Needed
NASSTRAC continues to carry a torch on infrastructure issues as it brings an important message to the marketplace: We as an industry need to keep pushing awareness on the need to invest in our infrastructure. As part of that effort, NASSTRAC brought Tom Donohue, President of the U.S. Chamber of Commerce, to NASSTRAC’s recent annual conference in Orlando, where he highlighted his perspectives on infrastructure. Here is a synopsis of Donahue’s perspectives on the issue:
The failure of the U.S. transportation network to meet the needs of a growing population and economy is already having an impact on everything from safety to the environment, from quality of life to economic growth. We must immediately reform the approach we take for funding, planning, and building infrastructure so that we can keep people and goods moving across the country and around the world.
Evidence of failure is overwhelming. Safety suffers as a result of poorly maintained roads that contribute to a third of the almost 42,000 fatalities that occur each year on our highways. The environment is adversely impacted by the 2.9 billion gallons of fuel wasted annually as a result of congestion. Congestion also diminishes our quality of life; Americans lose a total of 4 billion hours annually in traffic jams. And in the global economy, our transportation infrastructure is quickly becoming a competitive disadvantage.
A serious effort to modernize our infrastructure comes with the realization that existing funding is insufficient to meet our needs. The National Surface Transportation Policy and Revenue Study Commission recommended an annual investment of at least $225 billion annually over the next 50 years to finance a surface transportation system capable of sustaining strong economic growth and individual mobility. However, infrastructure investment in 2005 only totaled $155 billion, a $70 billion shortfall. Solving this problem is going to take more money, and every option must be on the table, including privately financed projects and user fee increases. We must also stop the diversion of dedicated transportation funds to non-transportation purposes.
To address infrastructure needs, it will take a fundamental shift away from the piecemeal approach currently employed to an approach driven by economic need and regional mobility. Policymakers must put the needs of citizens and the economy ahead of local political interests by directing financial resources to where they can do the most good, while reducing funding for pet projects. If we take the right course, our transportation network will be the foundation of a 21st century economy that can move people quickly and safely, easily handle a growing volume of freight, and minimize the release of pollutants.
In this election year, it is crucial that voters ask candidates about their plans for modernizing our infrastructure. No matter who is elected this November, the next president and the next Congress will have the responsibility for rebuilding America. Our prosperity and our way of life depend on it.
A Snapshot of Today’s Transport Landscape
Challenges facing the domestic transport system, along with government initiatives focused on safety and security, are top-of-mind for shippers. Paul Bingham of Global Insight shared his perspectives at the recent NASSTRAC conference.
There is a primary challenge facing the domestic transport system: Trade growth remains faster than the growth of the U.S. domestic freight system capacity across seaports, airports, terminals, railroads, trucking, warehousing and labor. Bingham offers potential solutions:
- International trade will be increasingly integrated with inland transport; less West Coast transloading; more “hub and spoke” (inland) distribution; more ‘bulk’ trade distribution centers
- Smaller and more frequent shipments favors truck versus rail; intermodal container vs. intermodal rail trailer
- However, improved (double-stack) intermodal rail service captures more line-haul long-distance trucking
- Still, sustained (regional) trucking growth swamps other domestic mode growth; truck remains the default solution
In addition, the rail system still faces significant challenges. There is inadequate capacity and service capabilities to handle any revolutionary additional share of highway cargo. Railroads are using pricing to maximize highest-margin freight (e.g., intermodal squeezing out carload, international squeezing domestic intermodal), subject to regulatory constraints and political realities. In addition, freight rail capital investment remains constrained despite recent profitability because private capital requires greater return than public expectations for (the same) rail network.
As the transport landscape changes, what could we see from government? Bingham predicts a new mileage-based or ton-mileage fees for highway use; more toll roads, including potentially, truck-only lanes; and for all modes, ever tighter emissions limits, alternative fuel equipment mandates, new operating restrictions, new (e.g. carbon) taxes, and more user fees. In addition, he foresees further logistics workforce regulations in security and safety; and higher productivity equipment, potentially including higher truck size and weight, perhaps with user fees. With all the “green talk,” no doubt there will also be subsidies and tax benefits for environmental reasons alone.
So what can shippers expect? There will be a need to forecast supply chain needs further out and having more inventory in the pipeline at times, says Bingham. Technology and modeling will help provide information and optimize decisions, he says. In addition, shippers will need further integration between supply chain partners through technology and standards, for planning, management and security reasons. Lastly, ongoing revisions to shipment and delivery practices will be needed to comply with regulations and align with performance capabilities of workforce, carriers and transportation networks.
NASSTRAC Keeps Watch On Fuel Prices
Rising fuel costs have a huge impact on the trucking industry – which is a big concern for NASSTRAC shippers, many of whom are primarily over-the-road users. It’s also a concern for NASSTRAC’s Associate Members, many of whom are motor carriers. For some, fuel is surpassing labor as their largest expense. The U.S. Department of Energy reports regional diesel fuel fill prices to NASSTRAC every week. NASSTRAC, in turn, posts a graphical chart and index of these prices for the benefit of members. Other little known facts that illustrate the impact fuel costs have on our industry and overall economy:
- Just a one-cent increase in the diesel price annualized over an entire year costs the U.S. trucking industry an additional $391 million a year.
- At the current price, compared with five years earlier, it costs 228 percent, or $978, more to fuel up a typical tractor-trailer. Compared with 10 years earlier, it costs 351 percent, or $1,096, more to fuel up a typical tractor-trailer.
- Because trucks haul 70 percent of all freight tonnage, and 80 percent of communities receive their goods exclusively by truck, rising fuel costs have the potential to increase the cost of everything that Americans consume that comes by truck.
- The trucking industry spent more than $112 billion on fuel in 2007, and we’re on pace to spend $168.9 billion in 2008 – a record high. That’s up from $106 billion in 2006. In 2007, the industry’s diesel expenditures were about equal to the entire New Zealand economy. Additionally, at $112.6 billion, the industry’s diesel bill was 9 percent larger than the entire Kuwaiti economy, the 6th largest oil exporter in the world.
- The price we are seeing reflected at the pump is due to two main factors: surging crude oil prices and increased global demand for diesel fuel. Demand is not falling. We’re seeing increased demand both in the U.S. and internationally, particularly in China, India and Europe.
- The longer oil prices stay above $100 per barrel, the less we can expect significant price reductions for diesel. There is a strong correlation between crude oil prices and diesel prices. More than 60 percent of what we pay at the pump is due to the cost of crude. The same is true for gasoline.
- Commercial trucks consume 53.9 billion gallons of fuel each year. About 39 billion gallons, or 73 percent, is diesel. The remaining 27 percent is gasoline.
- The U.S. Energy Information Administration recently predicted that diesel will average $4.32 per gallon this year, 50 percent higher than the 2007 average. So far in 2008, diesel prices have risen 40 percent.
- There are 42 gallons of oil in a barrel of crude oil. A barrel of crude oil, when refined, yields about 20 gallons of gasoline and eight gallons of diesel, as well as other petroleum products (heating oil, jet fuel, etc.).
- In 2006, Canada was the top oil supplier to the U.S., accounting for 18 percent of U.S. crude oil imports.
Source: American Trucking Associations
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