Infrastructure: Breakdown

This article comes from the June 2008 Supply Chain Link newsletter.

Three years have passed since the U.S. infrastructure received a below average grade of “D” on the report card given by the American Society of Engineers (ASCE). The ASCE estimates that $1.6 trillion is needed over the next five years to bring the nation’s infrastructure to good condition. The Department of Transportation (DOT) estimates show the U.S. loses $168 billion annually from highway congestion and, in 2004, the nation’s trucking system lost 243,032,000 man hours due to traffic delays. We are in a physical and financial crisis because current revenue is insufficient to maintain and improve this nations highways, public transportation systems and intermodal connectors.

Current View

Our national freight system is a hot topic among lawmakers and their respective committees. The transportation system is the backbone of the U.S. economy and immediate improvements need to be made to meet the growing needs of international and domestic freight. Increased volumes of international trade have put a strain on the domestic transportation system, especially highway and rail systems that were built many years ago.¹ With a limited number of ports, mostly in urban, highly congested areas, freight movement in and out of these ports can be cumbersome. Many of the railroads have been cut back due to low volume and less profit. Overloaded trucks have contributed to major wear and tear on the roadways. Current fuel taxes to support the system are no longer sufficient. 2007 Federal fuel taxes and rates are as follows:

Fuel	Tax Rate
Gasoline	18.4 cents / gallon
Diesel	24.4 cents / gallon
Special fuels	18.3 cents / gallon
Gasohol	18.4 cents / gallon
Liquefied petroleum gas	13.6 cents / gallon
Liquefied natural gas	11.9 cents / gallon
M85 (from natural gas)	9.25 cents / gallon
Compressed natural gas	48.54 cents / thousand cubic feet

Supply Chain Improvements

Great strides have been made to improve efficiency within supply chain modes. Douglas G. Duncan, president and CEO of FedEx Freight says, “Supply chain professionals have done a great job taking cost out of logistics as companies Truck Fleet implement just-in-time inventory system.” Duncan continued, “Inventory, including transportation accounts for about 10 percent of Gross Domestic Product, compared with about 18 percent in 1980, the year the trucking industry was deregulated.”² Transportation, rail, ports and highways have each done an excellent job to improve the infrastructure within their mode. LTL shipments have increased 65 percent between 1993 and 2002,¹ supporting the statement that supply chain professionals have become efficient in reducing inventory carrying and logistics costs.

Recommendations

A report written by the National Transportation Policy and Revenue Study Commission in late December of 2007 stated that surface transportation is at a crossroads. As it stands right now federal spending for surface transportation is only $60 billion, falling drastically short of current needs. Without some long-term investments into the infrastructure, regular service failures are inevitable in the near future. The commission recommendations included:

An increase in national spending on surface transportation of at least $225 billion per year for the next 50 years,³ increased tolling, implementation of federal freight fees and raising the tax on gas or federal motor fuels. Toll roads and special fees for using highways during peak periods would also be part of this picture.
Bringing private capital into surface transportation systems through public/private partnerships that can help facilitate international trade with intermodal connections. This would relieve congestion that adds time and costs to the supply chain.
Finally, the commission recommended an increase in the federal gas tax of up to 40 cents per gallon over the next five years.²

At a hearing held by the House Transportation and Infrastructure Committee in January, questions were raised as to whether raising gas taxes would actually improve infrastructure or perpetuate our dependency on fossil fuels to fund a broken system.⁴

So, in the world of supply chain management, infrastructure is important and complex. It has enormous implications that will determine our livelihood as a nation. Talks continue with more questions than answers. Finding a solution to meet our current and future needs will be a painfully long process with many roadblocks.

¹ National Surface Transportation Policy and Revenue Commission. Did You Know. Online. 2008. National Surface Transportation Policy and Revenue Commission. Available: http://www.transportationfortomorrow.org/global/did_you_know.aspx [April 03, 2008].

² Schultz, John D. “Shippers need to join users in developing strategic plan “to rebuild America,” says FedEx Freight’s Duncan.” Logistics Management. November 2, 2007. http://www.logisticsmgmt.com/article/CA6496980.html.

³ National Surface Transportation Policy and Revenue Commission. Final Report - Volume I: Recommendations. Online. 2008. National Surface Transportation Policy and Revenue Commission. Available: http://www.transportationfortomorrow.org/global/did_you_know.aspx [April 03, 2008].

⁴ Berman, Jeff. “House Transportation and Infrastructure Committee hold hearing on National Surface Transportation Policy and Review Study Commission report.” Logistics Management. January 18, 2008.