Strategic View
with Walter Kemmsies
Given trends in place, freight logistics managers and transportation planners should be factoring in intermodal more than ever before.
During the last 15 years, railroads have increased their expenditures on infrastructure, while federal expenditures on highways and waterways have declined. This is shown in the accompanying chart depicting investment expenditures from 2002 to 2014 adjusted for inflation and indexed to 100 in 2002 in order to facilitate comparisons.
Source: American Association of Railroads, Congressional Budget Office, Bureau of Economic Analysis, Moffatt & Nichol. These trends are ominous. Road and waterway expenditures have fallen, while the population, level of economic activity and international trade have increased in the last 12 years despite the severe recession of 2007-2009. During this period, the American Trucking Associations’ truck tonnage index increased 25.7 percent, and total railcars, trailers and containers moved by rail rose 11.2 percent. Given that U.S. trade with Mexico has grown substantially and freight movement on rail requires a truck move at both the origin and destination rail yards, it is not surprising that the truck volume index has increased more.
Overall waterborne tonnage is down 1.4 percent between 2002 and 2012 (last date available) with domestic volumes down 13.3 percent and foreign trade volumes up 7.7 percent. Given that economic activity and foreign trade have increased since 2002, it seems that freight has been moving from the waterways onto highways and railways. Research published by the Soybean Transportation Council indicates the Mississippi waterway infrastructure is of advanced age and unscheduled outages of locks have increased. This was noted in this column last month which focused on how agricultural production has been shifting along with the geographical pattern of rail investments.
In the absence of a federal capital budget, and with the increasing restrictions on the issuance of state and local debt for infrastructure, the United States seems to be trapped in a stalemate where all sides acknowledge the importance and economic value of infrastructure investment, but are unable to crystallize that political consensus in a viable program to rebuild and modernize the public infrastructure such as inland waterways, interstate highways and bridges, West Coast water supplies, and Amtrak’s Northeast Corridor. One hand legitimately seeks to reduce public debt levels, while the other legitimately wants to stimulate economic growth through further investment and reliance on public debt.
Fortunately, the U.S. economy has a stock of wealth estimated to be in the $60 to $70 trillion range. Politicians are making an effort to allow the owners of this wealth to invest in public infrastructure. Proceeds from sales of existing infrastructure could reduce the public sector’s debt, similar to what the European countries did in the 1990s to reduce their debt to levels that permitted them to join the euro. The private sector could also invest in new infrastructure, which would help economic growth and therefore reduce the public sector’s debt burden.
Various revenue models have been developed, ranging from tolls to availability payments, to increase the attractiveness of a wide range of infrastructure investments. While the private investment solution is appealing and promising, there are still many hurdles before this can happen. Enabling legislation and performance monitoring systems still need to be developed.
Until the remaining obstacles to private investment in public infrastructure are resolved, it is likely railroads will continue to invest in their networks and widen the gap further. As such, intermodal access will become an even more attractive option to logistics managers and transportation planners.
Kemmsies and Ali Rezvani work for Moffatt & Nichol, an infrastructure engineering firm. They can be reached at (212) 768-7454, or email at wkemmsies@moffattnichol.com and arezvani@moffattnichol.com.
This column was published in the June 2015 issue of American Shipper.