The current supply chain crisis is caused by an unprecedented demand for physical goods flowing through major chokepoints, combined with a lack of labor and a limited supply of transportation capacity. While global economic turbulence due to COVID is an immediate catalyst, the crisis has been decades in the making and the lack of investment in supply chain infrastructure is a fundamental cause. The Infrastructure Investment and Jobs Act, promoted by President Joe Biden and recently passed by Congress, has the potential to address some of these concerns.
(Photo: Adam Schultz/The White House)
The good news is that if you fix the supply chain infrastructure, you will fix the labor shortage and lack of transportation capacity. To understand why the labor supply and transportation capacity are linked, you have to understand the economic model that drives the supply chain industry.
Freight transportation — whether by airplane, ship, train or truck — is the liquidity of the supply chain industry. Raw materials must be transported from their original source to processing facilities, then on to production facilities where they are combined with other raw materials to create finished goods, and then further downstream to a system of distribution centers. All of this happens before products reach retail stores or are available through e-commerce. Without sufficient freight transportation capacity, the entire supply chain grinds to a halt.
The supply chain issues we are currently facing (with some notable exceptions to include semiconductors) are largely a result of a lack of freight transportation capacity.
The freight transportation industry generates revenue by hauling goods from an origin to a destination. Transportation providers are paid to move goods based on a combination of time, distance and weight. These carriers, in turn, pay their drivers and operators under a similar arrangement. For truck drivers this could be on a per-mile basis, while other modes pay on a per-trip, per-hour or tonnage basis, but only when the vehicle (airplane, train or ship) is in transit.
If freight is being slowed at chokepoints (like it currently is at seaports) or due to congestion, then shipping lines, railroads and trucking companies are not making money and their crews aren’t either. If crews aren’t making money, they will leave the industry and find employment elsewhere.
In addition to money, a primary reason that people leave the transportation industry is the frustration of dealing with traffic, schedule inconsistencies and delays. For truck drivers this could be highway traffic or delays caused by inefficient operations (at ports, rail yards or shippers’ facilities). The more time drivers spend in traffic, the less they make per hour, and the less time they have to do other things – like spend time with family.
All of this creates an endless cycle of turnover – delays lead to lower pay, which pushes drivers out of the industry, which in turn leads to more delays. This turnover costs the transportation industry billions and slows the growth of transportation capacity. After all, transportation providers only get paid when they complete a trip.
The other major reason why transportation providers don’t add capacity is the lack of returns they see on their capital assets – airplanes, trucks, railcars and ships. The most important variable that determines profitability for transportation companies is asset utilization, or how much money is generated by an asset over a period of time.
The faster a trucking company can complete a trip, the more availability it has for the same truck to take other shipments. If trucks are bogged down in traffic or at ports, then carriers are making less money than they would if they didn’t have to face these obstructions and inefficiencies. Decrease the time it takes to complete a trip and you increase the money a carrier makes. If they are making more money, they will go out and buy new trucks, grow their fleets and hire additional drivers.
(Photo: Customs and Border Protection)
The infrastructure bill can also lead to an improvement in domestic manufacturing.
One of the challenges that have been facing supply chains throughout the past few years is the lack of domestic manufacturing. Industrial demand tends to be more cyclical than the rest of the economy, so it has been hard for companies to make significant long-term investments in manufacturing production. They have decided to outsource this to manufacturers and suppliers overseas.
But with the infrastructure bill, we may see a domestic manufacturing renaissance; companies will be able to mitigate their exposure to economic cycles as the government provides a consistent customer for manufactured goods that are used to build domestic infrastructure.
As goods start to be manufactured domestically instead of imported, this will take some pressure off our ports. Any volume that is moved off the ports will help improve the state of affairs throughout the supply chain, particularly for companies that must remain reliant upon imports from overseas.
The issues in the supply chain are not going to be fixed overnight, and the infrastructure bill is not going to be an immediate answer to all the challenges facing the industry. But it does show long-term planning and smart investment on behalf of our government that will likely be matched by private-sector leadership in industries throughout the supply chain, something that many in the industry have been working toward for years.
Jack Blatherwick
Some people would just prefer to stomp and kick and pigeonhole a president based on his party rather than actually read and concede that they’re not completely bad/wrong/malicious. And this goes both ways.
Consensus, listening, cooperation, and compromise are the basis of democracy. So put your red hats and blue hats away, look at what the bill does, and move forward.
James Brown
This article was a big disappointment coming from FreightWaves. It does read like a thinly veiled attempt at propaganda in support of the President with does nothing to support the title which is this bill might prevent the next supply chain disaster. How? The main theme seems to be transportation workers quitting in droves and the hope that massive government spending will divert manufacturing back home. That always works. Where are the raw materials for all of the massive government purchased infrastructure items going to come from? How many are made with some sort of petroleum-based product, which is quickly being banned? Where does most lithium come from, since all of will need to be green?
Railroads recently shut down traffic into Chicago for a time because of congestion. Railroads aren’t sitting empty, quite the opposite. Truckers at most LTL carriers as well as most package carriers are paid (well) by the hour, sitting still or not. The idea that the driver shortage has to do with not being paid for idle time is just wrong. Could it be small part? Maybe for those around ports who work cartage. How many articles have you run about truck orders being sky high but severely delayed? All major air players are ordering new aircraft. That contradicts this article. The truck driver shortage has been going on for years. It wasn’t created by the supply chain issue and find me workers voluntarily leaving high paying railroad and air freight related jobs for something else. It just isn’t happening. Perhaps the government mandate to push wages up through manipulation of the virus relief and unemployment have more to do with labor than idle time.
I’m not sure what the purpose of this article was but unless it was just an attempt to support a political point of view, it failed miserably. Why not an in-depth article on what the bill actually does to improve infrastructure.
American Citizen
I agree completely, this Infrastructure Bill is just another pay off in the Brandon Administration. Only 10% of the 1.2 Trillion dollars is going to infrastructure. The government created this shortage due to strangling regulations on drivers. Obama started this assault on the trucking industry with his MAP-21 Act. They are paying off the unions for the crane operators. Yes Freightwaves, like the main stream media, pushes and spreads this propaganda crap. The rest of the 1.2 Trillion 90% goes to taking care of illegals, paying for votes, padding Wall Street corruption and making China stronger. These power hungry illegitimate (ELECTION WAS STOLEN! AND EVERYBODY KNOWS IT!) hacks are doing NOTHING! for the American people, it is all for the Elites that are above the laws of this land.
B Lohman
Really!? I am very disappointed in this article
Mike E
Have to agree with others on fuel costs not being discussed.
Currently we are paying Russia how much for a barrel of oil? 50 % of a trucking companies drivers are now being tested for drugs.
As you pointed out 100,000 drivers are now disqualified due to the drug clearing house.
Think you left out the teamsters pension problems have been alleviated so how many baby boomers will be leaving because of that.
The NY/NJ metro area ports can’t be dredged due to environmental issues.
What about the carbon footprint that will ultimately come along with this and Joe has to bow to the lobby and the squad.
Eric Bodelson
Before domestic manufacturing can actually start which it will take years to build the infrastructure to do this. We will continue to see Massive amounts of additional freight that is technically unneeded Come into this country. Smart businesses are trying to plan to prevent any furloughs in the future so they are Stockpiling goods to prevent any additional supply change disruptions. This means in addition to domestic manufacturing being stood up you will see an increased demand for warehouses and warehousing space and you will see many manufacturers using unconventional means like containers in the meantime to store additional freight. The problem with this is their storing these containers at the port. Additionally, we know the entire world does not have enough containers. While India and China are beginning to turn out containers it will not be in time. This will lead to the next supply chain crisis. Most corporations are following this model because they have no choice. For years companies have continued to follow a model of just-in-time logistics. They never thought to have excess inventory and build additional space in case of a global crisis.
Charles Pyatt
Oh and let’s not forget.. THESE DEMOCRATS ARE HELLBENT ON CRUSHING THE OIL INDUSTRY –>> LIMITING SUPPLY WHICH IS DRIVING PRICES THROUGH THE CEILING FOR INDUSTRY IN THE UNITED STATES HE IS HANDICAPPING US !!🤡🔥🤡🔥🤡
Charles Pyatt
⚠️⚠️ WAY TOO MUCH PROPAGANDA AT FREIGHT WAVES !! THIS BILL IS ANOTHER BIDEN FLOP, IT DIDN’T GIVE US ANY OF THE FIVE CRITICAL ITEMS THE TRUCKING INDUSTRY WANTED !!
NONE OF THEM!!
WE ARE STILL HAMPERED BY ELD, OBSOLETE INEFFICIENT HOS RULES, EXTREME LACK OF PARKING, EXCESSIVE REGULATION AND UNREGULATED SHIPPERS AND RECEIVERS…… HOW EXACTLY DO YOU PLAN ON MAKING TRUCKING MORE EFFICIENT WITH NONE OF THESE BEING ADDRESSED !!! 🔥🤡🔥🤡🔥🤡
LET’S GO BRANDON !!!! LET’S GO BRANDON !!!! LET’S GO BRANDON !!! 🤡🔥🤡🔥🤡
Bill
Absolutely correct!