July 1, 2008
strategic insight | The Logistics Infrastructure

It's a long, hard road

it's a long, hard road

Nearly everyone agrees that we have to do something about the nation's aging and inadequate surface transportation infrastructure. But the consensus ends there.

By Peter Bradley

When the I-35W bridge over the Mississippi River in Minneapolis collapsed last August, the terrible loss of life and shocking photos of twisted steel and crumbled concrete brought widespread, though brief, attention to the state of the nation's infrastructure.

A few months later, a long-awaited national study of the state of the country's surface transportation infrastructure confirmed what most professionals in the logistics field already knew: The U.S. surface transportation system is in a perilous state of disrepair. In fact, the National Surface Transportation Policy and Revenue Study Commission opened its multi-volume report with this stark warning: "The future of our nation's well-being, vitality, and global economic leadership is at stake. We must take significant, decisive action now to create and sustain the pre-eminent surface transportation system in the world."

Strong words, calling for quick action—and substantial new spending. But even the act of producing the report hinted at how difficult reaching a consensus on action will be. The report, which detailed the state of the infrastructure and the potential economic consequences of failure to invest in improvements, offered a 10-point program for addressing those issues (see sidebar). But three of the commission's 12 members, including Transportation Secretary Mary Peters, dissented from the final report. While agreeing with the majority that the surface transportation infrastructure faces severe challenges, the three dissenting members fundamentally disagreed on how to solve the problem and how the necessary funds should be raised.

In particular, they objected to a proposal to raise fuel taxes. "The public correctly understands that increased fuel taxes will not remedy the woefully inadequate transportation system performance they so frequently experience today," the dissenting members wrote. Fuel taxes, they contended, are inefficient because they are not directly related to supply and demand. They suggested looking into alternatives such as congestion pricing and other direct user charges. The minority members also argued that the commission's recommendations conflict with national environmental and energy policy, and fail to give due weight to the potential for private sector investments.

Those concerns aside, many observers doubt that the political will exists to make major changes in how highway funding is allocated, how surface transportation policy is developed, and how that policy is implemented. Federal highway funding measures have always been larded with projects favored by powerful members of Congress from both sides of the aisle, at the expense of those programs that address national interests. The most recent highway bill, adopted in 2005, had 6,300 earmarked projects, according to the commission's report. Complicating matters, transportation projects are overseen by multiple agencies and are subject to a variety of regulations and laws. One result is a lack of central coordination; right now, there are 108 different federal surface transportation programs.

"I have a whole cabinet full of reports from the last 10 to 15 years. They all generally say the same thing," says Steve Branscum, group vice president of the BNSF Railway and the new chairman of the University of Denver's Intermodal Transportation Institute. "The story has progressed a little bit. We have made people realize that infrastructure is important and in dire need of change in how we fund it."

Despite that modest progress, Branscum remains concerned about the infrastructure's ability to keep up with demand. "In the past decade, highway congestion, driver shortages, and rising fuel costs have all exacerbated a [problem] we've had for a long time," he says. "We built a great highway system in the '50s, but the population has more than doubled and will double again in a shorter period, and we are not doing anything to build the infrastructure."

Falling behind
One consequence of that population boom has been growth in both passenger and freight traffic—growth that has far outstripped the nominal increases in capacity in recent decades. In 1987, according to the Department of Transportation's 2007 Freight Facts and Figures report, 3.6 million trucks of over 10,000 pounds traveled some 90 billion miles. By 2002 (the latest figures available), 5.4 million trucks traveled 145.6 billion miles. That's a 62-percent increase in truck miles. In contrast, between 1980 and 2005, according to a Federal Highway Administration study of peak period congestion, total highway route miles increased by 3.9 percent, while total vehicle miles traveled (which includes autos) increased 96 percent.

The condition of the nation's surface transportation infrastructure, moreover, leaves much to be desired. When the American Society of Civil Engineers issued its most recent Report Card for America's Infrastructure in 2005, the marks were poor. The group gave bridges a C, navigable waterways a D-, railroads a C-, and roads a D. (The report card also gave poor grades to aviation, drinking water, public parks, dams, and energy.)

Regarding roads, the ASCE said, "Poor road conditions cost U.S. motorists $54 billion a year in repairs and operating costs—$275 per motorist. Americans spend 3.5 billion [italics theirs] hours a year stuck in traffic, at a cost of $63.2 billion a year to the economy. Total spending of $59.4 billion annually is well below the $94 billion needed annually to improve transportation infrastructure conditions nationally." The group was only slightly less critical of bridges, saying 27 percent of the more than half million bridges in the nation were "structurally deficient or functionally obsolete," and estimating that it would take $9.4 billion a year for two decades to correct all bridge deficiencies.

Sharing the pain
Truckers, who depend on the highways, are particularly anxious to see changes in policy and increased highway spending. In fact, they're sufficiently concerned that many of them are willing to pay more in fuel taxes—as long as they can get guarantees that revenues will go straight to highway and bridge construction and maintenance.

If the highways can't handle the expected traffic growth, railroaders see opportunity to compete for shippers' freight business—if they can sustain the capital investment needed to meet projected demands for intermodal service. The railroads have the advantage of owning their rights of way, and a technology that is far more fuel-efficient than other modes. They have invested heavily in adding to their own capacity. For example, the BNSF, one of two major railroads serving the western United States, has almost completed doubletracking its 2,200-mile transcontinental route, and the company says it will add a third track to its busiest corridors.

"Railroads are in a pretty good position," says Thomas Finkbiner, chairman of the Intermodal Transportation Institute and former president of Pacer Stacktrain. "They have moved a lot of domestic business to container. The clearances on routes for bridges and tunnels are largely done. They have done a lot of capital spending on terminals. I can see 5 to 9 percent growth without much stress."

Adds Branscum: "Railroads can be more nimble than highways because they are privately held and maintained— as long as we are making a reasonable rate of return." He says that railroads increased capital spending by 60 percent between 2004 and 2007. But even current investment may fall short of the long-term need. Citing the National Surface Transportation Policy and Revenue Study Commission's report, Branscum says that by 2025 or 2030, railroads will need to invest as much as $300 billion. "We can afford to absorb part of that, but there will be a significant shortfall," he says. "We need some mechanism to help."

Toward that end, railroads have campaigned for a 25-percent investment tax credit for intermodal investments. Their proposal has yet to gain much traction in Congress.

Ports are in relatively good shape now, due partly to a slowdown in imports and partly to operational improvements put in place after congestion problems led to major backups at West Coast ports in 2004. Longer term, the railroad and highway connections between ports and inland transportation remain a concern.

The price of inaction
Although the costs of fixing the highway system, expanding the railroads, and improving connections between ports, railroads, and highways will be significant, the costs of not fixing the problems could be downright staggering. Failure to act will likely result not only in the continued deterioration of the nation's transportation assets, but also in worsening congestion and a consequent increase in pollution and wasteful delays. In a 2005 study prepared for the DOT by Cambridge Systematics, a transportation policy and strategic analysis consultancy based in Cambridge, Mass., researchers said that truck delays at freight bottlenecks add up to 243 million hours a year, costing users an estimated $7.8 billion annually.

On top of that, failure to address the problems will jeopardize the United States' ability to compete in a global economy, warns the National Surface Transportation Policy and Revenue Study Commission in its report. "It is not an overstatement to say the nation's potential for the creation of wealth will depend in great part on the success of its freight efficiency," it says.

Dean Wise, a principal with Norbridge Consulting and a respected expert on transportation issues, agrees that increased highway investment is necessary to ensure that U.S. supply chains continue to operate at peak efficiency. "We are living off investments from 40 years ago," he says. Lack of coordinated policy and greater investment will result in slower transit times, higher costs, and diminished equipment utilization.

As difficult as securing the necessary investment is likely to be, achieving a coordinated policy won't be any easier. Though a number of industry organizations have long pushed the idea of an integrated, coordinated national transportation program, the federal DOT and most state DOTs continue to maintain what intermodal advocate Gil Carmichael has called "a modal mindset."

That has to change before the industry can expect to see any meaningful improvement. "The whole process of shipping is a vertically integrated process," Finkbiner says. "If you can't get on the boat or on the train, it does not matter how good the port, the train, or the truck connection is."

When it comes to policy making, he adds, "we have to shift to an intermodal approach." But that won't be easy. Even if reforms were enacted at the federal level, there's still the matter of the states. "Unfortunately, the states have highway departments and railroad departments and airline regulatory departments and waterway departments," Finkbiner says. "Each modal department has its own constituency and its own political agenda, and as a result, projects are funded in a vacuum. Then people wonder why we don't get the benefits we expected."

To help address that problem, the commission in its report recommended the creation of an independent National Surface Transportation Commission (NASTRAC). The 10-member panel would be akin to the Defense Base Closure and Realignment Commission, which was established to provide an independent and non-partisan review of proposed military base closings around the United States.

As the commission envisions it, NASTRAC would "oversee development of a national strategic plan for transportation investment" and make revenue-related recommendations to Congress."Its purpose would be to de-politicize how we make federal transportation investment decisions, as well as how we choose to pay for them," the report says. In order to accelerate projects and minimize costly delays, NASTRAC's revenue recommendations would become law 60 days after they're submitted to Congress, unless Congress votes them down.

The dissenting members of the commission dismiss that proposal as both bad policy and impractical—they say Congress and the executive branch would not easily give up control of infrastructure spending. The new NASTRAC commission would merely add another layer of bureaucracy and be subject to the same political forces already at play, they contend.

Challenges ahead
Clearly, bringing about fundamental change in transportation policy will not be easy. And even if Congress does go along with proposals to raise fuel taxes, expedite the project approval process, and create something on the order of the proposed NASTRAC commission, the realities of infrastructure development dictate that addressing capacity, congestion, and intermodal connectivity issues will take time and a lot of money, whether it be public or private.

And then there's the question of whether the various industry constituencies can join forces around a set of solutions.

"First of all, we need some leadership from the political side, and that's what we haven't had," says Finkbiner. "The freight industry as a whole doesn't have the political pull to get leadership on a national basis. And it is something the industry itself has difficulty dealing with because of the interests of parties. Trucking might not have the same interests as the railroads. Container lines might not have the same interests as the truckers or the railroads. Sometimes those in the same industry might not have the same priorities. It is very difficult given the condition of the surface transportation infrastructure, even if you have agreement. Investments need to be made, and you have to prioritize, and that tends to break down."

As for how much time the nation has to sort out these issues, Branscum says the answer depends on whom you ask. "Some people say that if something is not done in a year or two, we will have a crisis," he says. "I don't personally believe that. But there is a point of time when it will be an issue. We talk with a great sense of urgency because it takes so long."

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

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