Bill Luttrell, Senior Locations Strategist, Werner Global Logistics, Werner Enterprises (Location USA 2012)
The United States is at a crossroads. It is still the largest economic power in the world. The International Monetary Fund's 2011 report estimates that we are living in a $70 trillion global economy, in which the United States is by far the single largest economy at approximately $15 trillion. To put that nation's economic strength into perspective, the next three largest economies combined (China, Japan, and Germany) barely surpass the U.S. total.
The United States is also a nation blessed with abundant natural resources, a growing population, a highly educated work force, efficient manufacturing, and an aging, but still excellent infrastructure. It is still the world's only superpower. But its biggest and immediate challenge is to maintain and strengthen that position into the future. One way for the United States to maintain this position is to continue to improve its leadership position in logistics and to improve its infrastructure.
"Lean and Mean"
During the past couple of years, the significant downturn in the U.S. economy has forced corporations that want to survive to look long and hard at their internal operations. For manufacturers, this meant dissecting their entire supply chain to capture savings by cutting costs and increasing productivity. This process included re-evaluating suppliers, looking at transportation options, improving inventory controls, reassessing location and facility requirements, fine-tuning work forces, and improving material-handling and packaging methods.
Likewise, logistics service providers - trucking companies, railroads, shipping lines, air cargo firms, brokers, expeditors, software vendors, etc. - have all had to improve their own cost and performance structures to meet their clients' needs. In fact, those that could not compete were forced out of the market. From 2007 to 2010, 8,000 trucking firms went bankrupt, according to a report published by Avondale Partners. It certainly was not business as usual. It has been a major retooling for all.
As a result, most U.S. manufacturers have literally become "lean and mean," with debt-to-cash ratios the lowest in five years at 3.06 percent. Despite industrial production only being up 5.3 percent in 2010, and the fact that only half the production volume lost during the recession has returned, manufacturers are experiencing all time high profits and an abundance of cash. But profits still are not enough to overcome risk. It should be noted that transportation no longer is a sound barometer for gauging the overall economy, as the growing service sector and the Google and Facebook type companies that do not produce goods are having a much greater effect.
U.S. manufacturers are more than ready as they are reacting to the protracted slow economic growth, which is being fueled by political and policy uncertainties (risk). They are not adding employees as their productivity gains and the slowed economy have negated their need to hire, which in turn has contributed to the high unemployment rate and has helped keep consumer demand in check. In addition, as the restocking of inventory ends, production is beginning to taper off a bit. Companies are cautiously waiting for the spring-loaded economy to trigger.
Ready for Retooling
This is not the first time for a major retooling of the U.S. manufacturing economy. American manufacturing underwent a major overhaul and upgrade during WWII and during the postwar years of the 1950s and 1960s. The United States felt it was its duty to rebuild the world economy and we went about it with gusto.
The U.S. economy was going strong and the world was its market. But by the late 1970s and early 1980s, other nations started to compete with America on a more serious basis. In particular, Japan was developing into a global economic power, second only to the United States. The Japanese were building new manufacturing facilities globally that were extremely modern and efficient. For the first time ever, robotics were being introduced and the term "supply chain" was born.
The 20- to 30-year-old American facilities simply could not compete. After a period of some hysteria, America was forced to retool. And while the Japanese had made great advances on the manufacturing floor, they had failed to do so across the entire spectrum of their business.
Timing also played a part. By the 1990s, when U.S. manufacturing really started to retool, advances in computer technology and other IT-related industries allowed the United States to leap-frog to a much higher level, implementing state-of-the-art solutions not only on the manufacturing floor, but also at the desktop-level in U.S. company headquarters, back offices, warehouses/distribution centers, and even back into their suppliers and forward to their retail outlets - indeed, across the entire supply chain. In addition, the U.S. began making investments in third-party expertise, from visibility software, to creative financing and assistance in strategic planning, to third-party logistics (3PLs).
Retooling Is Not Complete
Logistics means movement, and when things physically move, you have to have the proper infrastructure. Moving product efficiently and cost competitively is essential to supply chain success. One area attracting tremendous attention is the call for extended investment in transportation infrastructure.
America's highway system is the most important nationwide infrastructure it has. Although the U.S. highway system is world-class and extensive, it is typically more than 30 years old and in need of some significant repair/upgrade to meet the needs of a growing economy. More than 70 percent of the freight tonnage in the United States moves over its highways by truck. U.S. trucking accounts for 5 percent of the U.S. GDP, and trucks are the only mode of delivering goods to more than 80 percent of the communities in the country. Trucks also account for more than 80 percent of the value of cross-border trade with Mexico and more than 60 percent of the value of trade with Canada.
Bottlenecks and congestion are of major concern, as it is estimated such lost time costs more than $20 billion annually. Funding for highway repairs and expansion is at a crossroads. The federal fuel tax, which has historically been used to fund highway infrastructure, does not produce enough needed revenue. Revenues are declining as more vehicles are becoming more fuel-efficient. The U.S. Congress must address this need on a more long-term basis. In the meantime, some $23 billion has been approved for the Highway Trust Fund and Surface Transportation Program, extending their funding to March 2012.
Mega transportation corridors are developing rapidly, connecting large metropolitan areas and regions throughout the United States. These include:
- Boston - New York - Philadelphia - Washington, D.C.
- Chicago - Pittsburgh
- Charlotte - Atlanta
- Southern and Northern California
- Denver - Omaha - Kansas City - St. Louis
- Indianapolis - Columbus
- San Antonio - Austin - Dallas - Oklahoma City
- Louisville - Cincinnati - Lexington
- Orlando - Tampa - Miami
- Seattle - Tacoma - Vancouver
- Cleveland - Youngstown - Akron - Canton
- New Orleans - Baton Rouge - Memphis
- Tucson - Phoenix - Las Vegas - Salt Lake City
- Idaho Falls - Great Falls - Calgary
As the United States grows by an additional 30 million people by 2050, keeping its transportation infrastructure in top condition and meeting these future growth needs are vital and will require long-term planning.
Trucking companies are experiencing several issues, including new Compliance, Safety, and Accountability (CSA) safety requirements; Hours of Safety (HOS) guidelines; and very tight capacity conditions. The CSA has already begun sending warnings out to carriers regarding deficient safety numbers. These CSA reports on carriers will force them to keep on top of their data if they want to be competitive. HOS rules calling for shorter-hour limits and restart timelines for drivers are currently being debated in Congress, and a decision should be forthcoming soon.
Capacity constraints, the sudden high cost of new trucks with 2010 Environmental Protection Agency (EPA) compliant engines, and the unknown economy have most carriers holding off on buying new trucks until the economy picks up. This means we will see more aging trucks on the road. Today the average age of the U.S. fleet of Class 8 trucks is seven years, an increase of 17 percent since 2005. An aging fleet, along with a surging shortage of drivers due to tougher hiring requirements and higher fuel prices, has led to higher pricing.
U.S. rails are in a better position. Railroads, along with government entities, have poured millions into upgrading U.S. rail network infrastructure. The Association of American Railroads is requesting that $150 billion be spent on upgrades and expansion by the year 2040 to meet network future needs. Overpasses and tunnels have been upgraded to accommodate double stacking. The Class I railroads were recently the major recipients of $7.7 million from the government to upgrade security. Railcar leasing companies are now pulling several thousand idle railcars out of storage to meet increasing demand.
Weather and cost-cutting has caused some constraints, but intermodal rail continues to grow at a very rapid rate. New high-tech intermodal facilities are being built. Volume-wise, more than 4 percent of total U.S. tonnage has shifted from trucks to rail due to higher fuel prices and new double-stacking routes. Basically, if a product is moving more than 750 miles, rail transport can be an economical option.
The U.S. port infrastructure has also been going through major upgrades. While the West Coast ports have already made significant upgrades, the East Coast ports are currently spending millions on upgrades directly related to the $5.25 billion Panama Canal expansion, which is expected to be completed in August 2014. New post-Panamax ships will be twice the size of current vessels and require a 50-foot draft, and U.S. ports - especially those on the East Coast, including New York/New Jersey, Norfolk (Virginia), and Charleston (South Carolina) and Savannah (Georgia) - are competing for expanded traffic.
All U.S. ports are modern, state-of-the-art facilities with trucking and rail links, warehouse/terminal development, and foreign-trade zone (FTZ) status. U.S. ports recently received $235 million in security grants from the government. The United States also has a series of inland ports that have been making significant upgrades. These include inland ports located in Dallas/Ft. Worth, Chicago, Kansas City, St. Louis, Atlanta, Memphis, the Inland Empire of California, Columbus (Ohio), Charlotte (North Carolina), and Florida's Inland Port.
Air service, including global air cargo service is widespread across the United States. The International Air Transport Association (IATA) states that the air cargo industry continues to experience some extensive capacity oversupply and flat volume well into next year. However, the volume to/from the United States and Latin America is gaining. With inspections on all domestic and "high-risk" international flights, the Transportation Security Administration (TSA) states that air cargo is more secure than ever.
The bottom line is the United States has the world's largest, most efficient, world-class logistics infrastructure in place, and it is currently undergoing upgrades to handle the growing capacity of the future. From the West Coast ports of Los Angeles/Long Beach, to the inland transportation hubs of Omaha and Memphis, to the border crossing at Laredo (Texas), to Chicago's O'Hare Airport, the United States is truly a mega hub to the Americas - and beyond.