U.S. Trade Corridors Must Evolve to Keep Pace with the Global Economy

According to the Coalition for America's Gateways and Trade Corridors (CAGTC), U.S. freight traffic is expected to increase 100 percent by 2020. Over that same time period, foreign trade is projected to increase by 187 percent, with containerized cargo experiencing a spectacular 350 percent jump in volume. These trends, combined with domestic growth, all add up to nearly a $10 trillion U.S. commodity flow - a huge driver for America's growth and prosperity.

"Containerized trade is up for imports and, most recently, exports are up even faster," says Rene Circ, national director of industrial research for Grubb and Ellis Company in Chicago. "Railroads have become very dependent on containerized traffic instead of bulk, which used to be their bread and butter. Intermodal traffic is up, and the Class 1 railroads are looking at adding additional intermodal yards. Rail will gain even more importance in the future due to congestion, pollution, and cost of diesel. The West Coast ports will remain as the largest ports into the future, and the leg between Los Angeles and Chicago will still be a dominant route, even with the expansion of the Panama Canal."

Additionally, trade moving through Southern California corridors - especially containerized freight - has continued to increase dramatically over the past two decades. "The number of twenty-foot equivalent (TEU) units alone that moved through the ports of Los Angeles and Long Beach increased from just over 5 million in 1995 to 14.3 million in 2010," states Hasan Ikhrata, executive director for the Southern California Association of Governments. "Current forecasts project that number to increase to 42 million TEUs by 2035."

In order to handle this dramatic increase in cargo movement over the next 25 years, supporting industries in Southern California will have to expand their operations to keep pace. As an example, Ikhrata notes, the existing warehouse space of 693 million square feet in Southern California will need to nearly double by 2035 to accommodate forecasted growth in freight activities.

Increased trade across America, of course, is good news for the economy. However, it will also create a large burden on the country's already-stressed railroad and highway systems - modern, robust trade corridors and high-tech intermodal terminals must be developed in order to quickly move these increasing shipments to market as efficiently as possible.

Distance and Geography Are Key
The importance of a trade corridor is, in some ways, in the eye of the beholder. Corridors can be short and relatively lower cost (e.g., the Alameda Corridor, a 20-mile-long, dedicated freight corridor that consolidated existing rail routes in Los Angeles and Long Beach) or be thousands of miles long, connecting Canada and Mexico or California to New York.

Trade corridors considered to be the highest priority by the U.S. government have airfreight, deepwater port, rail, and interstate connections and the capacity to handle expanded global business, driving the economy and GDP forward. Although there are lots of trade corridors across the country with many of the same attributes, none really dominate - that's because the key factors in using a corridor are usually distance and geography.

"Companies are taking a much closer look at entire supply-chain cost, not just the cost of real estate," indicates Tim Feemster, senior vice president and director of Global Logistics for Grubb & Ellis Company in Dallas. "Transportation is over 50 percent of the cost of supply chain - the next most-expensive component is labor at 17 percent. The real driver is the cost of transportation."

In other words, shortening transportation distance within the supply chain is a top priority. Shortening that distance also means a smaller carbon footprint, which is beneficial for the environment, operating costs, and public image.

"An emerging trend that is already affecting Europe and has a growing constituency in the U.S. is reduction in carbon emission," indicates Dexter Muller, vice president of Community Development at the Greater Memphis Chamber of Commerce in Tennessee. "Regardless of whether federal legislation mandates reductions, we believe that the American consumer will expect a reduction in the carbon footprint of companies they choose to do business with. This will affect supply chains by likely reducing transportation distances and also favoring certain modes of transportation."

As essential as trade corridors are to the U.S. economy, financing them is tough, especially in a wobbly economy and without a coherent national transportation policy in place. Expansions and upgrades tend to be scattered or patchwork in nature and dependent on the strength of lobbying interests and funding from public/private partnerships and investors. "Trade corridors compete on incentives and infrastructure," says Circ. "With current federal budget deficits, it will be very difficult for any of them to get the funds they are seeking. State governments are doing even worse, so despite the need out there for infrastructure improvements, they will be slow in coming."

What advocates lack in terms of funding they make up for in perseverance. Take, for example, the Ports-to-Plains Alliance. This grassroots initiative, founded over a decade ago, is intent on creating a trade corridor from Laredo, Texas, to the Canadian border. Hundreds of elected and government officials, business leaders, and communities from nine states have stayed involved. To date they have secured over $900 million to study and develop the Ports-to-Plains Corridor - a connected series of state, U.S., and interstate highways that they want to transform into a continuous, four-lane divided highway. Although progress has been slow, the group continues to lobby for support and continues to grow - in fact, it just welcomed its first Mexican member, the State of Coahuila, last year.

Major Corridors
Eight major north-south interstate corridors traverse the nation (interstates 5, 15, 25, 35, 55, 65, 75, 95), all of them supported by rail. The Pacific Corridor is centered on Interstate 5 that runs from Mexico to Canada, going through California, Oregon, and Washington. The southern end of the corridor is anchored by San Diego/Tijuana and Calexico/ Mexicali, two crossing points at the U.S. border that stay busy processing trade from the plentiful maquiladoras to the south. I-25 is the backbone of the central-western corridor, which connects the maquiladoras in Chihuahua and Ciudad Juarez with New Mexico, Colorado, and Wyoming; Interstate 35 runs north across the American heartland from Laredo, Texas, to Duluth, Minnesota, and the Great Lakes.

In the central United States, the main corridor is I-75, which connects Canada to the U.S. at Detroit's Ambassador Bridge, the busiest bridge in North America, and runs south all the way to Florida. Interstates 55 and 65 connect Chicago/Gary to Louisiana and the Gulf Coast. The Atlantic Corridor is centered on Interstate 95 - the main artery that connects Atlantic Canada, the big East Coast cities, Miami, and the Gulf of Mexico.

East-west trade corridors are interstates 80, 90/94, 70, 40, and 10, along which European goods received on the East Coast and shipments from Asia that arrive in West Coast ports travel. These interstate systems have strong rail support. For example, Interstate 80 - one of the busiest east-west corridors, which crosses California, Nevada, Utah, Wyoming, Nebraska, Iowa, Illinois, Indiana, Ohio, Pennsylvania, and New Jersey - is largely paralleled by railroads owned by Union Pacific, Kansas City Southern, and Burlington Northern Santa Fe (BNSF). Union Pacific is headquartered in Omaha and BNSF maintains intermodal facilities in Omaha and Alliance, Nebraska.

Cities at the intersections of north-south and east-west corridors, such as Memphis, are often the sites for bustling intermodal facilities. Located at the juncture of I-40, I-55, and the Mississippi River, Memphis is rapidly expanding as a logistics and distribution center. It is one of the few cities in the United States with five Class 1 railroads, which have invested nearly $1 billion combined in infrastructure improvements. More than 50 logistics centers in excess of 500,000 square feet are located in Memphis, which also has one of the largest cargo airports in North America.

Just to the north in Canada, east-west shipping is being enhanced by the Atlantic Gateway, Continental Gateway, and Asia-Pacific Gateway corridor initiatives, which are upgrading and integrating vital air, rail, marine, and highway transportation systems. The Asia-Pacific-Continental-Atlantic Gateway corridor system connects with highway and rail systems that run south to Minneapolis, Chicago, and Detroit, with direct access to Memphis and the Gulf of Mexico.

In September 2010, the Canadian government announced more than $3.5 billion worth of projects for the Asia-Pacific Gateway Corridor. About midway along the Asia-Pacific Gateway is CentrePort in Winnipeg, a 20,000-acre inland port/intermodal facility and foreign-trade zone with easy access to road, rail, and air transportation. Upcoming plans for CentrePort include constructing a common-use rail facility that will further increase rail volume.

Rail Supported Inland Ports
Truck transportation is getting more expensive as the cost of diesel fuel continues to rise; other concerns include traffic congestion and air pollution. Trade corridors that expect to flourish must have strong rail systems that are strategically supported by inland ports. According to the Center for Transportation Research at The University of Texas at Austin, inland ports are "sites located away from traditional land, air, and coastal borders with the vision to facilitate and process international trade through strategic investment in multimodal transportation assets and by promoting value-added services as goods move through the supply chain."

By collaborating with trade corridors, inland ports become efficient economic development engines for their regions, attracting new businesses and industries that benefit from the existing distribution systems and their ability to move products quickly. In order to do this, inland ports must be supported by modern intermodal terminals, where shipments are easily transferred between modes of transportation (road, rail, air, water).

Currently there is intense competition between railroads to build new, expansive high-tech intermodal facilities that add value to their customers' supply chains and keep costs down. In September 2007, the Association of American Railroads advised that $148 billion should be invested to expand the nation's freight rail infrastructure over the next three decades to ensure enough rail capacity to meet future shipping needs. The association's report calls for investment in new tracks, signals, bridges, tunnels, terminals, and service facilities to keep pace with the increasing demand for rail freight transportation; the improvements are also needed to ease highway congestion, reduce stress on highways and bridges, lower fuel consumption, and reduce emissions.

Investing in Intermodal
BNSF expects to invest approximately $3.5 billion in 2011 to upgrade its infrastructure through its Corridors of Commerce initiative. The largest component of the capital plan is spending $2 billion on its core network and related assets. The railroad will also invest about $300 million for federally mandated positive train control (PTC) and $300 million for terminal, line, and intermodal expansion and efficiency projects, primarily focused on the mid-continent and coal routes to improve velocity and throughput capacity.

Part of this work includes building an additional north-south mainline through Tower 55, a vital but heavily congested intersection for the national rail network located southeast of downtown Fort Worth, Texas. More than 100 trains move through Tower 55 during peak days; given the high volume, trains must come to a complete stop prior to passing through the intersection, adding significant time and cost to the run.

Tower 55 is a good example of the kind of partnership funding that is required to make these infrastructure improvements happen - BNSF invested $65 million, with an additional $34 million from the federal government, $1 million from the Texas Department of Transportation, and $1 million from the City of Fort Worth. Improvements include new signaling, bridge upgrades, a third north/south main line, and improved street and pedestrian crossings.

"This could not have happened without the unprecedented collaboration of a number of entities that supported this essential project," says Bill Meadows, a member of the Texas Transportation Commission from Fort Worth. "The financial contributions from the City of Fort Worth, the Regional Transportation Council, the Texas Department of Transportation, BNSF, Union Pacific, and the federal government represent a true partnership that led to this decision. We would not be able to move forward with this project without any one of these partners."

A $2.5 billion upgrade is under way for Norfolk Southern's Crescent Corridor in the eastern United States. This program of independent projects and upgrades will create a high-capacity, 2,500-mile intermodal route running from New Jersey to Louisiana. Improvements include additional passing tracks, double-track projects, improved signaling systems, and track speed enhancements.

Norfolk Southern is also busy constructing intermodal facilities with some of this money, including the new Birmingham Regional Intermodal Facility on a 316-acre site in McCalla, Alabama, that should be operational in late 2012 and be able to process 165,000 containers and trailers annually. The terminal will utilize advanced gate and terminal automation technology, which shortens the waiting time for trucks entering the terminal and improves truck driver productivity as well as air quality. Other intermodal projects are slated for Charlotte, N.C.; Greencastle, Pa.; and Memphis, where the $105 million Memphis Regional Intermodal Facility will use low-emission cranes and the main administration building will meet Leadership in Energy and Environmental Design (LEED) certification standards.

A Future Glimpse
Locally, trade corridors bring the hope of prosperity to the communities through which they pass - prospects for more economic development, more businesses, more jobs, better schools. In 2007 the U.S. Department of Transportation identified Interstate 69 as a "Corridor of the Future." This 2,680-mile international and interstate trade corridor - stretching from Mexico through the United States to Canada - consists of 32 segments, one of which passes through DeSoto County, Iowa.

"This corridor is a potential game changer," comments Greg Dale, a principal with McBride Dale Clarion, a Cincinnati consulting firm working with the DeSoto County Planning Commission to develop a strategic plan for the corridor. Dale indicates that the most important aspect of the plan is "connectivity" with the larger region by effective utilization of 11 interchanges planned for the corridor.

"It's pretty amazing to plan a corridor like this with 11 new interchanges," Dale continues. "We talk about the corridor as a blank slate. This is a tremendous opportunity." Development along the corridor calls for the "creative blending" of industrial, corporate, residential, and other community components. DeSoto County expects to enjoy a robust 21.8 percent growth rate between 2015 and 2020.

Global impacts on U.S. trade corridors include the Panama Canal expansion, which will open a new access path to East Coast ports. "When it is completed in 2014," says Circ, "I think we will see some percentage of container traffic being diverted from the West Coast. The amount may not be as meaningful as some people expect, but a few percentage points of market share still means double-digit growth for some East Coast/Gulf ports. This expansion, however, is also generating a need for infrastructure investment, as most ports on the East Coast do not have the necessary depth to accommodate the larger ships. Therefore it is likely that some federal funding will be allocated to ports for dredging."

Rising oil prices and diesel prices will also change some distribution chains. With higher gas prices, more densely populated areas have an advantage over some trade corridors that are located in the West. "Distributors will want to be closer to the end customer instead of distributing from one large center in an area where land and labor is cheaper," adds Circ. "Transportation costs are higher than labor and real estate costs combined."

Higher labor costs in China, coupled with rising transportation costs, are also starting to change supply-chain configurations, to the point where outsourcing may slow down or transition to near-sourcing locations, such as Mexico. "Of course, Mexico is having issues, especially at the border, but it is still a near-sourcing destination that makes sense," says Circ. Increased near-sourcing will heighten the need for improved U.S.-Mexico trade corridors, such as the Ports-to-Plains Trade Corridor, and perhaps lead to sharper attention by policymakers toward funding vital infrastructure improvements.

A final obstacle to trade corridor improvement is accurate messaging, both to the American public and its government. "While most Americans benefit from trade corridors and freight movement, most are unaware the crucial role goods movement plays in their daily lives," says Ikhrata. "Freight provides enormous regional and national economic benefits in the form of wealth creation, jobs, and taxes. Education for decision-makers and the public will play a key role in ensuring that critically needed freight infrastructure needs garner the support [required] at multiple levels to ensure the maintenance and improvement of our already-constrained transportation system."