Infrastructure: The Long Road for Logistics
The logistics industry is beginning to confront challenges - including labor and government policy - while emerging as one of the global economy's most critical concerns.
September 2010
While the logistics industry faces a slew of issues - from work force and energy supply to technology and the impact of government policy - going forward, infrastructure will, unsurprisingly, be one of its main concerns. Infrastructure already drives location decisions of companies like Tyco Safety Products, which found easy access to its markets when it built a new distribution facility in Lithia Springs, Georgia. This is such an important factor that the federal government recently appropriated $1.5 billion through the Recovery Act for Supplementary Discretionary Grants for a National Surface Transportation System.
This high-profile appropriation is only a drop in the bucket of needed infrastructure investment. Concerns over infrastructure financing will not go away, and while the public sector will continue to be involved, beneficiaries of the infrastructure or other investors will be sought to finance other segments, particularly large, international infrastructure projects. Financing the maintenance of completed infrastructure projects will be an ongoing struggle.
Which types of infrastructure to expand will be another vital consideration. Undoubtedly, a mix of modes is required, but will there be a shift in preference? For example, a freight train can be three times as fuel efficient as a truck, and approximately 42 percent of all intercity freight in the United States travels by rail. So it isn't surprising that demand for freight transportation is projected to nearly double by 2035, from 19.3 billion tons in 2007 to 37.2 billion tons in 2035. However, as many look to rail as a more efficient and environmentally friendly freight shipper, rail's market share could increase and lead to additional increases in freight rail tonnage. As a result, an estimated $148 billion in improvements will be needed to accommodate the projected rail freight demand in 2035, according to Plunkett Research, Ltd.
Rail, as well as inland water transportation, is generally viewed as more sustainable than road transport, according to PricewaterhouseCoopers in its report Transportation and Logistics 2030. While both means of transportation outperform the roads in terms of energy efficiency, the advantage of road transport is its flexibility. Although road transport has grown significantly over the past several decades, infrastructure and capacity bottlenecks will limit future growth in some areas.
While some consumers seek to ease the burden on infrastructure by choosing live/work/play communities - where they can walk from home to work and to shopping, dining, and entertainment - these are most common in urban districts and do not typically extend into rural areas. So it will not be a widespread solution to the infrastructure strain and investment demand.
Still, possible infrastructure investment today may not support changes in transport modes in the future. "Larger means of transport may increase in prevalence, necessitating significant infrastructure investment," the PricewaterhouseCoopers report stated. Indeed, airports built in the last part of the 20th century to accommodate Boeing 747s and their up to 112 tons of freight will not support an Airbus A380-800 maxing out at 150 tons. And ports constructed with a 3,100 TEU container ship in mind can't touch the sizes of the future, which may one day climb as high as 22,000 TEU. Yet, companies seeking to find efficiency in transportation may turn to such larger modes, and locations that wish to attract their business will need to respond accordingly to make themselves a viable option.
Environmental impact of infrastructure will become an increasing concern. The PricewaterhouseCoopers report expects an increase in regulation related to environmental protection in transport infrastructure projects. The report finds it "highly likely" that transport infrastructure operators will be obliged to participate in emission trading systems to obtain pollution permits.
As technology advances, IT infrastructure will also require attention. The PricewaterhouseCoopers report finds that in the next 20 years, consumers who demand greater control over logistics may also intervene in the delivery process. "This will increase the complexity of logistics processes, making necessary a highly sophisticated technical infrastructure," the report stated.
"Getting transport infrastructure right is critical," PricewaterhouseCoopers reported. Not only will it be a determining factor in investment in supply chains, but it will be of paramount importance in competitiveness in the years to come.