Last October, as the recession was deepening and legislators were wrapping up the American Recovery and Reinvestment Act of 2009, there was a call for shovel-ready projects to improve roads and highways. Naive folks, like me, crossed our fingers and hoped that the stimulus dollars would be channeled into much needed upgrades of transportation infrastructure. I hate sitting in traffic, and as a logistics professional I know that the degrading state of U.S. roadways is adding to supply variability and longer order lead times for shipments.
This week, my hopes were crushed and my bubble was burst. While attending CSCMP in Chicago, I listened to the findings of the 20th Report. I found out just how little impact the stimulus spending will have on improving the state of logistics. Here are the sobering facts:
- Not as many trucks, but a lot of bumps. During 2008, 3,000 trucking companies went out of business, reducing 7% of trucking capacity. We have seen a record number of over-the-road carriers going out of business. Less-than-truckload carriers have 20% excess capacity. As a result, there is a lot of capacity for too few loads. Pricing is stiff resulting in havoc in operating ratios.
- It is not even a down payment. Less than 6% of the Recovery Act is targeted at improving transportation infrastructure; it amounts to $45 billion. With the barrage of news on billions and trillions of government spending, it is hard for me to keep track of spending. I have been wondering is this enough? Will it help? The answer is not much. Approximately half of the stimulus transportation spending will go to roads. For perspective this will double the spend of a normal year's budget. Many small projects, valued at $20 million or less, are being started all over the United States, but they will have little true impact.
- It is bad. The American Society of Civil Engineers periodically publishes a report card on the infrastructure, and the result is not pretty. Roads get a grade of D. Bridges get a C rating. Inland waterways get a D. Unlike the miles of newly finished highways in Shanghai, 35% of U.S. highways are in poor or mediocre condition. Bridges are designed for 50 years. The average life of a U.S. road bridge today is 43 years. One in four bridges need replacement. The average age of federally operated locks on waterways is nearly 60 years, way past the design life of 50 years. The need is for 300 billion annually. We are spending 70.3 billion. The stimulus package is not even a down payment on the true need.
- Fuel taxes are insufficient. While I have always thought that gas taxes would help, the Highway Trust Fund (reinvestment from gas tax revenues) is failing. Money in the fund is raised indirectly via a Federal Fuel tax of 18.4 cents per gallon on gasoline and 24.4 cents per gallon of diesel fuel and related excise taxes. The problem is that folks just are not driving as much, creating a shortfall of $5 to $7 billion dollars this year, with a projected shortfall of $8 to $10 billion in 2010.
- Logistics infrastructure needs a major overhaul. It takes time (3 to 8 years) to build plans to construct roads. To get the stimulus funds, states have 120 days to commit half of their allotment or give it back. There is no time to plan and tackle the critical projects.
Yes, you may see some shovels moving on your local highways, and there will likely be alot of marketing of how "your stimulus funds are working for you." But, don't be fooled by the hype. The spending is insufficient and poorly planned to solve our real problems—too little to get the economy really trucking.
What do you think is the answer to our logistics problems? How bad do you think that it will get? Do you think that the CSCMP 20th State of Logistics Report is accurate?
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