# Presentation: 373528

## Logistics and Infrastructure:  Challenges and Opportunities

*Logistics and Infrastructure:  Challenges and Opportunities*

*Harry Caldwell*
*Federal Highway Administration**Office of Freight Management and Operations*

## Objectives	

- logistics and transportation infrastructure
- infrastructure and economic development
- challenges facing future infrastructure development and use
- approaches to problem solving

## Challenges Placed on Infrastructure

- Shippers

- Transportation Providers

- Infrastructure Providers

- Responding to changing markets, demographic shifts– Focus is short to medium term

- Respond to changing service requirements

- Responding to changing markets, demographic shifts– Focus is medium-long term

- Control of Cargo routing

- Investment Decisions

## Logistics Productivity Factors

- Product Supply Chain Concept
- Government Regulation
- Equipment Carrying Capacity
- Mode Optimization
- Global Logistics & Technology
- Inventory Reduction

## Logistics Expenditures and GDPAfter a long improvement, expenditures have stalled at about 10%

*Source: Cass/ProLogis 10th Annual State of Logistics Report, 1998*

## Trade Outpacing Economic Growth

*Trade Outpacing Economic Growth*

**Trade In****Components****& Parts**

**FAR-FLUNG ****SUPPLY CHAINS**

**Global Trade**

**Global Economic Growth**

## Trucking Costs Have Dropped

*Trucking Costs Have Dropped*

**CPI**

**Average TL Cost**

**Trend (1990=100)**

## Order Cycle Time Development

*Order Cycle Time Development*

## Inventories Are Shrinking

*Inventories Are Shrinking*

**Business Inventory **
**Ratio to GDP**

## Freight Trends and Issues: ThemesPresentation of trends and issues is organized around three sets of themes

- Markets/Logistics *(demand)*
- From national markets to global markets
- From a manufacturing to a service economy
- From push to pull logistics systems
- Carriers/Transportation Systems *(supply)*
- From modal fragmentation to cross-modal coordination
- From system construction to system optimization
- From DoD stovepipes to “Focused Logistics”

**Notes:**
We have made a first cut at identifying trends and issues.  We have organized them into nine themes – listed here and on the next slide.  
We will describe briefly each of the themes, and present preliminary data snapshots to illustrate the trends.  
The themes are grouped into three areas:
The first three themes deal with trends that are changing the demand for freight transportation – trends that are changing the market for freight transportation and logistics strategies: the shift from national to global markets; the transformation of the US economy from a manufacturing to a service economy; and the evolution of logistics from “push” systems to “pull” systems.
The second set of themes deal with trends that are changing the supply of freight transportation – trends that describe how carriers and government are responding to changing demand and reorganizing the freight transportation system:  moving from fragmented, standalone services to more integrated and coordinated freight services; and moving to optimize the operation of the freight system – including better fleet and vehicle management as well as better highway traffic management.  

## Themes (continued)

- Public Policy
- From economic deregulation to safety regulation
- From modal to multi-modal surface transportation policy
- From low visibility to environmental accountability

**Notes:**
The third set of themes deals with trends in public policies that are shaping both the demand and supply of freight transportation:  the shift from economic deregulation to safety regulation; the emergence – through ISTEA and TEA-21 – of a multi-modal surface transportation policy; the greater visibility of and increasing pressure for environmental accountability in the development and operation of freight facilities; and the reorganization of the military’s logistics system, which is leading to substantial integration of the military and commercial freight systems.  

## Trends Shaping Demand for Transportation Services

- Continuing evolution of the U.S. into a service and information economy
- Increasing domestic, NAFTA, and global trade
- Outsourcing for comparative economic advantage in production
- Customer-driven shift to customized, mass-market products and services
*Manufacture-to-order and time-definite-delivery*
- Emergence of e-commerce and e-business

**Notes:**
For each theme we have outlined: key trends, their implications for freight transportation; and issues (some current, some emerging) that might warrant attention.  We also have assembled preliminary data snapshots to illustrate the trends.  
The first theme deals with the emergence of global markets and the impacts on freight transportation:
We are seeing increasing domestic, NAFA, and global trade ...(see slide text)
The implications for freight transportation are .... (see slide text)
Note: Major ports anticipate that container volumes will double or triple over the next decade
Note: Major air-cargo hubs such as LAX anticipate a four-fold increase in air cargo volume. 

## From Push to Pull Logistics Systems

*From Push to Pull Logistics Systems*

## E-Commerce and Freight MovementShippers expect to use more parcel/express, LTL, local trucking, and /courier services

**Parcel/express envelopes**

**Regional or National LTL**

**Local Trucking or Courier**

**Third Party (mode unknown)**

**Long-Haul Truckload**

**Other**

**Heavy Air Freight**

**Railroad (including intermodal)**

**Steamship**

**More**

**No Change**

**Less**

- Source:  Morgan Stanley Dean Witter Equity Research, April 2000

*E-Commerce and Freight Movement**Shippers expect to use more parcel/express, LTL, local trucking, and /courier services*

## Modal Growth in Tonnage Demand for reliable, high-speed service is growing

**Air: 22%**

**Truck: 7% **

**Rail Intermodal: 6%**

**Average All Modes: 4%**

**Rail Carload: 2%**

**Inland Water: >0%**

**Higher**

**Lower**

**5%****	****10%****	****15%****	****20%****	****25%**

**Compound Annual Growth, 1990 to 1998**

**Level of Service**** Continuum**

*Modal Growth in Tonnage **Demand for reliable, high-speed service is growing*

## Transportation Infrastructure is:

- An Asset to contain costs and make products more competitive
*Are we using it wisely?*

## Infrastructure Concerns add to delays and unnecessary costs

*Infrastructure Concerns add to delays and unnecessary costs*

## Top Gateways for International Freight Exports and imports in tons

*Top Gateways for International Freight **Exports and imports in tons*

## Travel Rate Congestion IndexThe average percentage growth in peak-period-travel-time compared to off-peak-travel-time in 68 large metro areas was 81%

*Travel Rate Congestion Index**The average percentage growth in peak-period-travel-time compared to off-peak-travel-time in 68 large metro areas was 81%*

## System Mileage within the U.S.Highway and air increased modestly; Class I rail lost mileage 

- Source: USDOT, Bureau of Transportation Statistics, National Transportation Statistics 1999

*System Mileage within the U.S.**Highway and air increased modestly; Class I rail lost mileage *

## NHS Intermodal Connectors - Infrastructure	 Constraints

- NHS Connectors
- Poor physical condition
- Port access issues
- “orphan status”
- inadequate coordination of investment strategies
- need for intermodal impact statements

## More Traffic on the HighwaysDaily Vehicle Miles of Travel per Lane-Mile, 1987-1997

*Source: Federal Highway Administration, Status of the Nation's Highways, Bridges and Transit:  Conditions and Performance, 1999*

## California Motor Carriers’ Perception of Congestion and ResponseCarriers are investing in technology to counter increasing congestion

*California Motor Carriers’ Perception of Congestion and Response**Carriers are investing in technology to counter increasing congestion*

- 82% see congestion as serious or critical
- Costs of slower speed
- Scheduling problems
- Driver morale
- Accidents & insurance
- Higher fuel & maintenance
- 85% see congestion worsening over next five years

## Regional GNP Growth Rates to 2010 

*Regional GNP Growth Rates to 2010 *

## Growth by Major Region and Mode(Tons in Millions)

## Capacity and the Nation’s Infrastructure

*Capacity and the Nation’s Infrastructure*

**Remaining Need **

**Legislative Strategies**

## From System Construction to System Optimization

- Highway congestion, especially landside access to ports and terminals
- Insufficient rail and intermodal terminal capacity
- fragmented operational strategies; immature national and international ITS and automated identification standards
- Shortages of labor and skills
- Limitation of public and private finance for system maintenance and new capacity
- Public-public and public-private integration of ITS and IT systems

## From Modal to Multi-Modal Surface Transportation Policy

- Trends
- Evolving public sector awareness of the need for multi-modal policy, planning, and investment (ISTEA and TEA-21)
- Increasing state and local control of transportation investment
- Increasing use of highway trust funds for system preservation
- Growing demand to re-link transportation investment and economic development

## From Modal to Multi-Modal Surface Transportation Policy (continued) 

- Implications for freight
- More complex planning and investment environment
- Mismatch between scale of transport operations (increasingly regional and global) and public sector jurisdictions (local and state)
- Issues
- Role of multistate freight and trade corridor programs
- Identifying and financing freight projects of national significance
- Use of highway trust funds for non-highway freight projects

## From Modal to Multi-Modal Surface Transportation Policy (continued)

- Issues ...
- Slow, inflexible public planning and project delivery compared to private sector
- Disjointed modal planning
- Difficult to engage private sector freight interests in state and MPO planning processes; limited freight representation
- Inadequate freight planning data and analysis tools

## Freight Transportation PerspectivesState and MPO focus is regional and local; private sector focus is increasingly national and global

**Public Sector****(States, MPOs)**

**Private Sector****(Shippers, Carriers)**

***Global***

***National***

***Regional***

***Local***

*Freight Transportation Perspectives**State and MPO focus is regional and local; private sector focus is increasingly national and global*

## Why Identified Projects Go Unprogrammed

- Low priority in State/MPO plans
- Lack of local match or sponsorship
- Lack of private sector participation
- Neighborhood/Community opposition
- Environmental concerns
- Physical/Other Constraints

## North American readiness...

*North American readiness...*

## The Challenge

- Over the past 20 years, highway travel demand has increased an average of over 3.0 percent per year
- During that same time, highway capacity has increased at a rate of 0.3 percent per year.
- Over the next 20 years, freight movements are expected to double, with more intense growth in major traffic lanes, hubs, and POE
- customer expectations will increase; environmental issues will intensify

## There Is A Role for the Public Sector

**ENSURE FREIGHT ****SYSTEM RELIABILITY**

**Transportation Agencies**
**& ****Economic Development Agencies**

**Air Freight**

**Trucking**

**Rail**

**Ports**

## The Evolution of Freight Policy

- Efficiency

- Equity

- Effectiveness

- 1991  -  97

- 1998  -  03

- 2004  -  ??

*The Evolution of Freight Policy*

## Future Challenges

- Institutional Development - break the paradigms
- Encouraging multistate, regional, and binational intermodal freight coalitions
- Establishing statewide and metropolitan freight advisory groups
- Developing tools to evaluate freight improvement options

## Future Challenges - 3 I’s

- Information Technology - leverage technology to optimize system performance
- ITS - need full deployment; links throughout supply chain
- Border crossings and ports of entry - national security, trade processing, credentialing
- Data needs - develop real-time operations information system - technology as enabler

## Future Challenges

- Infrastructure - early planning & public/private partnerships
- Improve financing options - eligibility issues...multijurisdictional infrastructure banks
- Develop financing guidelines
- Raise freight concerns during the planning process

## Logistics Challenges....Policy Responses

- Comprehensive ops strategy...intermodal ITS
- support for private sector efficiency gains
- data and analytical development
- corridor and border support
- creation of RCOEs to support inst. dev.
- Initiate FDP...planning, prog, finance
- initiate pilot projects illustrating each element
- independent T&E
- NAFTA component...variations of the above