Congestion problems aren't things of the past, we've just dealt with them in a temporary manner. That's the consensus view expressed at the 18th Annual State of Logistics Report. Rosalyn Wilson, discussing questions raised by trends highlighted in the report, noted that more US ports have reached the 1 million-TEU-per-year mark due to the high volumes of international freight traffic. (TEU = twenty-foot-equivalent unit).
While the fact overall volumes have not seen a dramatic drop is one indication the problem has not gone away, another is that those volumes are being spread to more ports. This has helped ease some of the operational tensions and gives the appearance that congestion is being handled.
The railroads are doing an excellent job of investing in infrastructure, including double tracking and expanding on-dock rail capacity, says Wilson. But as far as the ports are concerned we're "just buying time there" because there are capacity issues, she continues. More must be done to prepare ports to handle larger ships.
But ultimately, the growth will contribute to more road traffic, which has already added an estimated 25% in volume in less than 10 years without the addition of a single lane-mile of road, explains Wilson. Additional work must also be done to improve grade separations to reduce the number of points where rail and motor traffic intersect. At the time those rail lines were put in areas like the Midwest were not heavily built up, but now we have really inefficient points of contention that improving grade separation, adding some lane miles of roadway and dedicating some lanes to trucking only could ease congestion and deliver a "pretty good bang for the buck," notes Wilson.
Freight rail is the only private network of all the modes of surface transportation, adds John P. Lanigan Jr., executive vice president and chief marketing officer of Burlington Northern Santa Fe Corp. (BNSF www.bnsf.com). Highways are not owned by the trucking companies, ports aren't owned by the steamship companies, and airlines don't own the airports, said Lanigan. This means railroads have the unique ability to add capacity where capacity is needed most. "This year the Class 1 railroads will invest over $9 billion in capital, and we're at $2.5 billion ourselves at BNSF."
A significant portion of the rail investment is in maintenance, Lanigan admits, but the railroads look at the investment issue very closely and, "we look at the highways as a very tender spot because of the lack of the addition of new highway miles."
Ports get a lot of attention on capacity issues, explains Lanigan, and despite dire predictions five years ago that the Ports of Long Beach and Los Angeles would be out of capacity, they have continued to grow at double-digit rates. "All you have to do is go a port like Hong Kong and watch how that port operates and then come to a US port and you'll realize there's a lot of latent capacity at US ports, just because of work rules, work practices, etc.," Lanigan points out.
Lanigan expressed confidence that working with the unionized longshoremen in the US, it will be possible to unlock that capacity over time.
"We're going to continue to advocate for investment in ports and certainly investment in highways," says Lanigan. "But what we also advocate is that we make sure that the private investment in the rail industry and also that the public/private partnerships in the rail industry expand, because the rail industry can add capacity faster than any other mode of transportation because we are private networks."
Security, a major focus of last year's State of Logistics Report, has not gone away either as a factor in the flow of goods. It hasn't moved off the agenda, says Wilson, but not much has changed. The looming issue of 100% inspection is a concern. "You read about what's going on on the Hill and what they're considering and you get really scared that they're thinking about checking every single container; it's like strip searching every passenger that goes through security to get on a plane." The impact that would have on freight movement, comments Wilson, is staggering. The news is that there is still no overriding solution, says Wilson. She is hopeful that high technology solutions will help avoid some of the more onerous practices proposed or being discussed by legislators.
The kind of technology being used at ports elsewhere in the world could improve efficiency and security at US ports, notes Wilson. "But it takes money."
Looking at transportation costs, the State of Logistics Report indicates a 9.4% rise in 2006. Trucking, which is the largest portion of that, was hit by the downturn in the housing market and in the motor vehicle industry. Traffic was up overall, says Wilson, gaining due to imports and especially exports. Consumer spending continued to help buoy the slowing economy, keeping the demand for most goods strong.
Digging into the motor carrier segment, Wilson reports that trucking costs were up $52 billion in 2006, an 8.8% rise over 2005. "Fuel surcharges were often the only thing that ensured revenue growth," says Wilson.
Actual tonnage in the trucking segment was down for the first time in several years, off1.3% in 2006. Capacity was abundant (in equipment, not drivers), in part, because of the softer demand, but also because of a surge in new equipment as carriers replaced older vehicles prior to the switch to lower-emission engines mandated for 2007 models.
Smaller carriers struggled to find loads in a weaker market, with some reporting they took loads where they could get them—increasing their length of haul by an average of 10%. Large truckload carriers saw a much smaller increase in their length of haul, up only about 1.5% to 2%, says Wilson, citing an unpublished report.
Independent owner-operators took a disproportionate hit from the multiple factors affecting the industry. Anecdotally, "Many reported they needed to be almost100% engaged just to make ends meet. Some even reported turning down a haul if they could not get a guaranteed back haul."
Added capacity in the trucking industry did not always mean available capacity, reports Wilson. The industry is currently reporting a shortage of 200,000 long-haul drivers and the American Trucking Associations (ATA www.truckline.com) expects that number to grow. Long associated with long-haul truckload, Wilson points out the driver issue hit all segments of trucking, increasing turnover rates to an average of 121% in long haul and 114% in short haul. The problem eased from 2005 only to pick up again in mid 2006.
Drivers are changing companies as they pursue higher wages and better benefits, says Wilson. This is showing up in carriers' annual reports as increased labor costs not only in wages and benefits but also in training.
Unwanted attention could be focused on the driver issue in light of a Federal Motor Carrier Safety Administration (FMCSA www.fmcsa.dot.gov) study demonstrating a link between high driver turnover rates and crash rates. The FMCSA recommended higher scrutiny of drivers who have averaged more than two jobs with different carriers each year for a period of two years.
Coupled with reports that drivers admit violating hours of service rules, safety (and its impact on the pool of available drivers and insurance costs) will be a major issue for the trucking industry.
A recent survey showed 75% of qualified truck drivers admitted to deliberate violations of hours of service rules at some time. Most were company drivers, says Wilson, and fully 55% say they are still deliberately violating hours of service rules.
The continued rise of international moves and some of the softness in truck volumes leads to a question of whether mode shifting may account for some of the rise in intermodal and drop in long-haul trucking. There has been some, says BNSF's Lanigan.
Containers continue to dominate intermodal, according to Lanigan. From a productivity standpoint, the opportunity to have higher productivity and continued to improve efficiency through a shift from trailers on flatcars (TOFC) to containers is a major driver. The railroads can handle 40-foot containers and double stack in most instances. The mix of 20-foot and 40-foot containers on a single rail car is the equivalent of four twenty-foot-equivalent units (TEUs) vs. one 53-foot trailer, he points out.
Domestic containerization is one area where the US may be lagging the rest of the world, says Wilson. Elsewhere, about 75% of the freight moves in containers.
"The bottom line is, we're buying time," concludes Wilson. "One of the reasons rail isn't seeing the capacity problems is that rail is making the investments necessary and their congestion problems are largely disappearing. Average train speeds are creeping up and that's all a positive sign that the investment they're making is making a difference. We're still not moving on roads, on highways," she adds.
Regarding ports, she notes that while more ports have hit the 1 million TEU mark, one reason we don't hear more about bottlenecks is that we are spreading the freight throughout the system. "But it doesn't fix the draft problem, so we can't handle the larger ships. We're doing those things in the system without making the hard change."
"If we were going to continue to move the same volume of goods, we're doing a great job. But that's not going to happen. There's no forecast that I've seen that doesn't have growth, and almost exponentially in the next decade," comments Wilson.
Transportation Costs ($ billions)
Intercity Motor Carriage ....... $432
Local Motor Carriage ........... $203
Rail ...................................... $54
Maritime .............................. $32
Domestic Waterway ............. $5
International Air ................... $15
Domestic Air ........................ $23
Forwarders .......................... $27
Oil Pipelines ......................... $10