Transportation: Stuck in the Slow Lane

By Pat Panchak, Editor, Industry Week

Manufacturers have implemented technology and new processes to improve the efficiency, reliability and security of distribution systems. But is the nation's infrastructure able to handle the load?

While the U.S. has one of the finest transportation systems in the world, and its manufacturers are among the savviest users of it, some executives see trouble on the horizon that they say needs to be addressed now.

"We're very concerned about the state of the infrastructure of the country," says Robert J. Reynolds, manager of Global Logistics Technology and Processes at DuPont Global Logistics, the transportation and distribution arm of DuPont & Co., a chemicals and materials company in Wilmington, Del. "If you travel by road, as I do, you're constantly in heavy truck traffic. If anything goes wrong, it backs traffic up for miles and creates significant delays. Railroads today are running pretty much at capacity, so even though they'd like to take traffic off the highways, they really don't have that much capacity to do it today."

Looman F. Stingo, senior vice president of logistics, at Holcim (US) Inc., an Ann Arbor, Mich.-based supplier of cement, aggregates and concrete, agrees: "There's a real concern that it's being glossed over in some areas, and that we're not paying attention to it, especially now with the threat of war and security [concerns]."

Yet there are others who say the U.S. system is fine, save for deploying additional technology and new strategies to ensure fast, safe and secure delivery.

Ben Cubitt, a principal of Tompkins Associates, an operations management consulting firm based in Raleigh, N.C., is even more effusive: "The U.S. transportation and the North America transportation network [are] amazingly efficient—very few service failures. It's extremely, extremely competitive and cost efficient. And the beautiful thing about truckload freight—truckload, LTL, intermodal—is that it's door-to-door delivery, with very competitive rates [and] very consistent performance. When you've got all that, there's not a lot of reason to change." As for congestion on the highways he concedes: "Eventually you're going to have roads that are off-limits, and there's going to be times when trucks can't move. But a lot of that is more theory.

Until you can't meet the service requirements of your customers, or the government mandates it, or there's a cost benefit, it's just not going to gain widespread [attention] right now. It's not broken. Right now it works amazingly well."

But can information technology—and the new management strategies made possible by IT— overcome shortcomings in our nation's transportation infrastructure? With funding for the reauthorization of the federal government's transportation infrastructure funding mechanism, TEA-21 (the Transportation Equity Act for the 21st Century) now up for review, it's a question of vital importance to U.S. manufacturers. How Congress answers this question will determine the effectiveness and efficiency of cargo shipments throughout the U.S. for years to come. The lawmakers' decision will rest on how far into the future they're looking and how much faith they have in the ability of technology and management processes to overcome what the statistics tell us is clearly an under performing physical infrastructure.

Sub-Par Performance

Current and projected data about the U.S. surface, air and water systems speak volumes about the need for major upgrades and new development to increase the capacity of nearly every facet of the nation's assets. Traffic congestion on the nation's highways, according to the Texas Transportation Institute's (TTI) Urban Mobility Study, cost the U.S. $67.4 billion in 2002, including the cost of 3.6 billion hours of extra travel time and 5.7 billion gallons of fuel wasted sitting in traffic. Further, the TTI says the level of congestion is "undesirable" in 56% of urban areas today, up from 7% in 1982 and 29% in 1990. It's gotten so bad in some areas that several states have implemented variable-priced toll lanes—lanes that are free for cars with three or more people, but that require a toll that becomes more expensive as traffic increases for single drivers. Interstate 14 and California 91 are two such highways.

In the air, on-time arrival was an abysmal 77.4% last year, down from 82.1% in 2001 even as traffic dropped by nearly 13%, according to U.S. Department of Transportation's (USDOT) Bureau of Transportation Statistics. Meanwhile, air cargo, the fastest-growing way for shipping freight, averages a growth rate of 6.2% and is constrained by the limited availability of new slots at major commercial airports, opposition to airport noise and longer operating hours.

Railroads and waterways, saddled with an industrial-revolution-era image and a tax and funding system that favors airlines and trucks, are watching infrastructure fall farther behind modern day requirements. One study of just one segment of the rail network, the I-95 corridor between Richmond, Va., and New York City, identified $6 billion of needed improvements over the next 20 years to reduce bottlenecks. On the waterways, more than 53% of the nation's locks and dams that enable inland waterway shipments are now older than their design life. As a result, the locks are too short for modern needs, backing up flow, and costing time and money.

Growth estimates suggest the future will bring greater challenges, as the transportation network has not increased at a rate commensurate with growth. On the highways, the mode that grabs the most government funding, vehicle-miles traveled increased by 80%, while lane miles of public roads increased by only 2% between 1980 and 2000, according to USDOT documents. Other surface transportation networks are witnessing a similar overburdening of their systems, according to the documents. Meanwhile, the USDOT estimates that the nation's transportation system by 2020 will handle cargo valued at almost $30 trillion, compared with $9 trillion today. Volumes, in tons, will increase by nearly 70% over current levels of 15 billion tons. In addition, international freight volumes are growing faster than domestic and will almost double by 2020, putting greater pressure on gateways, ports, airports and border crossings. On top of all that, increased security requirements brought on by Sept. 11 throw another wrench into the already overburdened system. Harry Caldwell, chief, Freight Policy, The Federal Highway Administration (FHWA), says best what many users and experts in transportation believe: "The increased demand requires a coordinated effort to increase efficiency among all modes of freight transport, to improve intermodal connections, to upgrade maritime and land gateways, and to encourage the use of advanced technology to support freight efficiency as well as to ensure cargo security."

Technology To The Rescue

Even the staunchest supporters of investment in physical assets agree that technology will play a large role in curing the nation's infrastructure ills. DuPont, for example, is installing what many in the industry say is the most advanced technology to track and optimize shipping. Called TransOval, the system centralizes information about all the company's shipments throughout the world, both inbound and outbound, to a single intranet portal that is electronically updated by the company's ERP systems. "The system we're installing," says Reynolds, "could be thought of as way to speed flow of materials in the optimum way—as a [way] of accelerating the supply chain without changing the infrastructure."

Other manufacturers also are looking to technology for solutions. One of the fastest growing categories in the Enterprise Management Systems software arena is transportation management systems. TMS is expected to grow at a five-year compound annual growth rate (CAGR) of 14% from 2002 to 2006, according to AMR Research, while the CAGR of supply-chain-event management/visibility software is expected to rise at a CAGR of 9% over the same time period. These applications, and others, promise to integrate and streamline every aspect of the distribution system, wringing cost from and adding value to every step of the process.

With the information provided by these applications, manufacturers are able to implement new transportation management practices that can increase efficiency in ways never before possible. Real-time alerts about unexpected delays, for example, enable manufacturers to expedite the shipment or to move production to a different facility. With better information about in-bound and out-bound freight within their own facility, shippers are able to accept a shipment, then load up the same truck with out-bound freight, eliminating the need to arrange for—and wait for—another truck to arrive.

"Once a company gets their own house in order, they've started collaborating among multiple manufacturers," says Tompkins' Cubitt. "General Mills has a load four days a week going from Chicago to Baltimore. McCormick Spices has a load going back three days a week. So they marry those two, and they use technology to help them do it."

Still others are implementing less technical work-arounds. Owens Corning, Toledo, Ohio, makers of building materials systems and composites, is working to be more flexible with shipping and receiving, by allowing delivery vans to be dropped after hours and loading trailers in advance. With this change, the driver can quickly drop or pick up the load, sign the paperwork and get back on the road. Such flexibility, "certainly flies in the face of [traditional shipping and receiving practices related to] managing cost and being efficient," in some ways, says John A. Gentle, global leader of Carrier Relations at Owens Corning. "But eventually [shippers are] going to have to put a much larger hat on and recognize that if we're going to grow our companies, and our country is going to improve from a production standpoint, it has to be a little bit more than me." He adds: "There's no value for anyone to holding the driver up."

Investing In Intermodal

While manufacturers are doing everything within their power to improve shipping efficiency, many transportation users and experts argue it's not enough. "The technology is way ahead of the ability of the infrastructure to deliver," warns John B. Nofsinger, CEO of the Material Handling Industry of America, Charlotte, N.C. Indeed, the USDOT declared in a press release in October 2002: "One of the nation's biggest challenges, and a critical focus of USDOT, is closing the gap between the demand for transportation services and infrastructure capacity." It goes on to estimate that "an annual expenditure of $75.9 billion (2000 dollars) will be needed for the 2001-2020 period just to maintain the physical infrastructure, as it existed in 2000." The president's fiscal year 2004 budget for the department, however, is nowhere near the request. It totals $54.3 billion, an increase of $2.9 billion or 6% when compared with the 2003 budget request.

But nobody thinks that simply pouring more money into the current broken system—one that invests in short-term, mode-specific improvements—will solve the problem. What's needed say several experts and organizations—including the Federal Transportation Advisory Group, a bi-partisan of cargo carriers, manufacturers and government officials; and the Local Officials for Transportation, a coalition of 11 associations of city leaders—is a mechanism that allows the government to review and approve infrastructure investment that will improve and encourage intermodal shipping. Only an integrated, intermodal system that fully uses the strengths of each mode can solve U.S. transportation gridlock they say. (It also will, proponents add, help achieve our government's energy and environmental goals by shifting cargo from trucks on the highway to the more fuel efficient, less polluting modes of rail and water, but that's another story.)

They note that the federal government and its agencies agree intermodalism is the solution. In 1991 the precursor to TEA-21, called ISTEA-21 for the Intermodal Surface Transportation Efficiency Act, was considered landmark legislation designed to encourage an integrated approach to improving transportation facilities. That same year Congress created the Intelligent Transportation System (ITS) to coordinate the development and deployment of the latest technology into the nation's transportation system. Indeed, an ITS-like organization focused on improving the nation's physical transportation assets seems to be just what the experts are calling for.

At the very least, say the railroad and waterway constituents, Congress needs to fix the tax and funding policies that tend to favor highway and air modes of delivery. Now as Congress considers the reauthorization of TEA-21, they are trying to call attention to and eliminate what they say are the most egregious tax and funding bias against them. Both rail and waterway users pay a special "deficit reduction tax" amounting to 4.3 cents per mile, while neither highway nor air cargo shippers do. Also, railroads finance their infrastructure spending with private funds, while the fuel and other taxes paid by trucking companies (and passenger vehicles) are dedicated to highway construction.

The funding structure makes no sense, says Owens Corning's Gentle, who speaks for many who are interesting in solving the funding dilemma: "If you're going to take funds and tax people on airfare, the funds should go back to air, if you tax on highway and fuel use, then they should go back to the appropriate groups. We shouldn't put them in big trust funds, and hold the money for other tax purposes and not release them for the betterment of the groups." To encourage the increase in intermodal strategies, he adds, "there has to be some judgment calls [as to where the money will be invested]. That's some of the politics involved."

In the end, everybody who is anybody in the transportation industry agrees that the integration of technology, process and infrastructure is key to future performance enhancements, and that significant, well-planned investment in each of these areas will be needed to bring the U.S. transportation system to its fullest potential. The nation's transportation infrastructure is buckling under the strain of handling more traffic than it was designed to handle, and the faith in technology to solve the problem has overshadowed the physical needs of the system. "The matter is urgent," says Holcim's Stingo. "Transportation infrastructure upgrades take decades, and we can't wait until a crisis to get started."

Adds Reynolds, "Staying with what we've got is not an option."

*This article was excerpted from Industry Week's May 1, 2003 edition. © 2003 Industry Week

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