Our roads, bridges, and ports are crumbling. And Covid-19 has accelerated our nation’s deteriorating infrastructure.
During the Great Depression, the U.S. government spent 4.2% of GDP on infrastructure. Today, the government only spends 2.5% of GDP on infrastructure.
That’s a huge disparity.
As an industry insider, you know, infrastructure is indispensable to logistics. Infrastructure influences economic growth as well as job creation. More than that, infrastructure affects the competitiveness of our nation and your business.
In emerging countries, logistics costs up to 25 percent of a product. In first-world countries that figure is much less at 6 – 8 percent. Regardless, both represent a sizeable cost.
Deteriorating infrastructure only adds to those costs.
Compounding this issue is the severe underfunding of State Departments of Transportation
(DOTs). They are in dire need of federal aid. Thus, Congress must address the nation’s aging infrastructure now. Doing nothing is not an option.
This post addresses Covid-19’s impact to roads, bridges, seaports, and airports. It also suggests recommendations to fix this threat to the economy and your business.
Fixing the Nation’s Deteriorating Roads
The nation’s roads are bad and getting worse. Many of them are dangerous, if not unusable. Some roads require scheduled maintenance but aren’t getting it. And new road construction is at a virtual standstill.
To fix these issues, states look to the Highway Trust Fund for aid. With that in mind, as of May 2020, revenues from the Highway Trust Fund have declined 49% from May 2019. You can attribute much of that decline to less traffic on the highways due to Covid-19.
At the same time, many state DOTs expect an average decrease in their revenues of 30% for the next 18-months. That only compounds the problem.
How bad is the problem?
According to the American Society of Civil Engineers (ASCE), 20% of highway roads are in poor condition. And without dedicated funding that percentage shows no signs of decreasing.
ASCE recommends a $50 billion investment in the next Covid-19 relief package. Also, ASCE recommends that Congress tackle this issue from a long-term perspective. That means providing a multi-year funding plan for the Highway Trust Fund.
The outlook isn’t promising. So, piecemeal investments are no better than band-aids.
As it happens, some of the same issues plague the nations bridges.
Fixing the Nation’s Deteriorating Bridges
This funding situation for bridges mirrors the funding issues for roads. For example, state DOTs expect a 30% decline in their revenues on top of reduced aid from the Highway Trust Fund.
For example, ASCE has identified 46,100 bridges in need of structural repair. This is quite a backlog, and it continues to grow. But the gas tax that funds bridge repair and maintenance has stood still.
That is, the federal gas tax remains stuck at 1993 levels. Moreover, due to reduced traffic and road usage, purchasing power has also declined. That makes for a risky and hazardous situation.
This is a long-term problem that needs immediate action. Without immediate attention, ASCE projects fixing these unsound bridges would take 50 years. That means we would not see completion until 2071 – and that’s if repairs started straightaway in 2021.
ASCE makes the same recommendation for repairing bridges as it does for roads. That is, Congress should provide $50 billion in the next Covid-19 package. But that’s only a short-term solution.
Instead, Congress should combat this dilemma by addressing the issue from a strategic perspective. Thus, Congress should provide a long-term solution for funding the Highway Trust Fund.
As you might expect, the situation for improving the nation’s ports isn’t much better.
Fixing the Nation’s Deteriorating Seaports
Seaports, like the U.S. roads and bridges, need an infusion of capital to continue operating. Since Covid-19 though, shipping volume has fallen sharply due to record breaking blank sailings.
That has hurt revenue collection, which funds port maintenance and improvement. Revenues have declined between 20 and 30%. Further aggravating this is the collapse of the tourism industry.
To appreciate the degree and severity of the problem, we need to understand the impact to the economy.
ASCE estimates that seaports contribute $4.6 trillion to the economy. That comes to about 26% of GDP. Shipping at seaports provides about 23.1 million jobs. And it provides $321 billion in taxes to cities, states, and the federal government.
There’s no question the nation’s seaports have an outsize impact on the economy. Yet, investment for seaports is much lower than for repairing roads and bridges.
ASCE recommends Congress appropriate $1.5 billion for operations, maintenance, and new development. That’s for the near-term. For the long-term, ASCE recommends investing $4.5 billion to upgrade coastal navigation.
Finally, ASCE recommends investing $1.0 billion for the Port and Intermodal Improvement Program. That comes to total an investment of $7.0 billion or $43 billion less than for roads or bridges.
Next, let’s look at the conditions of the nation’s airports and what’s needed to upgrade them.
Fixing the Nation’s Deteriorating Airports
It’s no exaggeration to say that Covid-19 hammered airports. Both passenger and air cargo traffic declined significantly. Commercial travel dropped a stunning 95%. Air cargo did not drop as much. It fell 15%, which, when added to the commercial decline, proved devastating.
Those impacts adversely affected airport revenues resulting in a $23.3 billion loss. It’s no wonder then that revenue loss negatively affects modernization of terminals and technology. Thus, keeping pace with future demands is at risk.
ASCE recommends a $10 billion investment to modernize airports. ASCE also recommends Congress remove the cap on Passenger Facility Charges (PFCs). Airports rely on PFCs to upgrade their airports. Removing the cap will ease some of the pressure on funding.
Bear in mind these issues existed before Covid-19 struck. But, no doubt, Covid-19 accelerated and intensified these issues. As a result, they demand attention now, not later. And attention should focus on the long-term as well as the short-term.
Next-Generation Supply Chains Require Next-Generation Infrastructure
The nation’s infrastructure requires a remedy to keep the U.S. and its businesses competitive – nationally and internationally. That requires legislation that proposes both short- and long-term solutions.
Funding is a top priority. Yet, even more important is to approach funding from a comprehensive standpoint. The nation’s infrastructure problem calls for proactive risk management.
It’s safe to say, Covid-19 caught the government and most businesses by surprise. So any plan must address both immediate and future issues. That takes us to how next-generation supply chains will meet customer requirements.
The experience of 2020 tells us, Next-generation supply chains must be resilient and agile. They must be adept at managing or mitigating risk. A dilapidated infrastructure sabotages progress on those fronts. Thus, attacking infrastructure’s issues requires a strategic mindset.
Likewise, at American Global Logistics, we take strategic mindset when tackling our customers’ issues. Our approach is tailor-made for the challenges you face in the New Normal.
We believe in long-term partnerships because the issues facing our industry in a post-Covid-19 world demand a long-term view. We believe that reduces the uncertainty, volatility and complexity of the New Normal.
As 2021 approaches you have a choice to make. You can continue to prepare for the New Normal based on your existing plans.
Or you can contact us to discuss how you can prepare for tomorrow’s needs and challenges today.