Reaching the Boiling Point-to-Point: Tommorrow's Transportation Infrastructure Chaos

52nd Annual SMC³ Summer Conference

An active year of transportation legislation and the rapidly changing landscape of the transportation industry formed a dynamic backdrop for the 52nd Annual SMC³ Summer Conference in Myrtle Beach, South Carolina. The conference was designed to give attendees first-hand insight from the shippers, carriers, ports and supply chain providers who have adapted their operations as the pressures on our nation’s transportation infrastructure have intensified.

Attendee Damon Cooner, supply chain manager, Best Manufacturing Company shared his thoughts on the conference, “This conference ranks as one of the best I’ve attended. The information received was valuable and informative. I appreciate the focus on the global supply chain and economy. Thanks SMC³!”

“SMC³ continues to be one of the best conference values in the country; combining thoughtful educational programs, great networking opportunities and fun,” commented attendee Ron Reighter, vice president of global trade solutions, SunTrust Bank.

Return attendee Patrick Smith, President of Cargo Consolidation Services, said, “I am continually impressed with the educational and networking opportunities offered by our association with SMC³.”

Keynote Presentation

Keynote speaker Alison Levine, team captain of the First American Women’s Everest Expedition and founder of the Climb High Foundation, set a positive tone for the conference with her inspiring story of personal triumph. As she related the details of her personal journey through numerous health setbacks, attendees shared in her feeling of pride in accomplishment.

“You have to get it in your head that progress and direction do not always run together,” Levine advised, explaining the “forward and back” progression required to reach a mountain peak.

Having climbed peaks on every continent, her knowledge of the sport was apparent. Yet, her discussion of the mechanics of a climb was both engaging and informative. Levine’s insightful correlations between personal and business strategies were well received by attendees.

“An excellent way to start the conference” applauded attendee Kazzie Woodley, supply chain analyst, Sealy Corporation.

Mark Davis of Averitt Express agreed: “Ms. Levine was great! Entertaining, funny, inspiring – awesome!”

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Legislative and Regulatory Update

Transportation attorney John R. Bagileo presented updates on transportation related legislation currently before Congress. Among these updates were the Rail Anti-Trust Enforcement Act of 2007 (Senate Bill 772), and the Railroad Competition and Service Improvement Act of 2007 (Senate Bill 953). Bagileo further offered insight into other key issues facing the transportation industry, such as indemnification, class action lawsuits, new roadability proceedings and the ACE truck manifest.

Bagileo also urged attendees to get involved in regulatory issues affecting their industry, reminding them that they have a voice. He suggested contacting their trade associations for frequent updates of relevant notices published daily in the Federal Registry.

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Challenges at Our Nation’s Ports

Jean Godwin addressed SMC³ Summer conference attendees regarding the key port challenges our country is facing today. These challenges include cargo volume gains, terminal congestion, landside congestion, waterside congestion, seaport security and improving the coastal environment.

In her discussion, Godwin pointed out that 19 ports are listed as “militarily strategic.” She added that many transportation issues are non-partisan and that much of the funding decision is made at the local level which could relieve landside congestion.

Solutions can include software improvements to increase terminal efficiency and turnaround time as well as chassis pools and virtual container yards. Dredging issues are critical in improving waterside congestion. Godwin said seaport security must be funded with appropriations for the SAFE Port Act provisions.

Emphasizing the “looming crisis” of congestion for the national assets which our ports provide, she asked for advocacy in getting local governments, political candidates and communities to understand freight and the importance of the movement of goods to our country’s economic backbone.

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Intermodal Transportation-Intermodal Collaboration

Curtis Whalen presented the good news that the intermodal supply chain is working to provide efficient delivery of products and services. Conversely, he noted that the related bad news is the need for education in local communities which do not plan for traffic when planning development projects. He also cited trucking capacity constraints that include driver shortages as well as the California environment equipment mandates which will require an employee structure to replace the owner/operator.

Solutions recommended by Whalen include better communication, better cooperation and regulatory changes. Of great importance is roadability, he said, which will improve safety and maintenance, as well as the consolidation of chassis pools and multi-state industry interchange procedures. These items, he stressed, are not currently government mandates.

One state mandate Whalen has an issue with is California’s Clean Air Action Plan. He stated that the intermodal industry supports the current challenge to the Plan, because it cannot be implemented in a practical way and will extend beyond California if not defeated.

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What the Transportation Appropriations Bill Means to You

Dr. T. Peter Ruane challenged conference attendees, representing the industry at large, to educate political candidates on the need for increasing financing of transportation infrastructure in view of the “real crisis which is looming.” He predicted that, without new revenues for the Highway Trust Fund, funding for our nation’s highway program will “fall off the cliff in fiscal year 2010.”

The new federal program proposed to be funded by user fees is to deal with the immediate crisis to move goods and meet economic needs. Ruane’s association proposes 2008 SAFETEA-LU reauthorization which includes a minimum of 10 cents per gallon federal motor fuel excise increase and a Critical Commerce Corridors program to be administered by state DOTs, which would become the world-recognized standard of surface transportation excellence for safety, efficiency, environmental sensitivity, structural design and construction and high-tech management.

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Communicating Your Needs to Local, State and Federal Agencies

A four-dimensional matrix for communication was recommended by conference speaker R. Leo Penne. First, he said, one must determine the issue or problem which should be communicated. Examples of hot-button issues are more investment in highways, traffic management, road conditions, road financing, access roads and port connectors, truck parking, rail service, tolls, and oversize and overweight vehicles.

Penne said the next step is to determine whether the responsible government is national, state, local regional, local government or a multi-state regional. Once you’ve established who you’re talking to and what you’re talking specifically about, he suggested the next step be to determine the type of action which is required, such as legislation, regulation, policy change or a program decision.

The fourth dimension, according to Penne, is to determine and create channels of communication, for example: one to one, associations and coalitions of associations, public participation or freight advisory committees. Related recommendations included encouraging the establishment of freight offices, studies and plans; creating advisory councils; and introducing specific investment funds. He emphasized that the need to invest has risen while investment capital has declined and that honest communication is important when discussing the financing of roads and its related economic benefits and consequences.

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Understanding Interest Rates in Today’s Economy

David Fare discussed the strategies for business investment in today’s financial climate. He explained how our interest rate environment is subject to the global economy and how growth in the United Kingdom and China are particularly important to include in an assessment for the future.

The current liquidity has caused risk premiums to drop, Fare explained. As the liquidity is slowly drying and leaving the marketplace, he predicts that yield curves will become increasingly steep over the next cycle. He recommended positioning portfolios in the 10- to 15-year range, because cash is not as much a good investment as it was. He projects the U.S. economy will continue to grow at two to three percent with inflation in check and the Fed not raising rates.

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Infrastructure Panel Discussion

Lee Clair introduced and moderated this insightful panel discussion, which included experts representing ocean, rail and overall transportation policy. Clair described the infrastructure crunch, due to the number of automobiles and trucks on our nation’s roads increasing dramatically in recent years. He noted that highway spending is primarily for maintenance and that congestion goes through as well as between cities.

In relation to the railroads, Clair said capacity increased significantly in 2006, and while spending increased for expansion, the Amtrak and passenger trains run on freight railroads and growth is shifting onto main lines. Ports have been expanding, he said, with additional ports in Mexico, Canada and some U. S. locations, although the freight arrives at major congestion points. The domestic barge infrastructure is more than 60 years old, and the antiquated system is at capacity with flat growth. Clair emphasized the inter-connectivity of all systems, which is challenged by the concentration around the highly congested nodes such as Los Angeles, New York and Chicago. His recommendations for improving congestion include improved technology, differential pricing, smoother interchanges, better utilization of less equipment and 24/7 operations.

Participating in the Infrastructure Panel was Wim Lagaay, senior vice president and area operations manager of Maersk Line. His company uses more energy than any company in the world and produces as much as it consumes. He discussed the industry growth he’s seen, including rapid growth in container shipping, increasing volumes at ports, more vessels and larger containers. Despite the national trade deficit, the import base volume is growing and fuel, handling and labor costs are increasing. He recommended short-term solutions of improved processes and examination of revised methodology. Medium-range solutions, he said, would be to further reduce dwell times; strategically position container yards; take advantage of new rail developments and logistic parks inland; direct ship to the closest port; set pricing methodology to cover round-trip costs; and improve the density of cargo moving inland to create capacity and efficiency. Suggested long-term solutions are to build on-dock rail facilities; make niche and alternative port developments; take advantage of railroads developing better freight visibility; and form public-private partnerships to increase infrastructure.

Continuing the panel discussion was Paul D. Waite, vice president intermodal, Canadian National (CN) Rail, who described his company’s positioning for growth. He highlighted the Prince Rupert port as the gateway to the U. S., a natural harbor of 55’ depth with no harbor maintenance fee. He said it is 1200 nautical miles closer to Asia than Long Beach and offers a good option to the shipping community. He also described the competitive transit times to major U S. markets. Waite said CN believes smart railroading includes gate and slot reservations to smooth the freight over a seven-day span. The plan is to develop a program in the U. S. patterned after the Canadian success in controlling freight from door to door, creating efficient delivery.

John Ficker, president and CEO, National Industrial Transportation League, a shipper advocacy group, concluded the panel with the shipper’s perspective on the nation’s infrastructure issues. He noted that NITL has been around for 100 years, and back in 1920 “foresighted thinking” enabled them to establish their Highway Transportation Committee. Saying that the shippers are the “people who pay the bill,” Ficker described how NITL recently re-examined its charter and even what it means to be a shipper. He pointed to intermodalism, information technology, the global economy and increased outsourcing as change agents for the way the supply chain operates today. Ficker encouraged involvement to create a sense of urgency with policy makers and the public, as well as to generate collaboration between parties.

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Global Economy and Energy Resources Update Panel

Perry A. Trunick, newly named editor-in-chief of Logistics Today, moderated this discussion between two lively experts in their fields. Trunick opened the discussion by challenging attendees to bring the conversation down to their level of detail by asking a lot of questions, which they did. Highlighting important points from the June 6 presentation of Rosalyn Wilson’s 18th Annual State of Logistics Report (published for CSCMP), Trunick noted that $1.3 trillion was spent in logistics in 2006, which is 9.9 percent of the GDP and that for the first time, logistics costs are growing faster than the GDP. He also discussed Wilson’s findings in regard to inner-city motor carriage, inventory carrying costs, air cargo spending and growth in the warehouse sector.

Michael J. Economides began his part of the discussion by addressing the “continuous energy crisis” we have found ourselves in. The oil market, he said, is highly volatile and subject to terrorist activities and warring factions. In regard to oil production, Economides pointed out another issue: “make no mistake – OPEC likes $70 oil.” Economides stated that oil and gas will always be dominant sources of energy; that solar and wind will never be significant sources. He said he also believes there are no alternatives to hydrocarbon energy sources within the next 20 to 50 years. He referred to the title of his book in stating that “the color of oil is still red,” as there is always a connection between oil and war.

In his presentation, renowned economic forecaster Donald Ratajczak noted that, aside from the U.S. all other major central banks around the world are currently raising interest rates, with some, like Great Britain becoming “more aggressive.” Great Britain, he said, has the same inflation rate as the U.S. and when they have a much higher interest rate this impacts the foreign exchange. However, he emphasized that the dollar will “weaken but not crumble.” Ratajczak believes stocks are undervalued and will go up, and that higher profit margins will be realized. In the housing market, he predicts that price declines will continue for another year, and then stability will be realized for two more years. He expects the year to improve somewhat with core inflation rising from 2 percent to 2 ¼ or 2 ½ percent and that spending power for the household sector will improve. Ratajczak also said he believes the country is near its peak in gas prices for the year, which is important as energy is adding to the inflation rate.

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Policy and Infrastructure Issues: U. S. Department of Transportation (DOT) Perspective

Robert DeHaan spoke to conference attendees about the importance of congestion in the transportation system and what it means today as well as in 10 to 20 years. He said the value of the transportation system is hard to overstate as it must perform to meet demands of the economy and that performance is not living up to the demands. DeHann said the DOT has resolved to attack congestion where it exists, and that this should be a federal government priority. He then discussed the six segments of the DOT’s Congestion Initiative: Corridors of the Future program; aviation congestion; throughput at the border; focus on port congestion; urban partnership agreements and tolling and public-private partnerships. He emphasized the trend of tolling and public-private partnerships around the world, although rare in the United States.

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