Innovation Revolution in Transportation Requires Regulatory Change

On May 19^th, The Energy Security Leadership Council of SAFE (Securing America’s Future Energy) released “A National Strategy For Energy Security: The Innovation Revolution.” Though SAFE’s focus is making America more energy independent, the recommendations and insights contained in their national strategy have great implications for the future of freight transport, supply chains, and logistic costs. Fred Smith, President & CEO of FedEx, is one of the Council co-chairs. He argues that we are at the beginning of a transportation innovation revolution including autonomous vehicles, driver assist technologies, internet of things, big data, deep machine learning, alternative fuels, electrification, and new efficiencies in both vehicles and systems. He also argues that perhaps the biggest threat to achieving the promise of these technologies, and the resultant benefits to safety, environment, life style, mobility, and logistics costs are government regulations designed for the past.

In the 1970’s, logistics cost as a percentage of GDP was about 16%. Federal officials recognized that a system of federal regulation based on railroad regulation of the 1880’s wouldn’t support the needs of our economy in an increasingly globalized and competitive world where computerization was making all sorts of things possible. During the 1970’s and continuing into the 1980’s, trucks, trains, and cargo planes were “deregulated.” Railroads returning to profitability, the growth of the air cargo business took off, and a more competitive trucking industry spawning thousands of new business entrants. As a result, today’s US logistics cost has been cut in half to approximately 8% compared to the pre-deregulation 16%. We are also safer, cleaner, and less dependent on foreign oil.

In the words of Yogi Berra, “It’s déjà vu all over again.” Much as significant regulatory changes were needed 40 years ago, they are needed again. Without them we risk slowing the adoption of advanced vehicle technologies including drones, droids, self-driving vehicles and connected vehicles including platooned trucks. A framework that allows performance based vehicle (PBV) standards for trucks, similar to those developed in Australia, is also required to allow improvements in truck efficiency, safety, and environmental performance.

It is hard to recognize the beginning of an innovation revolution, particularly with all the technological changes that have occurred in the nearly 40 years since US transportation deregulation. I recommend you take a look at SAFE’s recommendations (http://secureenergy.org/). It will make you a believer and perhaps even a champion for regulatory change. Our logistics has gone from 16% to 8%, much of that decrease because our leaders responded to an intersection of technology and regulation. Today’s transportation innovation is a revolution we can’t afford to squander but it will require the entire logistics community to advocate for changes in regulations that were written for other technologies in another time.

Tax reform presents an opportunity to bolster U.S. middle class jobs

It’s a well-known fact that the United States has one of the highest nominal corporate income tax rates among the world’s developed countries—a fact that, in an increasingly global economy, puts us at a competitive disadvantage and incents investment abroad.

The good news is that there is bipartisan support for tax reform that would lower the nominal rate. And since that task will require some rebalancing within the tax code, it presents a parallel opportunity to support another bipartisan goal—strengthening the middle class.

Ever since its inception in 1909, the corporate tax code has been continually adjusted to encourage growth in particular sectors. Over time, this has unbalanced the playing field and created effective tax rates that vary widely from industry to industry. And just as varying nominal tax rates incent investment in certain countries over others, so too do the differences in effective tax rates channel the flow of domestic investment. The industries that benefit are able to grow, hire, and offer better wages.

Through tax reform, policy makers have a window of opportunity to rebalance the field. A code that not only lowers the corporate rate, but also supports investment in industries where middle-class jobs traditionally exist (trucking being one) could firmly shift our economy back into high gear.

Tonnage and Energy

During a recent presentation on economic and motor carrier industry trends, Bob Costello, Chief Economist and Vice President of the American Trucking Associations, made the timely point that the U.S. energy production boom is boosting truck tonnage, even against the headwinds of tepid manufacturing and cautious consumers.  

According to the ATA, there was a 5.2 percent year-over-year increase in tonnage from January through September, 2013, but only a .6 percent increase in TL loads - a minimal increase largely carried by tank shipments, which grew 6 percent year over year for Jan-Sept. and 4.6 percent year over year for Q3.

These shipments, including water, sand, and chemicals for fracking, represented a welcome boon in an otherwise challenging year for trucking. Rail tonnage was also propped up last year by oil shipments while coal continued to decline. 

The growth of domestic oil and natural gas energy is offsetting declines in other segments in our economy, creating jobs and providing a valuable use of both trucking and rail assets (equipment and professionals) as manufacturing and retail continue to recover. Additionally, these domestic energy resources will help provide cleaner and less expensive energy alternatives for our industry. A comprehensive national energy policy—and approval of the Keystone pipeline—could shift this into high gear.

 

The Evolving Definition of Sustainability in Freight Transportation

In October, the EPA presented its Smartway Excellence Awards to an array of transportation companies for their exceptional achievements in sustainability.

Sustainability in transportation was born of the green movement, leading to a greater awareness of the environmental impact of the transportation industry. These days, though, the term “sustainability” has evolved to mean more than just recycling programs and stewardship of natural resources.  It encompasses broader social responsibility and is only possible when companies have a sustainable business model - one that focuses on the stewardship of financial and human resources and operating using lean principles that facilitate the elimination of waste.  Engaged employees supporting the ongoing vitality of an environmentally responsible company is key to supporting the environment itself.

In practice, that means creating jobs that will endure.  It means healthy financials, and little waste. Furthermore, it means making smart investments: erring on the side of green when the cost differential is close; but when it’s not close at all, perhaps waiting for (and even encouraging) technologies to evolve.

Sustainable business models provide the foundation for the journey. If our businesses are set up to profit through sustainable business practices, then for  the foreseeable future, we can commit to taking care of our employees, our customers, and our communities, and do it all in a sustainable way that benefits all stakeholders for years to come. 

With market forces supporting near-shoring, is NAFTA still necessary?

Much has changed in the business landscape since the North American Free Trade Agreement (NAFTA) was enacted two decades ago. Always controversial, NAFTA has been credited with GDP, trade, and wage growth, but also blamed for shuttered factories and outsourced jobs.

In truth, more jobs moved to China, where affordable labor trumped NAFTA perks. Recently, though, volatile transportation costs, rising wages, and other issues have narrowed the savings gap. Now, U.S. manufacturers planning new operations are looking closer to home, trading off-shoring for near-shoring.

By operating in the same time zone, corporate offices, R&D, and the factory floor can communicate better, innovate faster, and create better products. And contrasted with the bottlenecks and lag times encountered abroad, shipping from Mexico to the states is inexpensive, reliable, fast, and flexible.

NAFTA adds to these inherent benefits with NAFTA Visas for project managers who need to travel back and forth, legal protections against intellectual property theft, tariff-free borders, and guidelines to promote sustainability region-wide.

The U.S. and Mexico are both ready for large-scale economic growth. The cultural affinity we’ve built over twenty years has primed us to create collaborative, integrated, skilled manufacturing partnerships– making NAFTA more valuable now than ever before.

House T&I Committee Outreach Efforts Enhance Opportunities for Success

In early October, I wrote about how transportation legislation should matter to everyone, not just shippers. Turns out I wasn’t alone in my outlook.

Less than a month later, the House committee on Transportation and Infrastructure launched its new website - the latest in a series of tech-forward moves by Chairman Bill Shuster. The concept? Wide digital outreach, modern efficiencies, and smart reform.

Prominently placed in a slideshow within the header of the site is a whiteboard video explaining the significance of the Water Resources Reform and Redevelopment Act of 2013 (WRRDA), which was sponsored by Shuster. The video, viewed here, is part of a genre that might just be the millennials’ answer to the old “How a Bill Becomes a Law.”

According to the new website, the video was a way “to illustrate the fundamental importance of WRRDA to all Americans, regardless of their familiarity with the issue.” And on October 23, the first water bill in six years passed the House… 417-3.

Kudos to the committee for a job well done! If anyone could make #HighwayBill2014 a trending topic on Twitter, my bet’s on Chairman Shuster.

The FCC’s Jan. 2014 spectrum auctions promise dual impact on transportation

With its mobile labor force, the transportation industry uses cellular data for everything from asset management, to route optimization, to safety tools like lane departure and proximity warning systems.  Autonomous vehicles, vehicle to vehicle, and vehicle to infrastructure communications insure that the demand for spectrum for transportation will continue to grow.  But with over 48 percent of cellular users now using smartphones, demands on broadband spectrum may compromise the speed and reliability of data on the road.

In January, the FCC will hold its first spectrum auction in five years, and the best-known wireless providers are all expected to be at the table. The limited amount of spectrum owned by each provider represents a ceiling on the growth of their data-driven plans and products, a frustrating reality given the high growth curve of consumer demand. With competition fierce, some providers have been lobbying the FCC to limit their larger counterparts’ participation, an outcome that could reduce auction revenues significantly.

Proceeds are earmarked to fund FirstNet, a proposed nationwide public safety network through which the enforcement community will be able to easily exchange data-heavy reports, photos, and videos across departmental and state lines. The system also promises to shorten response times in emergency situations, and could even involve some interfacing with private transportation companies. Built collaboratively, it could represent one of the best uses of spectrum yet.

Near-shoring: an important, if not urgent, trend

Decades ago, when the trend toward offshore manufacturing first took off, U.S.-based companies that didn’t adapt quickly enough were left behind, edged out of the marketplace by their own overhead.

And as controversial as it was, the trend seemed irreversible. Over the past few years, though, the advantages of outsourcing have been tempered by supply chain challenges including long lead times, increased international risk, and concerns about carbon emissions, fuel prices, and the rising cost of labor in Asia. 

All of these concerns have helped drive the emergence of near-shoring or bringing manufacturing closer to home. By leveraging the geographical proximity and cultural consonance of Latin American countries, as well as their affordable, skilled, and increasingly English-speaking work forces, companies are improving speed to market, and responsiveness to customers — while, once again, reducing costs.

And though the advantages are great and the trend important, it hasn’t caused companies to shut down their Asian operations en masse. Because in many ways, near-shoring isn’t just about proximity to the mother company; it’s also about proximity to the customer. And as Asia’s prominence wanes as an offshore manufacturing base, the region continues to gain importance … this time as a consumer base.  It is important that our expectations and our government policies reflect this new reality.

Transport legislation should matter to shippers and consumers alike

I recently wrote a piece about why shippers and consumers alike should advocate for a change to the cap on truck length in the United States. In 1991, Congressional legislation froze truck size and weight limits on the federal highway system. Since then, technological changes and increasing globalization have combined to make many of the reasons for that decision obsolete. Allowing the 28-foot doubles trailers that are the mainstays of LTL and package fleets to increase five feet and become 33-foot doubles trailers (without any increase in weight) would save millions of gallons of fuel, eliminate billions of miles traveled, and prevent hundreds of accidents each year.

Bound to this dated regulation, the United States now trails most of the world’s developed economies in truck productivity. And though industry trade groups have been advocating for change, the truth is that this doesn’t matter just to the people who work in transportation — anyone who drives on the road alongside trucks, buys or sells anything transported by truck, or breathes the air into which emissions dissipate is affected by transport legislation. It’s time for those outside our industry to get involved and help shape public policy around truck productivity.

Distracted Driving – Transportation Secretary Anthony Foxx Continues the Fight

Distracted driving remains a priority for the Department of Transportation. Secretary Anthony Foxx believes that continued education about the issue and a reduction in distracted driving is vital as he continues the effort begun by his predecessor and staunch advocate — Ray LaHood.

Former Secretary LaHood is still actively involved in garnering support for a national law, an initiative he spearheaded during his tenure with the DOT. It’s clear that whether or not a national- or state-level ban is enacted, it takes a united front to put an end to an activity that is still prevalent on our roadways despite the many lives it endangers. A critical element if we are to see national distracted driving legislation will be the willingness of Secretary Foxx to carry the torch lit by LaHood. 

I applaud Secretary Foxx for continuing LaHood’s legacy and keeping this important issue front and center.

Obama’s Infrastructure Investment Proposal – Good Vision, But Where’s the Money?

Since President Obama introduced his new — and massive — infrastructure investment proposal last month, the initiative has been making headlines nationwide.Though we welcome his attention to the issue, it’s difficult not to wonder: Why now and why wasn’t this more of a priority in the stimulus package?

Though there are many strong opinions about his choice of timing, it’s more important to focus on what we know right now. And what we know is that the President wants an up-front investment of $50 billion to expand and repair the nation’s highways, railways and airport runways, and to install a next generation air transportation system, among other projects — all of which would create jobs and reduce the unemployment rate.

The administration’s proposed Infrastructure Bank is central to the initiative and would allow the government to pool federal funds and private capital together to underwrite large projects that are prioritized by national and regional importance. As a result, projects like the infamous “Bridge to Nowhere” in Alaska will compete for funding with more pressing issues like freight bottlenecks, bridges that won’t support increased loads, and stretches of highway that need additional lanes to meet increased demand.

Those projects are particularly important because it is impossible to separate economic growth from the growth of transport. Those of us in the trucking industry saw a big decrease in miles traveled and demand for our services during the economic downturn. We’ll see it increase again as the economy rebounds. As a result, any federal policy that strives to restrict VMTs (vehicle miles traveled) or shift traffic to other modes to avoid investing in the road system is not only impractical, but irresponsible. Like it or not, eighty percent of the communities in this country are only served by truck. And while rail intermodal is an important part of our surface transportation system, even if rail intermodal capacity is doubled, it would remove fewer than two percent of trucks off the road, and next to none of them in urban or congested areas.

At the end of the day, the Infrastructure Bank, tolls, taxes, and user fees are all euphemisms for collecting money. These funds will come from all of us. So, again, while we appreciate that President Obama is focusing on transportation infrastructure, his proposal won’t move forward until the key issue of where the funds will come from is resolved. To quote Tom Cruise’s famous line from the movie Jerry McGuire: Show me the money. Especially after this week’s election results, a transportation plan that makes big promises without a way to pay for them is wishful thinking at best.