How the New Infrastructure Law Impacts 3PLs and the Supply Chain
Huge infrastructure investments reduce congestion and ease supply chain
Yes, infrastructure investment helps to reduce congestion, improve the predictability and reliability of these essential transportation resources, but it also does something else. Infrastructure improvements increase the capacity of transportation logistics systems. One of the most significant problems plaguing today’s supply chain is capacity.
Supply Chain Labor Shortages and Transportation Capacity
As we have already seen over the past two years or so, as in other areas, there is a labor shortage in the supply chain industry. There is also a lack of transportation capacity. These concepts are interrelated. Without adequate freight transportation capacity, raw materials are not moved to the point of production to create finished goods. The finished goods are not transported to the point of storage and distribution and are not able to reach customers. The entire supply chain is effectively bottlenecked, with log jams throughout the supply chain.
Transportation service providers are paid to move goods. The cost of these services is based on time, distance the freight travels and the weight of the goods. A similar arrangement is used by transportation service providers to pay drivers and operators. This can equate to a per-mile basis for truck drivers, for example. Payment for transportation services on other modes often is done on a per-trip, tonnage, or per-hour basis when the mode of transportation is in transit.
Over the years, we have seen a slowdown. Currently, seaports are experiencing significant congestion and bottlenecks. This impacts not only the ports but also the shipping lines, railways and trucking companies that haul the goods away from the ports. When businesses in these modes of transportation are not making money, their employees are also not making money. This is what has been happening across the supply chain industry over the past two years.
Human workers also get frustrated with scheduling delays, traffic congestion and uncertain schedules and leave their jobs. More turnover and delays result in lower pay for human workers and the cycle repeats itself. These days, as inflation has risen and labor resources have become scarce, transportation and logistics providers are finding it challenging to increase capacity due to the lack of return on their capital assets. The utilization of these assets including trucks, railcars, ships, and airplanes is a critical factor. When an asset completes its journey faster, it can be turned over, available to be used to haul other freight. The longer it takes to turn over each asset, the less freight it can haul and thus, the less money it can make for its owner.
When there is congestion, delays or suspension of service and goods remain effectively in a state of “in transit” rather than delivered to their destination, the transportation carriers make less money. When carriers are making money, they tend to reinvest it in more assets and in increasing their workforce.
How the Infrastructure Law Impacts the Supply Chain
Decaying and Congested Roads, Highways and Bridges Delay Freight Delivery
Having roads and bridges in good condition and built to withstand current capacity is essential to meeting the needs of today’s supply chain. For today’s burgeoning e-commerce economy and anxious consumers, this means that they must have confidence that their shipments will arrive on time. The $550 billion in new spending involving bridges and highways will be “transformational” for freight infrastructure. Funds will be used to repair, rebuild or reconstruct decaying or congested highways, roads, rail lines, bridges, tunnels, and airports.
As part of the legislation, a new entity will be created, the Office of Multimodal Freight Infrastructure and Policy, within the U.S. Department of Transportation. The new entity will help to provide direction on the infrastructure investment with the objective of enhancing the reliability, safety, and efficiency of the supply chain.
Of the $550 billion in transportation and logistics spending with respect to the Infrastructure Law, $110 billion is for highways, roads, and bridges. It is anticipated that this massive influx of federal funding will encourage an increase in public-private partnerships.
The new infrastructure law and the availability of the first $2.9 billion of funding is largely going unnoticed. Fixing damaged roads and bridges transforms supply chain and logistics efficiency. It will facilitate product flow, enabling more raw materials to be transformed into finished products, available for sale and revenue generation. Instead of using route management software and transportation management systems to find ways around traffic delays and alternate routes due to road and bridge damage, now business logistics operators can streamline their routes, reducing the time and fuel cost spent in transit.
Easing these transportation nightmares will help eliminate disruption to production cycles and help improve efficiency in last mile delivery operations. This pertains not only to roads, highways, and bridges but also to ports, waterways, and freight networks. Investments in infrastructure will help ease the bottlenecks and frustration in transit across the country.
It is important to note that the law includes provisions for streamlining and expediting environmental review processes. Industry experts surmise that these measures will likely be successful in protecting the environment while still speeding up the permitting process.
Easing Traffic Congestion to Increase Freight Mobility
Considerable funds are included in the new law to underwrite projects involving highway-rail at-grade crossings that have been frequently reported as being blocked by trains. This includes adding gates, signals, installing bridges or even relocating the train track. This program is designed to improve the mobility of both goods and people and to facilitate the safety of the involved communities.
As many people have migrated away from population centers to rural areas, supply chain and logistics have had to meet new challenges. With these dynamics changing, the rural transport infrastructure must be upgraded. This will not only change the geographical and logistical opportunities for sourcing, producing, storing, and transporting goods but also will help reduce transit congestion and help meet the needs of the new hybrid workforce.
Reauthorizing the 2015 FAST Act for five more years will help to change supply chain models and emphasize rural investments. This will help to facilitate the opening of new markets, shifting supply chain paths and opening new opportunities for supply chain business operators.
The FAST Act created and funded new programs that were designed to support critical transportation projects. The objective was to remediate the causes of congestion so that freight could be moved more rapidly on major roads as well as across the Interstate System.
How the Infrastructure Law Impacts Trucking and Freight Forwarders
The legislation initiates a series of new NHTSA notice and comment rulemaking activities involving vehicle safety and suppliers:
Focus on Transportation and Logistics Safety
- Mandates to “prescribe safety standards and performance requirements for the installation and use of automatic emergency braking (AEB) systems on heavy-duty commercial motor vehicles”
- Update to minimum periodic inspection standards of automatic emergency braking systems (AEB) for heavy duty CMVs
- Augment commercial motor vehicle safety: notably to enhance the operation of vehicles of all types operating around large trucks. This involves providing funding for high visibility traffic enforcement efforts in areas considered to be high-crash corridors
- Support more investigations of unsafe trucking companies to ferret out offenders and improve highway safety
- Update bumper and hood standards, including: Utilization of advanced crash-avoidance technology Possible alignment with global standards
- Update standards for vehicle headlights
- Mandate auto-shutoffs for vehicles with keyless ignition
- Prevention technology for drunk and impaired drivers
- Include automatic emergency breaks, forward collision warning and lane-keeping assistance technology for newly manufactured passenger cars
- Incorporate of alert system for passenger cars in case of hot conditions, to prevent children and pets from being left in unattended vehicles
The Rail Part of the Transportation Equation
Business logistics relies on rail transportation in this country, heavily. Passenger and freight carriers share common rail networks. Just as passenger trains get delayed, so do freight carriers, disrupting the business operations of supply chain management. Upgrading rail networks will improve efficiency and make transit schedules more predictable.
Immediate Impact: Pop-Up Container Yards Alleviate Congestion at U.S. Port
To reduce the high level of congestion on docks located at the Port of Savannah, funds from the Infrastructure Law were used to provide five pop-up container yards in Georgia and South Carolina after the Infrastructure bill passed early last November. Pop-up yards were situated near Dalton and another near Atlanta to free up dock space and streamline the flow of goods in and out of the Port of Savannah, the second largest port on the East Coast of the United States.
Last year, the Port of Savannah processed 60% more goods than it had in pre-pandemic years. Even adding 400 more workers and operating 24 hours a day had not alleviated the port congestion. Because the most significant part of the congestion occurs onshore, experts hoped that introducing the pop-up container yards would make an immediate impact, aiding in increasing throughput and increasing last mile deliveries.
Because of the success of the program, the Georgia Ports Authority (GPA) reported that it would continue to send long-dwelling containers to the pop-up container yards. Leases on properties were extended across Georgia for another three months. Retailers that had been holding large amounts of cargo long term at the port, requested to voluntarily move their goods off site to assist in the process.
This is an aspect of the Infrastructure Law that has not garnered much attention. Rather than continuing to look at supply chain management issues in the same manner as in years past, by leveraging data, with or without new technologies such as artificial intelligence and machine learning, positive changes can be made. In other words, new solutions to old problems. Focus on how companies leverage the supply chain. Look at the data with a fresh perspective and consider the data that is being used to make decisions. Perhaps looking at the challenges from different perspectives can bring new, effective solutions to meet today’s needs.
For example, rather than singularly focusing on continuing to import a larger volume of cheaper goods, an issue which increases the likelihood of port congestion, consider how domestic production of the same goods could be used to solve not one, but potentially multiple problems.
How the Infrastructure Law Impacts U.S. Manufacturing (“Made in the U.S.A.”)
To ramp up the manufacture and use of American goods, the Infrastructure Investment and Jobs Act includes a requirement that more products and construction materials sold to the federal government be given preference.
Not only will this provision benefit American manufacturers and contractors but also supply chains. Less stress will be put onto logistics management of already crowded American ports as less goods related to infrastructure projects will be transported into the United States. This should ease product flow at the ports, a significant point of congestion, from which bottlenecks multiply across the system.
The components of this law that are associated with domestic procurement:
- Mandates the purchase of U.S. iron, steel, construction materials and manufactured products on federal infrastructure assistance awards. It is important to note that although the term “construction materials” is not defined in the bill, the traditional definition will be applicable, meaning nonferrous metals, plastic, polymer-based products, drywall, lumber, and glass (optic fiber)
- Provides robust origin standards on applicants under consideration for federal contracts
- Congress mandated that Build America, Buy America must be consistently applied to align with U.S. trade obligations related to government procurement.
- Amends the Buy America Act of 1933 to increase domestic content.
- Requires the establishment of a central, publicly available website (now live) to display Buy American waivers to the public.
- Provides user friendly means for individual American contractors and manufacturers to locate each other
- Includes transparency mechanism
- Provides some supplier scouting provisions. This includes a directed partnership between NIST (National Institute of Standards and Technology) and the Department of Transportation.
- Expands federal assistance awards.
- Statutory authority is not limited to the funds appropriated or authorized in the infrastructure law.
Multi-Prong Approach Enables Critically Important Objectives to be Achieved
- Improve rural transport infrastructure and expand broadband which will help to support the new hybrid workforce and support educational institutions. This will help ensure that anyone can work, learn and train from anywhere in the United States.
- Provides the structure for a decarbonization strategy as well as support for climate technology
- Helps supply chain logistics companies, electric vehicle charging stations and the National Highway System to enhance their cybersecurity provisions and provide protection from cybersecurity threats
- By prioritizing sustainability and diversity it is anticipated that more companies will be able to achieve their environmental, social land governance (ESG) goals.
- Provide a foundation that will be better positioned to help in stabilizing crises and providing support for more resilient supply chains.
From traditional media to social media, supply chain management issues are now receiving top billing in reporting, especially when it comes to supply chain woes. For once, it is good to have positive news to report! For the past few years, the good news was that the 3PL and warehouse aspects of the supply chain were booming, leading to record breaking sales in the industrial real estate industry. Warehouse construction, including cold chain is at new heights and prime real estate for distribution centers and fulfillment centers is at a premium.
With the debut of the Infrastructure Law and its investments, some business models may shift, supply chain networks may change and evolve. The need to meet customer demands and mitigate the impacts of climate change can both be serviced by turning to domestic producers and suppliers. This will, in turn, result in less congestion in ports and throughout traditional supply chains and reduce pollutants and the need for energy to power the modes of transportation that carry the goods to customers.
Hopefully, the new legislation will lead to a more sustainable supply chain. 3PLs and other transportation and logistics providers are positioned to benefit from massive investments in infrastructure. The massive volume of construction materials, commodity building materials and other goods involved with the supply management aspect of infrastructure involvement is bound to boost the need for more 3PL transportation services. Resolving congestion of roads, bridges, railways, and highways will lead to faster turnaround of transportation assets and greater profitability for 3PLs and other transportation and logistics service providers.
Vertical integration in the supply chain is becoming more of an issue, notably in that of the pharmaceutical supply chain but is somewhat under the radar in terms of news stories these days. Today there are more solutions available for risk management as supply chain businesses need more visibility of both raw materials and finished goods, especially for global supply chains. The need for real time visibility is acute. As supply chains shift from a just-in-time to a just-in-case strategy, more lead time is needed.
The critical need for supply chain resilience has been fully demonstrated over the past two years. From the COVID19 pandemic, concerns about the food supply due to the Ukraine-Russia war, inflation and other factors, the need for more resilient supply chains has never been more obvious and top of mind for the American public.
The new law and investments in U.S. infrastructure including the modernization of power grids to make them more resilient and capable of facilitating delivery of renewable energy via high-priority transmission corridors will accomplish numerous objectives. This includes facilitating the move of the United States to a more integrated power grid capable of sharing power between regions. This will help to streamline the volatility of electricity prices, minimize shortages, and protect both the hardware and the software associated involved with the power grid from cybersecurity incidents.
Once completed, the massive, much overdue investment in U.S. infrastructure will cause changes in operations management, logistics and supply chain processes and bring a new level of efficiency. While the final product will take years, there already have been some gains for modern supply chains. For example, utilizing pop-up container yards helped to alleviate congestion at the Port of Savannah. This, in turn helped to increase the speed of goods to consumers, resulting in positive customer experiences for the holiday season.
The basic data analytics involved with the compilation of infrastructure law demonstrate that this massive, “transformational” investment into U.S. infrastructure will lead to more responsive supply chains, better positioned to meet the challenges of dynamic supply and demand and customer expectations.
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Infrastructure Package Furthers Made-in-America Efforts – Government Executive (govexec.com)
The Infrastructure Bill’s Impact on Front-Line Workers | Zebra Blog
What More Disruptions will 3PLs See in 2022? | Food Logistics
The US Bipartisan Infrastructure Law: Breaking it down | McKinsey
Implementing federal infrastructure funds in states and localities | McKinsey
13 Best Infrastructure Stocks for America’s Big Building Spend | Kiplinger