Infrastructure woes hobble transportation productivity

By James A. Cooke -- Logistics Management, 4/1/2005

CONCORD, MASS.—Shippers had better get accustomed to rising freight rates and capacity shortages, warns Lee A. Clair, a partner in the consulting firm Norbridge Inc. "We have been living in an era of an aberration, where we have had excess capacity and improved productivity in every mode in North America," he said in an interview. "But now we have run out of productivity and capacity in every mode, and it's happened at the time the economy has recovered."

Clair lays part of the blame on transportation deregulation, which produced productivity gains that made low freight rates possible. The federal government decontrolled transportation modes one by one, starting in 1978 with airlines and continuing across other modes during the 1980s.

Following deregulation, railroads saw labor productivity increase as a smaller, rationalized track network was able to handle growth. They also replaced trailer-on-flatcar equipment with double-stack container cars, and low-capacity steel cars with high-capacity aluminum equipment for coal shipments.

Deregulated motor carriers also achieved productivity gains by adopting new equipment. Truckers deployed longer trailers of up to 53 feet in length and added six inches to their width. Improved handling procedures and technology also boosted efficiency, as evidenced by an increase in the number of miles per truck and the gains in the load-to-empty ratio.

By now, Clair contends, truck and rail carriers have for the most part exhausted their productivity gains. Railroads are out of track capacity, and any track expansion would cost billions of dollars and take years to accomplish, he says.

In Clair's view, the productivity picture for motor carriers is just as bleak as that of the railroads. Highway capacity has reached its limits due to traffic congestion. At the same time, trucking companies must deal with capacity constraints even as they are struggling to attract drivers.

In the past, Clair says, motor carriers could source labor when needed from one of three industry segments: construction, manufacturing, or agriculture. "Typically, when one of these segments was strong, at least one of the other two was weak, and as such there were drivers available," he notes. At present, though, manufacturing is reviving, the construction industry is strong, and the weak dollar is promoting agricultural exports. To recruit drivers in the current economy, Clair says, motor carriers have no choice but to increase compensation. "They (trucking companies) are increasing pay and benefits, all of which drives up costs and drives down productivity."

Although rising energy prices are getting much of the attention for pushing up shippers' costs right now, the more important, long-term concern for the transportation industry is the amount of capital required to make the infrastructure improvements that are needed to boost productivity. "The question that keeps being asked is, when is the transportation system going to get back to normal?" Clair says. "While I am afraid to say it, get used to things the way they are. This is the new 'normal.' "