National Surface Transportation
and Revenue Study Commission Members

The report notes that a lack of investment in infrastructure to keep pace with traffic volumes impacts many areas of personal and business activity, including: severe congestion in large and, increasingly, also in medium-sized cities; public safety; the environment; and U.S. economic competitiveness.

“America’s economic leadership in the world will be jeopardized when we cannot reliably and efficiently move our goods. The declining performance of the surface transportation network—as a result of both inadequate capacity and inefficient management—will choke economic progress, preventing the U.S. economy from growing to its full potential,” the report states. “It is not an overstatement to say that the Nation’s potential for the creation of wealth will depend in great part on the success of its freight efficiency. Without changes, countries such as China and India, with more dynamic policies for transportation and economic growth, will challenge the U.S. in economic power and world influence.”

The problems, as many other observers have stated prior to this latest report, are deep. “Too many of the Nation’s highways, bridges, and transit systems are already in disrepair. Our transportation system is aging, requiring increasing investment just to maintain its current condition, much less improve it,” the report summarizes.

The Logistics Infrastructure Funding Gap

There has been general agreement that, for a variety of political and economic reasons, investment in logistics infrastructure has simply not kept pace with demands, even to maintain current levels of system performance, let alone reduce congestion and mitigate other challenges for freight and general transport. (See Rail Infrastructure Improvements - Searching for $148 Billion.)

That means the U.S. has to play “catch up” just to get back to previous levels of infrastructure safety, capacity and performance. This, in turn, says that “Increased expenditures from all levels of government and the private sector to compensate for past investment failures while addressing significant increases in future demand,” will be required, the report says.

So, how large is the funding “gap?” There have been a number of estimates made over the past few years, and this report, as with most of the others, concludes the numbers are daunting.

The chart below is taken from the report, and compares the current and projected level of funding under the status quo (the “Currently Sustainable” column) against projected needs in three time periods: 2005 to 2020, 2020 to 2035, and 2035 to 2055, in current dollars. It is important to note that these future needs are based on a “High” level of recommended investment, not the mid-range of the options, so the projected costs are greater than some others might estimate under a more conservative view.

The second row of the chart, for example, shows that the total gap in needed investment between the status quo and projected needs just for highways from now until 2020 is between $139 and $172 billion.

The last row translates that gap into the estimated cost per gallon of gasoline that is expected to be consumed – in other words, if the gap was funded by additional gas taxes only, what would the increase be, in today’s dollars. Through 2020, that number is estimated at 71-88 cents per gallon for highway improvements only, and 79 cents to $1.02 if gas was used to fund improvements in all modes.

US Logistics Infrastructure Investment
Requirements and Funding Gap

What’s interesting to note is that in constant dollars (actual dollars at the time would likely be higher due to inflation), the projected needs and funding gap moderate or even decline. For example, the projected par gallon cost of the funding gap through 2020 is 71-88 cents for highway improvements, but with a range of 54-85 cents in the period 2020-2035. This suggests a massive catch-up program first that will cost more to make up for lack of past investment, followed by periods of more steady investments after much of the catch-up work is done.

The challenge becomes how to “bridge” this gap between funding requirements and revenue sources. The dilemma for shippers, in a sense, is that they are likely to bear a huge chunk of the cost in terms of taxes on diesel fuel and other usage feeds, such as container handling charges. While shippers obviously want improved infrastructure, in large part to reduce logistics costs, the question for companies and industry organizations that will get involved with lobbying the government over all this may be how much cost it makes sense to bear in order to achieve savings and improve the flow of goods through better infrastructure.

One thing for sure – everyone will think the other guy ought to pay.

Next week, we look at the overall commission’s recommendations, and differing views about how the investment gap should be funded.

What’s your take on the infrastructure report? Is it good that government is getting more attuned to the needs of freight movement? Is this level of infrastructure investment really needed? How should shippers thinking about the cost-benefit? Let us know your thoughts at the Feedback button below.