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U.S. Infrastructure Woes

Bloomberg Businessweek August 9, 2021 pp34-37 |Politics| “Expect Delays” “One factory’s logistics show the cost to businesses of strained U.S. infrastructure” “THE BOTTOM LINE Volvo’s problems with late shipments underscore the need for investment in key roads and ports, as a $550 billion infrastructure bill moves towards Congress.”

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Read the Bloomberg Businessweek article for all the details.

Summary offered by 2244

Volvo Construction Equipment Corp. is highlighted as an example of how infrastructure-based woes at ports, on roads and rail impact Volvo's ability to make equipment based on Just-In-Time logistics. This plant receives components from “226 suppliers” for a thousand parts originating from 17 countries arriving in “containers on ships at port cities including Baltimore, Charleston SC and Los Angeles” that then move overland to the assembly plant in Shippensburg, PA. When parts are suddenly exhausted along the assembly lines then managers scramble to enable some lines to continue operating or face shutting down operations entirely and sending workers home. Volvo has made adjustments to overcome infrastructure-related insufficiencies by adjusting inventory and by making more storage space etc. to circumvent delays caused by clogged ports, truck driver downtime and jammed highways like the adjacent Interstate 81.

The logistical inefficiencies have a root cause in poor infrastructure planning and investment by the U.S. It is estimated that one “quarter of U.S. bridges need significant repair or can’t handle current traffic.” Truck traffic has “surged 31% per lane-mile” in the last 20 years. During this time “Freight-truck delays increased the nation’s 494 urban areas…[costing]...the trucking industry…$74.5 billion in direct costs annually…” Similarly port volume has increased 11% but upgrades such as wider and deeper channels, larger berths for ships, taller cranes for modern ships and more cargo storage haven’t been sufficiently funded. Finally, 54% of “senior executives at middle-market companies say infrastructure deficiencies directly hurt their businesses. According to Stephen Roy (Volvo) these infrastructure-related delays "...probably costs 5% to 10% of productivity."

The relative lack of funding for infrastructure is evident when looking at spending as a percentage of GDP. America at 1.6% of GDP currently trails investment by Europe at 2.9%, 3% in Japan and 6.1% in China. It is the hope of many leaders that the Proposed Infrastructure Bill in Congress will infuse $550 billion bringing “federal infrastructure spending to the highest level as a portion of GDP since the early 1980s.”


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