The Obama administration has made it a specific goal to increase export-driven jobs. In his 2010 State of the Union address, President Obama announced the National Export Initiative, a government-wide strategy intended to double U.S. exports within five years. There are some indications of success: U.S. exports in 2012 hit a record high of more than $1.5 trillion, and the first quarter of 2013 was the highest quarterly total ever at nearly $400 billion. Still, the country is far from hitting the NEI goal.
Although some export behemoths — Microsoft and Disney, which export electronically by download, and Boeing, which ships its goods on its own planes, come to mind — don’t need the transportation industry’s services, transportation is still critical to trade growth. Traditionally, attention has been focused on consumer product and industrial component imports, which are high value and originate from a few locations. Successful import transportation comes down to transit time and reliability. The pair of sneakers we purchase for more than $100 costs less than $1 to transport.
Export transportation, although less glamorous, can literally determine market success. Many exports are traded commodities, where the cost of transportation may be more significant to the landed cost than the actual underlying cost of the goods. Expensive transportation (and currency exchange rates) may exclude goods from certain markets on a competitive basis.
Historically, export transportation has revolved around agribusiness and energy. Energy used to be about export coal, but U.S. coal exports have plummeted because of falling demand in China and global oversupply. The rapid conversion of domestic coal power generation to natural gas only heightens the urgency for U.S. coal producers.
Although the railroads have traditionally relied on transporting coal, the historic realignment of energy brought on by fracking has generated new business at record levels. Railroads are competing with pipelines to move natural gas and crude to refineries. This modal transformation has changed LNG’s transportation focus from importing to exporting. Ensuring sufficient marine terminals to handle these exports is already a challenge.
Export grain is a major part of the nation’s transportation system. Over the past decade, rising prices have been more important than growing volumes to rising export value. Most grain moves to Asia after it flows by rail to the Pacific Northwest, or by rail and barge to the Gulf. Gulf ports could be a major beneficiary of the expanded Panama Canal in 2015 — if the Mississippi River remains navigable.
Although most grain exports are bulk, some shipments (not to mention the rest of agribusiness) move in containers. As container vessels become larger, they grow competitive with traditional bulk and reefer vessels in many trades.
Some shipper representatives lament the shortage of available empty containers at the export source. Still, neither shippers nor ocean carriers seem willing to reposition an ample supply of empties to export loading points. Frequently, the optimal asset yield decision is for the carrier to reposition an empty back to Asia. Export shippers, accustomed to low backhaul rates, are unwilling to accept cost-based increases in a market-driven pricing environment.
A more serious challenge is safety. Twenty years ago, Congress passed the Intermodal Safe Container Transportation Act to address misstatement of container weights. Although this problem remains pervasive worldwide, it doesn’t appear to be a problem in the U.S, because many states — especially those with ports — have engaged in a race to the bottom in granting exceptions to the 80,000 federal maximum gross vehicle weights. There is no need to misdeclare a shipment when a previously overweight container now meets legal requirements.
These heavier highway weights may be legal, but are they safe? Recent industry research suggests not. Most of the current ISO chassis fleet is incapable of handling loads of 100,000 pounds. Many chassis structural components were designed prior to 80,000 pounds GVW, and non-radial tires can’t safely accommodate 100,000 GVW. Nevertheless, states from Virginia to Florida routinely allow such heavy loads on their highways without any restrictions. Some of these states justify their practice by citing the fact that adjoining states already permit the same.
The freight transportation industry is frequently beset with post-disaster regulatory mandates — consider positive train control and double-hulled tankers. Will a horrific truck accident cause a belated reaction to heavier truck loads and disrupt established export economics? Supporting economic prosperity is a key role for government, but it also needs to guarantee adequate capacity and safety.
It appears that closer examination of the last two, especially safety, may be necessary.
Ted Prince is principal, T. Prince & Associates. Contact him at email@example.com.