WASHINGTON — Congestion on U.S. highways and railroads and at ports is getting worse and the impact of an impending freight capacity shortage could be substantial for companies like Wal-Mart that depend on “just in time” inventory strategies and an efficient global supply chain.
Congress, which passed a multibillion-dollar highway bill last year for a critical upgrade of the U.S. transportation system, is tapping the private sector for ideas on how it can fund the expansion of the nation’s highways, railways and ports, and mitigate the impact on commercial users.
At a House subcommittee hearing this month, executives from Wal-Mart, FedEx and Schneider National Inc. testified about their concerns and strategies in navigating the complex web of highways, railways and seaports, as the volume of imports and freight threatens to overburden the network.
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More than 19 billion tons of freight, valued at $13 trillion, was carried over 4.4 trillion ton miles in the U.S. in 2002, according to the U.S. Department of Transportation. In less than 20 years, the nation’s freight tonnage is projected to increase 70 percent. Since 1980, interstate highway lane miles have risen 16 percent, while vehicle miles traveled on roads increased 123 percent.
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Transportation experts say that is a recipe for a freight-capacity crisis, since highway capacity is expanding too slowly to keep up with demand. Bottlenecks lead to significant shipping delays, totaling about 243 million hours annually, costing direct users $7.8 billion annually, according to the Federal Highway Administration’s Highway Economic Requirements System model.
“I think the reality is the congestion and bottlenecks in today’s infrastructure is creating a bigger challenge every day to make those on-time deliveries,” said Douglas G. Duncan, president and chief executive officer of FedEx Freight. “If we are going to see continued improvement in logistics that have made our American companies much more competitive, we’ve got to figure out a way to continue supporting this on-time transportation network.
Duncan said he doesn’t believe the highway bill, which Congress passed last year, will help expand existing highways. He said, “It will probably just barely maintain our existing highways. So we’ve got to find new ways to raise revenue for infrastructure and we’ve been an advocate of the fuel tax because it’s already in place and it is an efficient way to raise dollars.”
Wal-Mart, which owns one of the largest private truck fleets in the country, has one of the most extensive logistics and supply chain networks. It includes 117 distribution centers, ranging from 800,000 square feet to 4 million square feet, said Tim Yatsko, senior vice president of transportation for Wal-Mart.
The company has 39 general merchandise distribution centers, including seven centers that handle the company’s fashion shipments exclusively. In all, the company’s distribution centers ship about 1.6 billion cartons a year.
Wal-Mart moves 1.3 million loads on its own truck fleet inbound to its distribution centers annually; 69 percent of its total loads is moved by truck, 20 percent by LTL motor carrier, 7 percent by small package carriers, 2 percent by ocean freight and 1 percent by consolidators.
“We avoid transportation congestion risks by maintaining multiple channels or distribution points,” said Yatsko, adding that the retail giant works around congestion, despite extra costs in some cases.
To mitigate congestion and maintain driver productivity, the company uses consolidation facilities, trailer pools that enable “drop and hook” delivery versus live loading and unloading, driver and delivery schedule changes such as night versus day, truck versus rail decisions and multiple port strategies.
Yatsko said the best example of its “port-split” strategy arose from an increase in congestion at the twin ports of Los Angeles and Long Beach in the late 1990s. Wal-Mart responded by splitting its shipments to flow through ports on the East Coast and Gulf Coast to avoid congestion in Los Angeles.
Even with these efficiency strategies, Yatsko and Wal-Mart still see problems on the horizon. Among the “freight challenges” the company expects to face in the short term are more highway congestion, less rail network capacity, driver shortages, problems of fuel efficiency and sustainability, and security, he said.
Rep. John Boozman, (R., Ark.) asked how companies such as Wal-Mart and FedEx are conserving energy in the midst of an energy crisis.
“We are attacking fuel efficiency in our truck fleets by going after some pretty aggressive goals,” said Yatsko.
He said Wal-Mart has a goal of improving fuel efficiency by 25 percent next year and has already improved the efficiency rate by 18 percent.
“We are also going after one of our big dream goals, which is 100 percent fuel efficiency improvement by 2015, and we are doing that by engaging everyone involved [from the maker of the trucks to the Environmental Protection Agency] to produce a truck that uses hybrid technology,” he said.
Funding an expansion of the transportation network was a key topic of the subcommittee hearing. Rep. Thomas Petri, (R,, Wis.), chairman of the Highways, Transit & Pipelines subcommittee, asked how Congress could fund an expansion in the nation’s transportation network and specifically pointed to the question of toll roads.
“Do you go off roads, drive the back roads or just pay the tolls?” asked Petri. “Is this really going to work, all of this tolling?”
Christopher Lofgren, president and ceo of Schneider National, which specializes in premium truckload and intermodal services, said, “In the short term, there is freight we simply won’t haul any longer because of what is required in tolling.”
When Wal-Mart’s truckers face toll roads they can’t go around, “it is a direct cost hit to our company and to the consumer, in some cases,” said Yatsko. But he said Wal-Mart supported toll revenues that were properly allocated to infrastructure improvements.
Duncan of FedEx said tolls are “counterproductive” and “create congestion and choke points.” He said the best way to raise revenue is by increasing the fuel tax, which he acknowledged is politically attractive.