At this year’s U.S. Intermodal EXPO, one of the major discussion points was President Trump’s US$1 trillion infrastructure plan to rebuild the nation’s roads, bridges, tunnels and railroads. With U.S. infrastructure languishing at ninth in the world, according to the World Economic Forum’s latest assessment, the administration’s initiative aims to deliver a world-class infrastructure to help improve the country’s competitiveness. The plan includes US$200 billion in direct federal spending over the next decade, to be bolstered by private investment through public-private partnerships.
According to Walter Kemmsies, Economist and Chief Strategist with JLL Ports, Airports and Global Infrastructure, the U.S. needs to increase its exports in order to sustain economic and employment growth.
“U.S. exports are predominantly low value per ton products, such as agricultural goods and carbon-based products, notably coal, oil, natural gas and petrochemicals, as well as plastics and resins. While the U.S. has a production cost advantage in these goods, if transportation isn’t efficient then the geographical area over which the U.S. can compete globally becomes severely limited.”
Infrastructure improvements therefore should focus on the types of goods the United States can export successfully. That means directing investments towards heavy load roadways, which are needed to move freight from the production areas to the ports on the waterways, as well as enhancing the infrastructure to support waterborne freight, since this is the best way to move heavy goods.
“The Mississippi River System has to be a priority, as it is the gateway for U.S. exported goods that mostly come from the Midwest,” says Kemmsies. “In addition, there should be a more concerted effort to reduce road congestion. This includes embedding more technology in infrastructure, and bringing mass transportation systems back to full service conditions.”
The biggest return on investment would be achieved through projects centered on the 10 to 15 largest port gateways, reckons Kemmsies.
“They account for close to 90 percent of U.S. seaborne trade, and need support to continue improving navigation channels, strengthening quay walls to support larger cranes, and converting rail and road crossings into overpasses to reduce congestion and truck travel times.”
Building on the present
Progress in upgrading the country’s infrastructure to strengthen its export and import capabilities is already being made, demonstrating the potential for what can be achieved. For example, Georgia Ports Authority is working on dredging the Savannah River to accommodate larger vessels, which would allow ships to draft deeper and carry more exports to Asia.
“As the first port of call for vessels coming from Asia via the Panama Canal, investment there has a significant impact on US trade volumes,” Kemmsies explains. “If the federal government were to accelerate the funding it could deliver results quickly.”
Improving the Gulf Coast ports, in particular New Orleans, could also help boost exports. New investment is taking place there to convert a ship yard. And there is potential to expand the short line railway under the ownership of the Port of New Orleans.
Meanwhile, the Port of Los Angeles has given a concession to Saybrook Capital to redevelop a former coal terminal to improve container drayage, thereby reducing congestion and emissions.
Will the Trump plan become reality?
Whether the administration’s ambitions can be translated into workable reality, and what shape they will eventually take, remains to be seen. The infrastructure plan was bundled into the President’s 2018 budget proposal, and is currently embedded in the tax reform bills being developed in Congress. Different tacks are already apparent, with the House bill shunning market approaches to infrastructure, while the Senate bill favors leveraging scarce federal taxpayer dollars to bring in outside money from states, local governments and private investors.
Given the poor state of U.S. public finances, attracting private sector funding will be critical to achieving the spending goals, says Kemmsies. “The government has more than US$17 trillion of debt, with a debt to GDP ratio well over 100 percent, and which is likely to stay at that level for several years. By contrast, the private sector has over US$90 trillion of wealth. Ideally, the public sector would handle the permit process for the projects, with the private sector responsible for construction and operation.”
Like Europe, the U.S. should also consider issuing shares to privatize stabilized infrastructure, such as existing toll roads. “This might help improve public support for infrastructure projects,” suggests Kemmsies.
Big question marks remain then over the size, format and timing of whatever infrastructure initiative comes to pass. There is also the question of whether even the initial proposed amount would be enough.
“US$1 trillion would cover the transportation sector’s needs,” says Kemmsies. “However, it wouldn’t be enough for the electric grid, water treatment, and social infrastructure like schools and hospitals. The U.S. has ignored infrastructure maintenance and development across the board for too long, and these must be considered as well.”
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