By  on June 26, 2007

Expanding global trade has spurred soaring container traffic at U.S. ports, but investments in road and rail infrastructure aren't keeping pace. It's an imbalance that the freight industry is warning will result in higher costs.

Container traffic at major ports is likely to reach a record high in August, according to the National Retail Federation's monthly Port Tracker report. An estimated 1.53 million 20-foot equivalent units, or TEU — the standard maritime industry measurement used to count cargo — are expected to pass through ports that month. TEU traffic during October, a peak because of the holiday season, is projected to hit 1.54 million TEU.

Paul Bingham, an economist with Global Insight, which produces the report, said congestion at the key retail ports has been low this year. Container traffic volumes also are growing at a slower pace than at the same time last year, which is helping the flow of goods. However, Bingham said the lack of infrastructure expansion will become increasingly apparent over the next several years.

"The trade volumes are growing by far faster than we're adding capacity," he said. "We're not adding infrastructure for transport at the rate trade is growing."

Ron Widdows, chief executive officer of container shipping line APL, highlighted the extent of the imbalance during a speech to the European Conference of Ministers of Transport this month. Widdows said the number of vehicles using the U.S. highway system between 1970 and 2000 increased 161 percent. In that same period, there has been only a 6 percent increase in added road mileage.

"Global Insight has projected massive congestion on main east-west routes by 2035," Widdows said. "The problems will be particularly severe in and around the major metropolitan areas…where, of course, most goods want to flow. The implications to the general population go well beyond the impact to trade flows."

The situation in the rail industry is even more dire. Equipment shortages and heavy traffic volumes in rail yards have made the rails "woefully congested," Widdows said. "The leading U.S. railroads are making significant investments to expand capacity, but it's not nearly enough. Rail velocity has been declining in the U.S. for a number of years." Rail freight is still expected to increase by 50 percent by 2020.Gary Petty, president and ceo of the National Private Truck Council, which counts companies such as Wal-Mart Stores Inc. and VF Corp. among its members, said the trucking industry also is facing increased pressure to deliver a wider array of product in a shorter amount of time.

"The demands are rising, but at the same time, the means by which you might meet those demands, those challenges, are harder to overcome," Petty said.

Freight volumes are projected to more than double over the next 20 years, although the highway system is expected to grow by "maybe 5 percent," he added. Most of that growth is likely to occur in areas west of the Mississippi. "Boston to Miami, those lane miles aren't going to be growing much at all," he said.

With little expansion of the highways, the freight industry will need to focus on optimizing use of the system. Putting larger trucks on the road is an option that Petty acknowledges won't be popular with the public.

Trailers have a limit of 80,000 pounds of cargo. Petty said the industry hopes federal legislation can bump that up to 97,000 pounds for six-axle trucks anywhere in the U.S., a policy that Petty notes is already in place in Canada and Mexico.

"There's a tremendous antitruck sentiment in the public generally, and among elected officials specifically," he said.

Communities are increasingly looking for ways to limit truck access to their roads, posing yet another problem.

"Eventually, congestion is going to translate into lower economic growth for our country, putting constraints on it simply because of the inability to get a product to market," Petty said.

Bingham believes ports inevitably will be forced to implement systems that allow trucks to pick up loads at off hours. The ports of Los Angeles and Long Beach, the nation's largest port system, started an off-hours system almost two years ago. Between 25 and 30 percent of goods at L.A.-Long Beach now move during those times, which has helped reduce congestion issues, Bingham said. The Port of New York and New Jersey is working to build rail capacity closer or directly on the docks, allowing trains to be loaded directly from the ship.Still, Bingham characterized freight movement as a "slow boil of developing issues."

Although more ports may opt for staying open later, retailers are likely to incur higher costs if they, too, need to receive late-night deliveries. To avoid congestion, importers may opt to route their goods through Boston or Philadelphia even though they may be destined for New York, incurring more trucking costs.

"By ignoring the fundamental problem, it's going to cost everyone in terms of more expensive goods on the shelf," Bingham said.

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