Anyone who spends much time driving likely thinks their local roads, bridges and other infrastructure is aging and in need of repair. Add in traffic congestion, and the cost of using those roads has a direct bottom-line impact on drivers.
Take California, for example. Its worn-out and highly congested roads and bridges cost drivers $44 billion a year, according to a new report. Higher vehicle operating costs, congestion-related delays and traffic accidents cost $2,458 per driver in Los Angeles, according to the report released by The Road Information Program or TRIP, a national highway advocacy group. In San Francisco, the figure is $2,206 per driver, while in San Jose, it’s $1,723 per driver, according to the report.
Such costs are rising in all states. Investment levels in highways, roads and bridges are particularly vulnerable to inflation and the increasing cost of construction materials, and as a result, prices rose almost 10 percent per year from 2003 to 2008, according to “Catching Up: Greater Focus Needed to Achieve A More Competitive Infrastructure,” a study from the National Association of Manufacturers (NAM). States have been hesitant to make those investments, and the association’s research shows investment in highways, roads and bridges has fallen 3.5 percent each year from 2003 to 2012.
One of the consequences of states’ lack of investment in roads and bridges is that companies are forced to make changes to their supply chains to compensate so they can continue just-in-time deliveries. One common strategy is to lease additional warehouses with guarded parking lots on the edges of big cities where traffic congestion is an increasing problem.
Whirlpool, for instance, has set up a network of secure drop lots outside Chicago, Milwaukee and Minneapolis, reports James B. Kelleher in a Reuters story. Today, a washing machine that—in the past would—ship from regional distribution center through a local distribution center and on to the customer in one day now sits overnight in a parking lot.
“That adds an extra day of lead time, which means extra inventory,” says Whirlpool Corp. Logistics Chief Michelle VanderMeer in the article.
What’s more, there also is the cost of the facility, parking lots and security guards, all of which adds up quickly.
“We’d rather be investing our money elsewhere,” VanderMeer says.
Whirlpool isn’t alone in investing in additional facilities. Commercial real estate advisers report a proliferation of “just-in-case” warehouses popping up in heavily congested urban areas. For example, outside Chicago, Panasonic Corp, Ingram Micro and Owens & Minor have all leased spaces in recent years to help take congestion-related variability out of their supply chains, according to real estate advisor CoStar, the Reuters article reports.
Obviously, there is an impact from such operations. An item which passes through two warehouses requires about 50 percent more inventory than an item which passes through one warehouse, says Rene Circ, CoStar’s director of industrial research, in the article.
“It either costs the companies in the form of lower margins and profits, or it costs customers in the form of higher prices,” Circ says.
Manufacturers are lobbying Congress to approve new repair funds next year. However, they have low expectations for change. For one thing, the Highway Trust Fund, which finances road and bridge repairs, narrowly avoided insolvency this past summer. Secondly, lawmakers fear a backlash from constituents if they were to vote on raising the gas tax to bring in the $170 billion the Federal Highway Administration estimates is needed annually to improve roads. So it would appear little will change.
What are your thoughts on road conditions and rising traffic congestion? Has it added cost to your supply chain?