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By Tim Heaton | Aug 07, 2016
More than 10 billion tons of freight, or more than two-thirds of our nation's total domestic tonnage, was shipped via trucks on our nation's highways in 2014. The trucking and logistics industry is a critical component for our nation's manufacturing economy. Colorado's 952 centerline miles of interstate highways are a vital link in this national highway system.
However, to many Colorado manufacturers I-70 and I-25 are rapidly becoming, quite literally, bottlenecks within their supply chains. This may confirm why the C grade recently awarded to Colorado in the Conexus 2016 Manufacturing & Logistics Report Card is a fair assessment.
Congestion and the bottom line
Who likes sitting in traffic? Each of us can recount stories of being late for appointments due to traffic congestion. According to the Colorado Department of Transportation (CDOT), traffic congestion in Colorado costs drivers $1.35 billion annually in delays and fuel. As inconvenient as it is to be late for a meeting, when it comes to manufacturing the costs of congestion go straight to the bottom line. Congestion related delays totaled over 728 million hours for America's freight haulers in 2014. To put that number in perspective, according to the American Transportation Research Institute that is the "equivalent of 264,781 commercial truck drivers sitting idle for an entire working year."
Using readily available trucking industry operational cost data of $68.09 per hour, those 728 million hours of congestion delays calculate to over $49 billion in increased operational costs. These costs are passed on to the manufacturers who produce the 10 billion tons of parts and finished goods carried by our nation's fleet of Full Truck Load (FTL) or Less than Truck Load (LTL) drivers. No wonder C.J. Rhyne, business retention/expansion specialist for the Grand Junction Chamber of Commerce, recently reported to me that one of the common concerns he is hearing from Mesa County manufacturers is about the "cost of shipping." The owner of a manufacturing facility is faced with the decision of passing on the added costs to their customer. The added costs makes them less competitive. If the owner absorbs the costs, the additional charges cut into their profit margins and revenues for reinvestment into their company.
How bad is it in Colorado?
The 2016-17 CDOT Performance Plan identified four strategic policy initiatives. The third initiative focuses on improving travel-time reliability. The U.S. Federal Highway Administration defines travel-time reliability as the consistency or dependability in travel times, as measured from day-to-day and/or across different times of the day. This is measured with a Planning Time Index (PTI) which estimates how bad a delay will be on a specific route during the heaviest traffic. The formula uses the 95th percentile travel time to calculate the extra time a traveler should plan for to be on time. In other words, if I am carrying parts from one manufacturer to another manufacturer how much extra time should I plan for to arrive on time 19 of 20 trips -- 95 percent of the time. If the two manufacturing plants are 15 minutes away in free-flowing traffic, and the PTI is a 1.60, I need to allow for 24 minutes rather than the 15 minutes to arrive on time. (15 minutes x 1.60 PTI = 24 minutes).
CDOT has set a travel time reliability goal for the I-70 corridor between Vail and the intersection of C-470 and I-70 in Golden as:
For westbound travel
For eastbound travel
What does that mean for travel time? The segment of I-70 between Vail and the intersection of C-470 is nominally 88 miles. In free-flowing traffic, you could make that drive in approximately 90 minutes. However, with the projected PTI of 1.71, you need to plan on 154 minutes, or an extra hour and four minutes to make that drive on time. But if you are trying to ship parts from Golden to a Grand Junction manufacturer, your trip is not even halfway completed when you reach Vail. You still have Glenwood Canyon which seems to be regularly reduced to one lane of traffic due to maintenance (based on my own experience of monthly travels to Grand Junction).
The number of vehicle miles traveled on the segment of I-70 between Vail and the intersection of C-470 increased by about 10 percent just between 2013 and 2015. To manage the growing PTI, CDOT is working to improve traffic incident management, implement managed lanes (tolling), use Intelligent Transportation Systems, and other strategies; except for what is needed most -- adding additional lane miles.
As much as CDOT might like to invest in new transportation infrastructure, they simply just do not have the revenue to do so. CDOT must spend its funding to maintain its existing roadwork. There is no source of funds for expansion. Even maintenance of the existing system is a serious challenge. According to CDOT, based on current gas-tax revenues, they have funds to maintain the highway system in its current condition for the next 10 years. After that, and for the next 25 years, CDOT is looking at a $25 billion revenue shortfall.
Sixty-one percent of CDOT's funding comes from the state and federal gas tax we each pay when we fill our gas tanks. Colorado's gas tax is 22 cents per gallon. It has been at that level since 1992. The federal tax is 18.4 cents per gallon and it has not been raised since 1993. Meanwhile, each of us are driving further with less gas. The average passenger car got 27 miles per gallon in 1992. Today, the average is more than 37 miles per gallon. And that doesn't take into account the number of electric vehicles on the road today, which do not pay a gas tax but still drive on the same roads. Is it any wonder why we can't fix our road congestion problem? Gas tax revenues collected are shrinking as all of us are making fewer stops at the pumps while driving the same number miles. Meanwhile, no one is interested in taking on the task of selling a gas tax increase to the voters. Can Colorado settle only for an aspirin when the real cure requires major surgery?
What can manufacturers do?
Start with what you can control! Manufacturers can and should also evaluate their supply chain on a regular basis and explore opportunities to shorten their supply chain. Ask yourself, is there a part within your Bill of Materials (BOM) that you are paying extra freight costs to bring in from St. Louis or Chicago? Are you sending parts out of state for value added services that could be performed closer to your own factory? I have seen it myself. We can be loyal to a fault. As manufacturers, we get comfortable with vendors with whom we do business. Sometimes change is too hard even if it will save us money. Think what we can do to grow Colorado's own manufacturing sector by sourcing more of our BOM from local Colorado manufacturers.
In addition, manufacturers can and should demonstrate their expertise in creating real, high-paying jobs through the production and transportation of finished goods. Funding for transportation infrastructure in the state of Colorado is a complicated affair. Manufacturers shouldn't have to become experts in the Taxpayers Bill of Rights, the intricate details of General Fund Transfers, and the Highway Users Tax Fund. That is why we have appointed highway commissioners and other elected officials.
However, as manufacturers, it is our responsibility to educate our elected officials on the impact traffic congestion has on our bottom line. Elected officials need to know that when it costs more to move freight in Colorado, our manufacturers' competitive position against other states and nations declines. If Colorado manufacturers can't remain competitive, we lose work and jobs. If that is not a good reason to address Colorado's transportation infrastructure problems, then I don't what is.
As CAMA Board Member Kreg Brown pointed out in this space last week, Colorado manufacturers are facing stiff headwinds because neighboring states have become more competitive by eliminating the Business Personal Property Tax. Add to this headwind the declining transportation infrastructure that may not only cost skiers a few runs on the slope, but could very soon also cost that skier his or her job.
Like so many demanding issues these days, our leaders prefer to kick the can down the road for a future generation to solve. The problem with transportation is that they can't kick the can down the road, it is too congested. Putting our transportation problems off will cost Colorado its manufacturing competitiveness. That is something none of us can afford.
This concludes the five-part series by CAMA and its partners to address the Conexus 2016 Manufacturing & Logistics Report Card for the United States. After discussing the issues within this report card with so many manufacturers in Colorado, I feel comfortable saying Colorado manufacturers care less about making the letter grade, and more about making quality products and creating high-paying jobs. This doesn't mean we all don't have room for improvement. Over the past few weeks we have brought to your attention programs that can help you advance your business. Programs that can help you export your products and grow your own workforce pipeline if you take advantage of them. We also discussed real headwinds manufacturers are confronting that require our elected officials to act. How? Get involved to make certain your voice is heard. Together we can advance manufacturing in the state of Colorado making it better and easier to do business here.
Conexus Indiana, a private-sector initiative focused on making Indiana a global manufacturing and logistics leader, recently released the 2016 Manufacturing & Logistics Report Card for the United States. The report graded states in several different categories relevant to the manufacturing sector. This response is the third in a five-part series examining Colorado's grades; read part one here, part two here, part three here, and part four here.
Tim Heaton is President of the Colorado's Manufacturing Trade Association, the Colorado Advanced Manufacturing Alliance. For questions or comments, please contact Tim at tim.heaton@co-cama.org.