Combating Congestion: Consider Moving Out
Americans have seen tremendous technological advancement in the past 50 years. We operate and communicate at a faster pace, with one glaring exception: the physical movement of people and products. We still move goods on the same transportation infrastructure that President Eisenhower created in the 1950s.
Back then, infrastructure was created to accommodate the growth of the next 25 years. Today, however, we add capacity to our transportation infrastructure to handle the growth of the previous 10 years.
Most current transportation projects merely make congestion “less worse.” The lack of adequate highway infrastructure capacity has created serious challenges for goods movement and warehouse operations.
Manufacturers and distributors increasingly use their supply chain networks to gain a competitive advantage in the marketplace. Having the right product in the right quantity, place, and time and at the right price is crucial, and too much or too little inventory can be costly.
For example, Target notes that it can save $100 million to the bottom line by taking one day, on average, out of its supply chain transit time from Asia to its U.S. retail stores. But the uncertainty of goods movement on today’s highway system makes it necessary to add costly safety stock inventory, which ultimately equates to a congestion tax on consumers.
Warehouse location and site selection studies show a distinct trend of highway accessibility as one of the top three criteria, along with transportation costs and labor.
Inbound and outbound transportation costs typically represent 55 to 65 percent of a warehouse’s operating costs, which are directly affected by traffic congestion and delays. Trucking companies have begun pricing their services based on a location’s impact on their tractor and trailer asset utilization goals.
Congestion also has an impact on labor availability and quality. Commuting 30 to 60 minutes each way in heavy congestion affects workers’ productivity and quality of life, which ultimately affects turnover rates and retraining costs.
Annualized line-haul driver turnover rates average 120 percent, and a major cause is drivers’ frustration with traveling the congested highway system, according to the American Trucking Associations.
Corporations serving critical metropolitan market areas must choose between locating close by or selecting a less congested location farther away.
When Best Buy recently needed to locate a new 650,000-square-foot warehouse facility to serve the Northeast, it selected the relatively uncongested area of Nichols, N.Y. Highway accessibility and a lack of congestion were important elements in the final decision, according to the site selection team.
The Los Angeles metropolitan area holds the U.S. record for the worst highway congestion and traffic delays. The Central Valley of California, along I-5, has proven to be an excellent option for regional distribution centers seeking to avoid L.A.’s congestion.
Close enough to serve the major local markets but able to operate outside heavy congestion zones, the Central Valley will continue to gain acceptance as congestion increases near L.A.
Traffic congestion continues to worsen in American cities of all sizes, creating a $78-billion annual drain on the U.S. economy in the form of 4.2 billion lost hours and 2.9 billion gallons of wasted fuel, according to the Urban Mobility Study conducted by Texas A&M University.
Until significant infrastructure expansion alleviates congestion, site selectors and companies should consider distribution center locations that already have excess infrastructure capacity.