Trends—September 2016

Trends—September 2016

Transportation Infrastructure: The Roads to the White House

It’s no big secret that American transportation infrastructure is falling apart and sorely underfunded. In 2014, the U.S. Federal Highway Administration (FHA) labeled more than 61,000 U.S. bridges as "structurally deficient." There is currently a $1.4-trillion deficit between transportation funding and spending needs for the next 10 years, according to a May 2016 report by the American Society of Civil Engineers (ASCE). That gap will increase to $5.18 trillion by 2040, the ASCE estimates, if something isn’t done soon about the way the United States funds its transportation projects.

Recent legislation, such as the Fixing America’s Surface Transportation Act, provided $305 billion in funding for repair and maintenance, but those who have to use our nation’s highways, waterways, and rails every day are left wondering how much longer they can go on like this.

Total U.S. freight shipments will increase 45 percent by 2040, according to the FHA. This means that, without some sort of fundamental change in the way we pay for infrastructure maintenance and improvement, damage to the nation’s infrastructure will continue to outpace federal funding.

In our January 2016 issue, Inbound Logistics looked at where each presidential candidate stood on infrastructure funding. As the general election approaches, it’s now time to examine where the major party nominees stand.

Hillary Clinton: Infrastructure Is In a ‘Sorry State’

On the campaign trail, Hillary Clinton has begun to focus on infrastructure. "I don’t have to tell you what a sorry state we’re in. Our roads and bridges are potholed and crumbling," Clinton said in speech on June 22, 2016. "Our airports are a mess. Our ports need improvement. Our rail systems do, as well."

Clinton’s solution to fix these problems, which she has vowed to implement within the first 100 days of her presidency, involves a five-year, $275-billion plan that would be paid for by an undefined "business tax reform," according to her campaign website.

Of the $275 billion, $250 billion would be invested directly to public projects, while the remaining $25 billion would be socked away in a national infrastructure bank. This bank would use the $25 billion as capital to support an additional "$225 billion in in direct loans, loan guarantees, and other forms of credit enhancement," to bring in more private capital investment as well, the campaign website says.

As such, in total, Clinton’s plan aims to address U.S. infrastructure with about $600 billion in public funds. It also aims to save money through cutting red tape. Infrastructure projects often get mired down in bureaucracy, and take years to get started. If a future President Clinton could fast-track those projects, a substantial amount of money could be saved. Additionally, Clinton proposes reauthorizing the Obama administration’s Build America Bonds to funnel more money into infrastructure.

It all sounds good on paper. However, the downside for the transportation industry is that the plan isn’t limited to transportation infrastructure. The funding is also earmarked for projects designed to move the United States into the future, such as electrical grid improvement projects, updating sewage and water infrastructure in American cities, and bringing reliable high-speed internet infrastructure to the entire nation. Right up front, any transportation projects will have quite a bit to compete with, and the funding is likely to fall far short of what would be needed.

Donald Trump: Dreaming Big

Donald Trump often talks about failing U.S. infrastructure in online videos and on the campaign trail, but has failed to release any sort of infrastructure plan on his campaign website.

Though he hasn’t released a plan of his own, Trump says that Clinton’s proposed plan isn’t nearly enough. "Her number is a fraction of what we’re talking about. We need much more money to rebuild our infrastructure," the Republican nominee said in a Fox Business Network interview. "I would say at least double her numbers, and you’re going to really need a lot more than that."

Trump’s campaign has said he will release a plan to this effect in the near future, but they had no specific timeframe. Even so, the idea is clearly on his mind. "We will build the roads, highways, bridges, tunnels, airports, and the railways of tomorrow," Trump said during his acceptance speech at the Republican National Convention.

Trump’s willingness to spend on infrastructure hasn’t been popular with his fiscally conservative party. He has even likened his infrastructure ideas to President Franklin Roosevelt’s: "If we do what we have to do correctly, we can create the biggest economic boom in this country since the New Deal, when our vast infrastructure was first put into place," Trump wrote in Crippled America, his 2015 campaign book.

All we know at this point is that Donald Trump is dreaming big about fixing American roads, rail, and waterways, but it remains difficult to fairly compare the plans of two people when one hasn’t actually released a plan. Until there is a plan in place to hold him accountable, the Republican nominee can say pretty much whatever he wants about his intentions for our nation’s infrastructure.

Stakeholders in the transportation industry will want to keep a close ear to the ground from now until the election to see if the Trump campaign follows through on releasing its plan as promised.

Honey, I Shrunk Our Carbon Footprint

We don’t all drive the trucks, but we all depend on them for products we consume daily. Every retailer, manufacturer, and consumer uses products or materials every day that at one point moved by truck. So when it comes to the emissions caused by freight, everybody is a little responsible for the damage to the environment.

New Clean Truck standards from the Environmental Protection Agency and Department of Transportation aim to change all that. "The new fuel standard means continued progress in tackling this significant source of emissions," says Jason Mathers, director of supply chain for the Environmental Defense Fund, in a blog post. "This progress will reveal itself in lower carbon footprints for every product brought to market. It will be apparent through lower freight and fuel surcharge fees—saving large consumer brands millions annually."

The standards require new tractor-trailers to emit 25 percent less carbon emissions in 2027 than they do in 2017, with standards increasing incrementally toward that goal in 2024 and 2027. Trucking stakeholders at all levels—from owner-operators to large fleet managers—can expect to benefit from new technologies within the next few years.

"With the certainty of long-term standards, manufacturers will make the needed investments to introduce new engine platforms, better integrate powertrains, and take advantage of other cost-effective choices," Mathers says.

A number of green leaders in the freight movement industry, including PepsiCo, Walmart, and General Mills, had a say in the new standards. The new rules are expected to be critical in the battle against global climate change, so it isn’t surprising that companies already aiming to reduce their carbon footprint are on board. Freight movement accounts for more than 10 percent of U.S. carbon emissions.

"Making heavy trucks more fuel efficient is the single most important step to reducing freight emissions," says Mathers. "The program announced will be crucial to build a low-carbon future that enables the free flow of freight. That is an outcome every business should celebrate."

Amazon’s High Hopes

Amazon shook up the retail sector in ways that nobody predicted, changing how the world shops forever in the process. So when the company spent the past six months leasing and purchasing assets to begin dabbling in the freight sector, transportation and logistics providers got nervous.

The retail giant now wants to shake up the freight sector, which has trouble keeping up with the high expectations consumers have developed thanks to Amazon Prime. Seeking to support the one-day and two-day Prime shipping options that have made the service so popular, the company plans to ramp up cargo operations over the next several years.

"Our operations teams have been focused on our fulfillment centers and core supply chain processes, creating the capabilities required to enable the world’s largest selection with fast, free shipping for Prime members," says Dave Clark, Amazon’s vice president of worldwide operations. "Now we see the same opportunity to innovate in transportation."

Amazon unveiled its newly branded aircraft in grand style, flying it over Seattle’s Seafair summer festival before the Blue Angels performed. The Boeing 747-300 is only the first of many that will bear the Amazon logo. The company plans to release an entire branded fleet in the near future. "We’ll roll out 40 planes just like this one," Clark says.

Amazon has said previously that it doesn’t intend to replace partners such as FedEx or UPS for package delivery, only to supplement them with its own assets. Yet, the concern of many in the logistics sector is that Amazon will eventually cut out partners, or begin offering its own contract logistics services in competition. With Amazon, anything is possible.

Take Cover: Protecting Against SC Disruptions

A key supplier goes out of business. Global standards and regulations change. Consumer demand shifts. Any of these scenarios can put your supply chain at risk. But you can mitigate the impact of global supply chain disruptions, and protect your supply chain against future threats. For some expert advice, Inbound Logistics spoke with Bob Gazdik, risk control national director, and Mike Thoma, chief underwriting officer, global technology at insurance company Travelers.

IL: When building, adapting, or expanding a supply chain, what is the most practical way to research industry-based standards and their accompanying legal obligations?

BG: It’s best to start by identifying the widely recognized industry organizations that set industry consensus-based standards. Companies can use those resources to help understand the best practices within an industry. Some examples of organizations that provide quality criteria for electronic components include the Independent Distributors of Electronics Association, SAE International, and the Federal Defense Logistics Agency.

Understanding suppliers is one step, but understanding the seller is crucial to protect the supply chain. This goes beyond simply finding out who will give you the lowest bid. It is typically safer to purchase from Original Equipment Manufacturer-approved distributors and source references from other companies that have had experience with the seller.

IL: What should companies look for when conducting due diligence on the potential liabilities associated with their supplier partnerships?

BG: When you’re thinking about working with a supplier, try to understand their track record, financial resources, and customer base, as well as their proactive and reactive tactics for limiting business disruption. At the product level, there are some protocols, such as verifying specifications, that may help decide whether to start a business partnership . You can help ensure suppliers’ specifications match your needs by reviewing the bidder’s documentation, quality control and testing procedures, and contractually requiring the bidder to notify you in advance of any changes they make to product design or suppliers.

If you decide to work with a particular supplier after you have completed your due diligence, anticipate that your company will be the primary contact to handle customers’ technical questions or complaints.

That’s why it’s important to know as much about product design and safety features as possible. The contractual agreement with the foreign manufacturer should be written to allow you access to pertinent information you might need to address customer questions or complaints.

Q: How can companies with international supply chains consistently verify that their suppliers’ products and practices meet previously agreed-to safety standards and reliability specifications?

BG: Continually reviewing quality control processes for parts, products, and services contracted from suppliers, no matter where they are located, is critical. Knowing how each supplier produces materials or components and conducts on-site inspections and independent testing will help you validate that products and practices meet established specifications.

Creating a formal product safety committee to oversee regulatory compliance of products is a good way to help ensure it’s done right. This committee should include senior management, legal counsel and team members responsible for product design, manufacturing quality, and product safety codes and designs.

Q: How can companies with global supply chains transfer risk to avoid the complications of litigating against foreign manufacturers responsible for product liability issues?

MT: Strategies to help avoid the complications of litigation with foreign manufacturers include an effective risk transfer program that involves diligent record documentation, careful selection of shipping companies, and close reviews of shipping practices and shipment itineraries. Minimizing the number of parties who come into contact with overseas products can also help.

Because it can be difficult to litigate against foreign manufacturers, domestic handlers of foreign-made products can be held accountable. This is why it is so important that you regularly assess product liability exposures—including raw materials, components, and sub-assemblies.

To help in doing that, you can draft an agreement that allows you to access pertinent information that may help defend against potential product claims. The agreement should include statements of responsibility, such as a Certificate of Insurance, and writing "hold harmless" or indemnification provisions into contracts.

These contracts may also include a "choice-of-venue" clause in which the supplier agrees to address disputes within the U.S. court system.

Logistics Talent: Keeping All Hands on Deck

A robust and growing economy offers rewards for everyone, but often involves growing pains as well. In logistics and supply chain management, one of these growing pains is the changing nature of the workforce.

"Right now we’re in a transition point," says Tom Gimbel, CEO of the LaSalle Network, a Chicago-based provider of staffing and recruiting services. "We still have a number of older supply chain professionals who came up in the procurement side of the business, while at the same time we’re getting recent graduates of supply chain management programs. They generally combine distribution and finance expertise, and are proficient in much of the new software being developed."

This changing of the guard is largely driven by huge leaps in technology and ERP software development impacting the industry.

These changes have reoriented the ideal career path of someone entering the field. Supply chains once were managed by finance or accounting veterans, but organizations now recognize the value offered by people who can get products from Point A to Point B. This emphasis has led to the birth of new college curricula.

"Supply chain management has emerged as a new business-related field of study," says Tisha Danehl, vice president of New York-based employment agency Ajilon Professional Staffing. "As a staffing company, we’re anxious to place graduates of these programs because there is currently a shortage of qualified people."

Both LaSalle and Ajilon see increased demand for supply chain professionals, and are devoting more resources to meeting it.

The evolution of college curricula is largely technology driven. Cloud computing and robotics courses are part of the Business Analytics and Information Technology (BAIT) umbrella. Meanwhile, people in academia are developing closer relations with industry leaders to best coordinate courses with business needs.

Colleges are beginning to help bridge the gap between school and future career by offering to set up summer internship programs, beginning as early as the student’s sophomore year. Students who participate enjoy a post-graduation placement rate of approximately 90 percent.

"At our company, we partner with colleges to offer seniors workshops in resume writing and interviewing skills," Danehl says. "We also provide a salary guide so students can estimate how much they’ll earn."

Despite the change in demand for the type of supply chain candidate, the net number of new people needed is unpredictable, based on the economy and the pace of corporate mergers, Gimbel notes. A slowing economy means less product is being transported, so fewer people are needed, while a merger can have a surprising effect.

As an example, he cites the proposed merger of The Hershey Company with Mondelez International. "The new company could let go of current staff and bring in more software-focused people to reengineer their distribution system," Gimbel says. The deal is on hold due to resistance from the Hershey board, which is closely allied with the philanthropic causes in its Pennsylvania host city.

The speed with which the field is changing may be the reason the experts disagree with the latest U.S. Bureau of Labor Statistics (BLS) report, which forecasts annual job growth of just two percent from 2014 until 2024. The BLS does not estimate starting salaries, but does list $74,260 as a "median" annual pay.

Given the highly impactful role supply chain engineers and logisticians play in an organization, they may well be underpaid because their importance is hard to overemphasize. "Changing the structure and operation of procurement and supply chain technology can hugely impact a company’s P & L," says Gimbel.

And perhaps mean the difference between survival and failure.

—Paul Vachon

A Matter of Policy

Logistics, transportation, and supply chain professionals can best identify the insurance products that apply to their business or industry, according to Mike Thoma, chief underwriting officer, global technology at Travelers.

Talk with an agent, broker, or legal counsel to develop the right combination of local and global policies to cover your insurance needs, Thoma recommends. Primary coverages to consider include:

  • Global Product Liability: Protects against foreign claims or lawsuits for bodily injury or property damage resulting from the use of a business’s product.
  • Global Property Business Interruption: Covers lost income due to damage by a covered cause of loss that forces a business to temporarily shut down a portion of its overseas operations. Policies may also cover funds to meet fixed costs, relocation expenses and other extra expenses.
  • Global Property Transit: Covers damage to property in-transit overseas.
  • Foreign Voluntary Workers Compensation: Provides equivalent of workers compensation benefits to employees injured abroad who are not covered under a domestic policy.

You should also consider whether your coverages provide reimbursement to a U.S.-based insured for a loss sustained by its foreign subsidiary when foreign laws or regulations regarding unlicensed insurance prohibit direct payment to the subsidiary.

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