Joe Biden issued a new Executive Order on July 9, 2021, aimed at curtailing the skyrocketing transportation costs weighing heavily on manufacturers and retailers. Many organizations such as the National Retail Federation and American Apparel & Footwear Association have asked the White House to address the strain on supply chains. For example, the cost of transporting one shipping container has risen 195% in the past year and that is coupled with new fees and surcharges.
Competition in Rail
The new Executive Order attempts to increase competition within the American railroad market. Since 1980 the number of Class I railroads has decreased from 33 to 7. The Executive Order encourages that the Surface Transportation Board requires railroad track owners to provide rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly. It asks the Surface Transportation Board to implement the practice of allowing shippers to request bids from competing railroads even if the shipper is serviced by a single, different railroad. While subsidized with federal funds, railroads are privately owned and maintained, and the increased usage would result in more maintenance costs. This has many in the rail industry crying foul.
It is important to note that the Executive Order encourages the Surface Transportation Board to make changes – it does not “require” the changes. We have yet to see what changes, if any, will happen as a result of pressure from the Biden Administration.
The Executive Order encourages the Federal Maritime Commission to ensure vigorous enforcement against ocean carriers charging exorbitant fees on American shippers. One reason behind this Executive Order is the rapid consolidation of the ocean market. In 2000, the top ten ocean shipping companies controlled 12% of the market; as of 2021, it has increased to over 80%. The detention and demurrage charges (fees for waiting to onload or offload freight) add up to hundreds of thousands of dollars as freight is getting bottle-necked at every port.
On July 28th, the president and a bipartisan group agreed upon a deal that will invest 550 billion dollars into infrastructure. The investments include areas like roads, bridges, and railroads. The deal plans to improve and modernize these areas to make them safer and more eco-friendly. A 110 billion dollars will be invested into roads and bridges, the largest investment since the construction of the interstate highway system. The 66 billion dollars invested into the railways will remove the backlog of maintenance projects and increase the accessibility of passenger trains. The emphasis on passenger rail and public transit will reduce the congestion on highways connecting major cities and the metro areas themselves.
A major area of investment includes airports, ports, and waterways. The 42 billion dollar investment will update outdated airports and ports. This will not only increase the efficiency in supply chains by easing bottlenecks at airports and ocean ports but also boost American competitiveness by expediting commerce and reducing the environmental impact of global shipping. Many are applauding these efforts as the most recent worldwide ranking placed US airports at 25th overall.
The new infrastructure bill is not all spending to upgrade roads, bridges, ports, etc. There are also numerous provisions increasing the safety of trucking equipment. While the bill falls short of earmarking any spending to increase trucker parking, it also does not include the increase from $750k to $2 Million in liability insurance for truckers that was in an earlier version of the bill. Insurance costs already being one of the larger costs for trucking companies and independent owner-operators, this is welcomed news as this increased insurance cost would have to be passed on to shippers. Finally, the bill also outlines a pilot program for a CDL apprenticeship program in an effort to bring in new drivers at a younger age.
A Bipartisan Bill for New Trucks
The new Modern, Clean, and Safe Trucks Act would repeal the 12% excise tax on heavy-duty trucks. This tax adds $22,000, on average, to the purchase of a new tractor-trailer. This one-hundred-year-old tax is a barrier to getting cleaner and safer trucks on the highways. This tax has played a part in the aging fleets; most trucks operating in 2021 are 10-years-old and missing many safety features that newer trucks offer. On top of safer trucks, the new models cut down significantly on emissions. While we desperately need new drivers, this bill removes a roadblock for carriers to update their fleets.
Putting It All Together
While the actions being taken by the government are mostly reactive, and any one thing by itself is certainly no game-changer, there is a general hope amongst shippers and even some carriers that these changes will bring improvements to supply chains. Unfortunately, it is not possible to quantify the savings that shippers will see from these changes and most of the results will not be recognized for years to come, but many give a sigh of relief at knowing improvements are on the way.