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Abstract
Transportation is one of the key factors that drive any countrys economy. An industrialized nation such as the US relies heavily on transportation and logistics system for its economic growth. Statistical findings indicate that the system contributes about 10 percent to the US GDP. The developments in the US economy together with the adjusting trading patterns have largely influenced the modifications in the transportation and logistics structure.
Despite the importance of transportation and logistics to the American economy, the witnessed underinvestment in the system has ended up harming the economy. If no proper mechanisms to revamp the sector are implemented, the future of the US will be endangered. This paper reviews the US economy, specifically the impact of transportation and logistics system on the economy. It proposes some of the measures that can be adopted to improve the economy through proper transportation and logistics management.
Introduction
The Problem
The field of transportation and logistics has a key role to play in sustaining the growth and development of a states economy. Focusing on the US, the topic of transportation and logistics is important because it influences all economic activities. The sector contributes about 10 percent to the US Gross Domestic Product with respect to spending by customers, government, and companies. Furthermore, if household contributions were also computed, transport would account for 18% of the US economy. Conversely, the American population is anticipated to grow steadily in the next 30 years. In the next three decades, the population is expected to hit 380 million.
Similarly, a projected growth of 2.8% annually is expected. The US has not exhausted its investing potential in the transport sector. The existing transport infrastructure is poorly maintained. The current transport demand is not being satisfied and hence the doubt whether the existing transport and logistics will sustain the expected demand in the future decades. Experts have cited the need to invest $1.6trillion to revamp for the sector to meet the demand capacity. With a good transportation system, America is assured of creating and retaining jobs for its citizens. Besides promoting business growth, the system will reduce the cost of household items.
Research Question
Based on these highlights, this paper seeks to answer the question, Will America rely on the current status of its transportation and logistics sector to sustain its growing population and economic demands?
Definition of Terms
Infrastructure: This term refers to a system that a country puts in place to encourage productivity, creativity, high returns, affordable goods and services, and ultimately a healthy competition.
Logistics management: This term refers to the section of supply network that processes, executes, and guides the proficient, effectual forwarding and overturning the movement and storage of commodities and services starting from their initial places to their required destinations and usage.
Literature Review and Background
The US Economy and Transportation
Over the past years, the US economy has relied heavily on transportation to build and sustain the growth of its economy. Initially, ports that are located on the East Coast offer a quick connection with other regions such as Europe and West Indies that in turn attracted investors, migrants, and capital. Other water bodies such as the Mississippi River and the Great Lakes invited traders from regions such as Midwest and the Great Plains. Moreover, as Snyder (2006) reveals, the transcontinental railway network promoted the efficient transportation of goods for traders in the East to buyers in the West and vice versa.
In the 20th century, America successfully constructed national interstate highways with the aim of harmonizing the diverse communities while at the same time promoting national security and easy flow of freight and movement by citizens. Governors also invested heavily in constructing subways and commuter railway networks within their jurisdictions to encourage economic growth.
The government also invested in the air transport sector to promote a long-distance movement of valuable goods with low weight and travelers. Moreover, to help in the transportation of large cargo, the US utilized containerization. According to Crews and Bhatia (2012), the rapid rise in the number and size of ships promoted international trade, which expanded the American economy, particularly because of the high returns from the global sales. The diagram below shows the share of various US transportation mechanisms.
Commentators such as Casey and Heliums (2008) reveal how the current transport system has transformed in unison with the urbanization and transformation of the US economy from an agricultural state to an industrialized state. Investment in the transportation sector has not only been limited to highways, but also marine, air, and rail transfer to accommodate the diverse demand for traders, consumers, and the government.
Currently, the US is seen to own the most widespread transport system globally. Whether the existing transporting system will accommodate the changing economy in the near future is a matter that is debatable as Wallace and Heliums (2008) observe.
The US economy has undergone various changes due to a convergence of numerous drifts. Products and services are no longer only traded in the domestic market. A growing trend of companies has been witnessed in terms of their choosing to go international and/or seek the rich market and other jurisdictions. As Wallace and Heliums (2008) claim, this observation implies that the US economy is to greatly affected by the export and import of raw materials from other countries. Furthermore, the economy has grown from an agrarian market to an industrialized one.
Besides, the country is also beginning to focus more on service provision and innovation than on manufacturing products. Consequently, the finding implies that America relies on technology and expertise more than natural resources. While the initial economic development was more in the Northeast region than other areas, current records indicate that the South and West have an impressive economic growth rate.
The country is witnessing an increased rural to urban migration and development as people seek jobs and services. The labor force is experiencing more diversity because of the immigrants who hail from various regions around the globe. The elderly population has undergone a significant growth in the 20th century. This class is expected to hit 80 million by 2050. According to Cassidy (2013), the aging population comes with several social and economic challenges.
A strong link exists between transportation demand and the US economic growth. Over the past 30 years, the American economy has witnessed impressive growth, rising from $2.7trillion back in the 1980s to a GDP of $17.7trillion in 2015. Economists such as Cassidy (2013) approximate that this GDP will rise to $22.4trillion in 2020.
Moreover, the US contributes about 17% to the worlds GDP, with its economic strength surpassing that of any other developed country. The US is home to worlds largest financial market. The state is ranked the second when it comes to manufacturing services. Despite the monetary turmoil back in 2007-08, America was able to recover and maintain its steady growth. This impressive growth has largely attributed to its hi-tech transportation network. For instance, as shown in figure 1 below, it deployed strategic machines to do its container loading and offloading to save time at the ports.
However, although the countrys economy depicts such an impressive progress, it is facing fierce competition from other industrialized states in Asia, especially China. China has the fastest-rising economy in the world, with an average growth rate of 10 percent. At the onset of the 21st century, China was ranked the seventh-largest economy globally. However, due to its skyrocketing rate, it is expected to rank second in 2020 to the extent of surpass the US by 2050 (Snyder, 2006).
Commentators such as Crews and Bhatia (2012) believe that the transportation system has become more dependable and affordable because of a number of factors. First, economic deregulation in the 1980s transformed the freight transportation sector. Besides increasing competition, it also led to the reduction in the cost of shipping. Secondly, the construction of interstate highway minimized the cost of cargo transportation. The emergence of advanced technology such as the intermodal freight containers, as well as satellite communication, had a substantial impact on making freight processes efficient.
Shippers have utilized the cheap transportation of goods to focus on transforming their logistics culture from an inventory-oriented supply chain to a replenishment-oriented one (Crews & Bhatia, 2012). Three decades ago, traders preferred inventory-based supply chains to replenishment- oriented ones since suppliers sold raw materials to the manufacturers who in turn supplied the manufactured goods to distributors who would then ensure that the products trickled down to the ultimate consumers. Traders had to maintain a huge and expensive supply of vital products to avoid the consequences of a stock out (Crews & Bhatia, 2012).
Currently, the pattern has changed. Traders deploy the on-demand supply chains and restock the products that are ordered by clients. To ensure that they remain with adequate stock, companies choose to study their consumers, determine their demand capacity, remain in tandem with their consumers interest, and keep their stocks in fewer locations.
The process of delivering all the inventories and replacing them soon after they have been transported to the consumers ensures that businesses transport smaller sizes of cargo as they go by order. The goal is to maximize returns. This trend has encouraged the transport sector to prefer keeping its products in transit, rather than on stockrooms. On-demand supply chain system is efficient to both clients and traders. Clients are assured of more goods at a cheaper price. On the other hand, as Mothorpe, Hanson, and Schnier (2013) reveal, businesses are assured of an increased demand for their products.
However, the challenge of the on-demand supply chain is that it depends highly on the just-in-time (JIT) transport of lesser cargo. Therefore, the failure of the cargo transportation network is detrimental to the shipper. A minor delay while goods are in transit might inconvenience several players, including suppliers, consumers, and carriers.
A hurricane in the Gulf can easily interrupt several supply chains, thus leading to losses, which can eventually reflect in the countrys economy. Essentially, the contemporary supply chain requires a highly reliable and affordable transport mechanism. Nevertheless, the logistics cost has recorded an increasing tendency in the past two decades as Wallace and Heliums (2008) confirm.
In the 1970-80s, the cost of logistics was evidently high, particularly because of the high-energy cost, interest rate, and low productivity. The investment in interstate highways was affected. Technical expertise among other factors reduced the cost of logistics to an approximately 8.6 percent of the GDP. Such a reduction had a positive impact since customers could get affordable goods.
Traders could easily penetrate the international market. However, the cost of logistics is increasing again due to the upsurge in fuel cost. Besides, congestion at the ports, roads, and railway stations has led to delays and an increased cost of delivering goods. If the transportation system is not rectified, the logistics cost may keep rising to the extent of deterring the easy flow of freight, hence eventually hampering national economic growth.
The international market has been the main source of income for most traders, especially with the persistence of globalization. Traders need to keep up with the level of competition in the international market for them to maintain their profitability. Unfortunately, in overall, logistics rates have been on the rise in the US. However, other developed nations such as Germany and France are recording comparably lower transportation logistics costs.
A prolongation of this drift will harm the American economy since most of the US businesses will be disadvantaged in the global market. The changes have not been limited to freight transportation since passenger transportation has undergone several adjustments. There has been an increased movement with the Vehicle Miles Travel (VMT) rising at double the rate of population growth. Although the VMT has occasionally declined because of high fuel charges and the aging population, it keeps reviving because of the increasing population, as well as the individual income. Therefore, the transportation sector must be adjusted to accommodate the anticipated rise.
For instance, analysts such as Scheid (2014) assert that the increased urbanization will lead to a huge population of Americans in the metropolitan areas, a situation that will have an influence on the countrys productivity. There will be a need to have a proper transportation network to cater for the population for the country to fully utilize its full potential (Scheid, 2014).
Rural dwellers will also have a great impact on the American economy since the aging population that will be searching rustic amenities will require reliable transportation systems. The tourism industry is projected to boom with an increase in both local and foreign visitors. Nonetheless, if the rising congestion is not handled promptly, it will hamper the expected economic growth (Snyder, 2006).
Transportation and the US Industries
Cassidy (2013) presents Americas economy as very competitive, thanks to its education system, the huge market size, creative citizens, business originality, and transportation systems. The above systems have enabled the US industries to have a competitive advantage in the international platform where they serve a huge market globally.
The US industries have controlled most of the global markets mainly because of a reliable transportation system, although every system has a specific demand for transportation. Four main sectors drive the US economy. They include agriculture, the manufacturing industry, the retail market, as well as service sector. They control 84% of the economy (Crews & Bhatia, 2012).
These sectors have a fluctuating demand for transportation and logistics. The agricultural sector, for instance, requires more transportation services than the manufacturing and retail sector. Recent statistical observations by Crews and Bhatia (2012) have indicated that transportation accounts for 7% of agriculture budget while the manufacturing sector only spends 3.2 % of its budget on transportation and logistics. The service sector, which involves the delivery of services, spends about 1.8 percent of its budget on transport (Waldorf, 2015). The subsequent paragraphs provide a detailed discussion on the linkage of transport to the US industry.
Agriculture and Natural Resources
Despite the industrialization of the US, Americans have not quit farming. The demand for agricultural materials and natural resources has not declined. The main demand comes from three sub-sectors, namely forest harvesting, crops animals, energy, and mining. According to Waldorfs (2015) statistical findings in 2006, the agriculture and natural resources industry contributed a total of $13, 246.6billion to the US economy. However, much of this contribution came from the energy industry, which accounted for $407.6billion (Waldorf, 2015).
Agriculture and natural resources form the cornerstone that supports other sectors of the economy. The industry offers food, construction materials, and raw materials that form the ingredients of other essential products such as plastics, chemicals, and medications among a myriad of other products. It is anticipated that the demand for agricultural products will increase in the near future as the American population and economy expands.
In particular, the energy sub-sector is anticipated to increase at a quicker rate than other industries because of an increased demand for fuel. The industry employs more than 2.6million Americans. However, experts such as Snyder (2006) assert that the number of local employees is likely to decline as more activities become automated. On the other hand, the demand for agricultural products will keep rising as the population rises (Snyder, 2006).
The US is a leading exporter of agricultural products in the international market, serving the world with quality meat and grains. By 2006, the country was exporting agricultural products worth $69billion. However, it is receiving stiff competition from other countries such as China and India that utilize advanced technology in their farming practices. In fact, the largest exporter of agricultural products to the US is China (Waldorf, 2015). The agricultural and natural products are transported to various locations, both within the country and to foreign states.
Furthermore, since most of these products are transported over long distances, the price of these products often reflects the transportation costs. For instance, every dollar that is charged for American agricultural goods contains eight cents to cater for the transit. Thus, the costs of agricultural products are often influenced by fluctuation in transportation costs, as well as its reliability. Unlike other sectors, the agriculture and natural resources industries are fixed because crops have to be produced where the land is fertile. Mineral and energy products must be produced where the deposits are sufficient.
Since the production sites are inflexible, transportation has to be organized in a way that traders can access the site or reach the consumers conveniently. According to Shacklett (2014), most of the transportation systems in the US are organized to enhance the access to agricultural and natural resource production areas.
Nonetheless, the demand for transportation has been adjusting as new production areas and markets are discovered. For example, the discovery of the Powder River Basin as a rich resource of clean-burning coal that can be used in manufacturing natural gas has inspired the government to restructure its railway network to make the production site more accessible (Scheid, 2014). A reliable and low-cost transporting system is vital for the survival of the agricultural industry in the international market.
Countries such as Brazil that can export cheap products are quickly taking control of the global agricultural market. Brazil has been successful mainly because it has invested heavily in infrastructure that connects the agricultural industries and the terminals for exporting purposes (Shacklett, 2014). The country should strive to adjust the infrastructure at the ports to avert the delays that lead to a damage of agricultural products. Most ports do not operate in a 24-hour working system at a time when progress can only be achieved through a 24-hour economy.
Short operating hours exacerbate congestion and delays in the ports. Economic rivals such as China and Brazil have an impressive infrastructure at the ports that discourage congestion. Hence, goods reach their destinations in time. At this rate, the US will be outwitted if it chooses to continue under-investing in its infrastructure (Shacklett, 2014).
The Manufacturing Sector
For many centuries, manufacturing has remained the bastion of the countrys economy, with a huge dependence on its textile, steel, and car industry. Today, it remains a global leader in the manufacturing industry, with most consumers across the relying on the US for its quality and affordable products. The industry employs more than 14million Americans. The figures translate to about of 10% of the US labor force. It also accounts for over $13billion of the US GDP. Despite its global leadership, it is receiving fierce competition from Japan and China.
Thus, it must strive to produce quality and reasonable services to retain its positions. Reliable and supple transportation system is essential for ensuring that the manufactured cargos reach their desired destinations within a reasonable time (Crews & Bhatia, 2012). Currently, the US manufacturing has maintained its leadership in the sector mainly because of the good interstate highway transportation system and trucks, which help in sorting all the logistics. Furthermore, as Hill (2014) reveals, the railway, ports, and aviation industry provides an easy means through which it can transport its items to foreign states.
However, as America becomes more mobile than in the previous years, the highways are becoming crowded, thus increasing the time and cost of transporting goods. Furthermore, the manufacturing sector relies on a skilled labor force. A huge number of these workers are residing in the urban areas as the rate of urbanization keeps on rising. Subsequently, manufacturing companies will have to set their premises close to the metropolitan areas. For workers to operate efficiently, they need an affordable and reliable passenger transportation system, a matter that is debatable in contemporary America.
The security regulations that seek to ensure proper scanning of contents before they are moved into the country make it difficult for manufacturers to import raw materials for their production purposes. It is imperative for the challenges that manufacturing sectors face with respect to transportation to ensure free flow of manufactured goods in and outside the country. In particular, the country needs to develop clear freight transportation investment guidelines, as most states in Europe and Asia do, to ensure proper investment in the transportation and logistics sector (Mothorpe et al., 2013).
The Retail Industry
The retail industry is made up of firms that focus of vending commodities. It accounts for over 7% of the US economy. It employs more than 11% of the American labor force. Most of the retail firms are located around the towns and areas that have a big population of Americans. While the retail industry often involves consumers who come to the retail shop premises to buy the merchandise they desire, the introduction and growth of the internet has reduced this trend as a huge number of retailers vend their goods online.
Online shopping has increased the trend for home delivery by retailers themselves or by agents such as the United Parcel Service and DHL. Furthermore, the industry is affected by other factors such as consumer debt that slows consumer purchase patterns, poor quality of products imported from oversea companies, the declining value of dollar, and the unreliable transportation network (Glass et al., 2013).
Transportation plays a key role in the retail industry since it ensures that products from various destinations are availed to the customers in retail shops within a convenient time. Retailers sell a variety of products that can be bulky, heavy, perishable, and flammable. For instance, where the retailer is dealing with perishable products, he or she has to ensure that he or she uses a quick means of transport so that the products reach the market before they expire. Consequently, the retailer relies on accessible, reliable, and efficient transportation systems that keep them in good connection with their distributors (Hill, 2014).
The Service Industry
The service sector is the largest industry in the US. It employs almost 50 percent of the US workforce. It accounts for about 50 percent of the GDP. It comprises a myriad of industries. Since it is the hub of the US economy, the government needs to pay close attention to ensure that it promotes its sustainable growth. Indeed, as Glass et al. (2013) reveal, the industry depends heavily on the transportation sector for the sake of transportation of workers and clients. Nonetheless, the current transportation system has derailed its growth. Congestion raises the cost of service delivery.
It makes it less effective. For instance, poor transportation system influences negatively the tourism industry since congestion causes delays while at the same time increasing the cost of tourism to cater for the extra transportation expenses. Evidently, the government must reinvest in the transportation sector not only to improve the infrastructure but also to attract visitors (Hill, 2014).
Results/Discussion
As aforementioned, it is evident that the transportation system in the US has a great link to the performance of the American economy. An efficient freight and passenger transportation system assures the country of good returns and high productivity. Economists such as Crews and Bhatia (2012) approximate that the US economy will grow by double in the next 30 years if no major havoc occurs such as economic recession. The population is anticipated to increase by 80 million. The US citizens are anticipated to become wealthier with an estimated per capita income of $66,000. The society will become more mobile, with the VMT rising by 80 percent.
Commercial passengers are anticipated to rise to a billion by the end of 2015. This figure translates to a 36% growth in a decade. Conversely, the currently strained aviation industry will have to serve more clients as Americans and the world become more mobile. Globalization has encouraged international trade with business to transport their freight to long distances because of the efficiency of operations. The US is not an exemption. It is estimated that freight transport will grow by 89% in 20 years, as the country will be transporting 26 billion tons of cargo. Indeed, according to Snyder (2006), transporting such tons of cargo will be a proof of an effective transportation and logistics system.
While the demand for reliable transportation and logistics system is on the upsurge, the condition of the transportation system is being given a score of D (Shacklett, 2014). Two main issues have caused the deprived status of the American infrastructure. The first one is the increasing disproportion in the supply and demand while the second one is the aging infrastructure. Most of the American bridges are almost half a century old. The current commuter rail cars have served the country for close to two decades while the commercial planes are approximately ten years old. Indeed, as Cassidy (2013) confirms, this infrastructure is drained.
More exacerbating is the fact that the level congestion is mounting as the infrastructure continues to wear out. The impact of congestion cannot be ignored. Americans who reside in the metropolitan areas lose up to 4.2 billion hours as compared those who are affected by the congestion. Furthermore, $78 billion is wasted with respect to the fuel that is lost during the congestion. Unfortunately, the rate is increasing with urban areas being the most affected. To cope with competition from other industrialized states, the US has to solve the congestion problem (Waldorf, 2015).
Freight system performance is also an alarming trend. While Interstate Highway System has improved the freight transportation, the high demand for goods is surpassing the capacity of the available infrastructure. The situation has resulted in congestion and unexpected losses. To remain in business, traders are compelled to increase the cost of their products to counter the delays that are caused by the unreliable transportation and logistics system and holding inventories. High prices lead to an increased cost of living and reduced consumer spending.
Eventually, the economy becomes less industrious as well as competitive. The impact of congestion on the US economy is evident in the ports. For instance, APM Terminals Company that runs over 50 workstations globally has opted to move most of its terminals in the US to inland areas because the ports are crowded. Thus, the available space cannot accommodate APM containers that need to be shipped to other countries or be carried by trucks to inland buyers. However, to ensure that inland terminals are operating efficiently, APM Terminals must innovate to ensure a proper link between its inland locations and the harbor. These linkages can only be achieved by having proper road and rail networks to facilitate the transportation of cargo into the inland terminals (Waldorf, 2015).
Nonetheless, highways are also highly affected by congestion, particularly in specific zones where the volume of vehicle surpasses the capacity. Most of congestion occurs in the metropolitan interstate interchange, thus causing losses worth $4 billion. The persistent growth of the economy and the population will ignite more pressure on the current infrastructure to the extent of exacerbating the level of traffic in the country. Experts approximate that although the highways serve 10,500 trucks daily, the figures will increase to 22, 700 by trucks 2035. This huge number of cargo trucks will share the roads with other commuter vehicles because of the increase of wealth among Americans following the projected economic growth (Glass et al., 2013).
The railroads system has for several years enjoyed a surplus capacity, which has often been utilized to accommodate an excess volume of cargo and passengers who cause congestion on the highways. Nonetheless, as shown in figure 1, the railway system is also gradually running out of capacity.
Indeed, the government has initiated several projects to renovate the railway network. More of the renovation must be initiated, as more cargo will be transported via railway to avoid the traffic in the highway. The impact of the overcrowded railroads and highways has affected the water transportation sector too, as more demand for water transport has increased.
Water transport provides a convenient means to transport contents to their required international destinations. With the growth of the international trade, the demand for goods in overseas areas has increased impressively. Moreover, for water to become a reliable medium for transporting cargo, it has to be supported by a strong network of railroads and highways. Nevertheless, while the use of the water transportation in the US has increased, statistical findings indicate that the current ports can barely support the number of contents that are being transported across the waters (Waldorf, 2015).
Another challenge for water transportation is the channel depth. Most of the ports have a channel depth that cannot harbor mega-container ships. Therefore, to avoid congestion in the ports, most containers are transported to the inland zones before their owners can clear with the ports. However, to get to the inland terminals, trucks must t
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