Will our transportation infrastructure hinder or support economic growth?

March 23, 2017

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By Mark Lustig, Principal, PwC

The American chemical industry is at a major crossroads. Thanks in large part to shale-based feedstocks, capital spending in chemical production is expected to reach an all-time high and significant new capacity is coming on line. This is really good news for our economy as a whole. But the industry is also facing challenges: The country’s transportation infrastructure may not be ready to support the growth in chemical production.

To help size the problem and examine potential solutions, we conducted a research study on behalf of the American Chemistry Council (ACC). Our study found that, as output grows over the next several years, there are potential issues across the major modes of transportation for chemicals including truck, rail, and marine. Even under current conditions, these transportation modes sometimes struggle to meet the needs of chemical manufacturers. With increased production, the risk of bottlenecks and delays will likely also increase, and this can drive excess costs and also working capital.

In our report, we discuss how each type of transport has its particular pain points. Trucking, still the largest mode of transportation used by the industry, is facing a driver shortage, which is apt to worsen over the next 10 years. This will likely result in more difficulties scheduling loads and managing costs. For marine-packed cargo, the biggest issue will be managing growing local traffic and developing increased steamship service to the ports on the Gulf Coast, so that manufacturers can export directly from the Gulf region rather than taking longer routes via the East or West coasts.

Rail transportation is also of concern. According to chemical companies we surveyed, rail transit delays are already common today, especially at high-traffic nodes in the Gulf. By 2025, if conditions do not change, delays could double given increased volume and cars in the network. Given the complexity of the rail system, it is important that stakeholders plan now to address this future volume.

These challenges are significant, but so is the upside potential. The new projects are forecast to provide a much needed lift to America’s economy. Investments of more than $160 billion are being projected over the next decade, which the ACC projects will help create more than 738,000 jobs in the US economy.

On the other hand, the failure to deal with impending congestion and delays could have a significant, negative impact on the industry. Our report findings indicate that American manufacturers could incur the following costs:

  • $22 billion in working capital because of the need to hold additional inventory
  • $23 billion increase in capital expenditures for extra equipment and infrastructure
  • $29 billion total increase in operating costs over a 10-year periodCan we fix our transportation infrastructure so that it supports new chemical production? Yes, but it will take careful planning and partnerships across both the chemical and transportation sectors along with the help of government.

The argument to make this work is compelling: Enabling the chemical industry to transport its products will stimulate our economy, create jobs, and increase American competitiveness abroad.

 

©2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.  This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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