1) Introduction to the Transportation & Logistics Industry

Transportation is one of the world’s largest industries. Its sectors range from taxis to trucks to airplanes, trains, ships, barges, pipelines, warehouses and logistics services.

In total, during 2008, the U.S. transportation industry (in both for-hire and not for-hire sectors, including support and repair) was about $1.8 trillion. Transportation, in its many facets and sectors, directly employs about 4.5 million Americans. At a bit more than 10% of America’s economic activity, transportation is remarkably efficient, considering the fact that it is a vital service to every other sector of the economy. In fact, thanks to increasing use of advanced information systems and such strategies as the intermodal use of containers (sending freight via containers that are easily transferred from ship to rail car to truck as needed, without repacking), the transportation industry’s productivity is excellent.

Globally, the transportation sector has been under extreme pressure since mid-2007. For several months, extremely high fuel prices made profits hard to come by. Fuel costs fell dramatically in late 2008, but so did revenues.

The global financial crisis created several distinct problems for the transportation industry, including:

1) As retail and business-to-business sales have fallen, worldwide purchasers and importers of goods have implemented a inventory reduction to better position themselves for the recession. Orders to manufacturers have plummeted, and therefore the need to ship goods has plummeted as well.

2) A global credit crisis has made it extremely difficult (sometimes impossible) to get vital trade financing that has historically funded the flow of global shipments.

3) Firms that operate the container ships that traverse the world’s oceans have seen a dramatic reduction in business. Intense competition and empty ships have created a fall in shipping prices. Ports are suffering a large decline in arrivals. In early March 2009, the number of massive container ships sitting idle globally was estimated at an all-time high of 453 vessels. Container shipping prices had fallen by more than 90% at one point in early 2009.

) Air cargo is off substantially, with a global drop of 23% in January 2009, and business is slow at firms like UPS, DHL and FedEx.

) On the passenger transportation side, both businesses and consumers have cut back on travel, resulting in lower passenger loads and significant slowdowns in revenues at most airlines.

Over recent years, globalization has placed intense new demands on the transportation and supply chain sector. For example, United Parcel Service (UPS) offers delivery to more than 200 nations worldwide (including every nation in the world where the firm is not barred from doing business due to U.S. government embargoes), and international revenues have been key to its growth to about $51 billion in 2008 revenues. UPS delivers about 4 billion packages yearly, an average of 15.8 million per business day.

Transportation continues to evolve globally, no matter whether the type of transport involved is on the road, on the sea or in the air. For example, China had only about 200 kilometers of expressways in 1989. By the beginning of 2008, it had more than 50,000 kilometers of expressways, second in terms of length only to America’s famous Interstate Highway system (roughly 47,000 miles or 75,600 kilometers).

The information age, with its introduction of sophisticated databases that can track inventory levels and shipments on a global basis via the Internet, has created vast transport and logistics efficiencies. As a result, supply chain technology has been one of the fastest growing segments in the information field.

Next, the rapid adoption of outsourcing has led many companies, when shipping is vital to their businesses, to turn to logistics services providers for all manner of shipping support, including warehousing, scheduling and distribution services. The sectors of transport, supply chain management and logistics services are permanently intertwined; creating efficiencies once undreamed of in the transportation arena.

All nations worldwide face a daunting task in maintaining sufficient airports, seaports, highways and railroads to handle commerce and passenger traffic efficiently. The amount of government funds available for roadway development is never enough to keep up with long-term needs. For example, “The 2005 Urban Mobility Report,” a study conducted by researchers at Texas A&M University, analyzed traffic patterns and delays in 85 U.S. major metropolitan areas. The study found that the total annual cost of traffic congestion in these cities was $63 billion, based on 3.7 billion hours of traffic delay and 2.3 billion gallons of fuel consumed by delays.

One of the biggest challenges facing the transportation sector over the mid- to long-term is a global focus on lowering carbon emissions and enhancing energy efficiency. (In the U.S., the transportation sector is estimated to create 32% of all carbon dioxide emissions.) Airlines have placed large orders for fuel-efficient jets like Boeing’s soon-to-be-launched 787, promising efficiency gains of 15% to 20% per passenger mile. Container ship operators are under intense pressure to reduce contamination and emissions while in port and at sea. Automobile and truck manufacturers are struggling to respond to demand for fuel efficient vehicles. (Many of the new cars sold over the long-term will be electric drive.) Meanwhile, consumers and government transportation agencies have a renewed interest in high speed trains and other forms of rapid transit. Trains in many parts of the world, including Amtrak in the U.S., are enjoying boom times. Also, high numbers of consumers are turning to buses for their commutes, leaving their gas-guzzling cars at home. (U.S. highway miles traveled were down 3.6% in 2008 over 2007, while public transit ridership was up 4% to 10.7 billion trips.)

Another massive change is the growing interest of governments in outsourcing their transportation infrastructure to private operators and private ownership. Governments are short of cash. In some cases, they are selling or leasing toll bridges and highways to private operators, reaping cash windfalls in the process. Elsewhere, governments are outsourcing their long-term highway development needs to private operators who will build new toll roads, relieving government of the investment burden while potentially creating large profits for the private operators.

Government economic “stimulus” plans, from the U.S. to Europe to China, promise increased investment in transportation infrastructure over the near term, including improvements to railroads, highways and bridges. In the U.S., for example, the February 2009 American Recovery and Reinvestment Act provided the following new funds for transportation: $8.4 billion for public transit projects, $8 billion for high speed rail, $1.3 billion for Amtrak upgrades, $27.5 billion for highway infrastructure and $1.1 billion in new airport grants. However, the fact that this funding will be spread out among the 50 states will limit its impact on any one form of transportation. For example, the $8 billion allowed for high speed rail is not enough to fund the numerous point-to-point rail projects that many states are dreaming of, such as an Austin to Dallas, Texas route or a Los Angeles, California to Las Vegas, Nevada route. Much higher funding in a more focused manner would be required to implement significant change in American transportation.

The Chinese government unveiled a $586 billion economic stimulus package in November 2008 that is largely earmarked for highways, railroads and airports. Major projects include a $17.6 billion passenger rail line in northwest China; a $22 billion network of freight rail lines in north central China; and a $24 billion high-speed passenger railroad from Beijing to Guangzhou.