Future of domestic manufacturing and transportation infrastructure go hand in hand

The future success of domestic manufacturing requires strong transportation infrastructure. That was the main thesis of a white paper recently issued by the Washington, D.C.-based Coalition for America’s Gateways and Trade Corridors (CAGTC). 

The white paper, entitled “America’s 21st Century Manufacturing Relies on 20th Century Infrastructure,” was penned by Fran Inman, senior vice president of Majestic Realty Co., and Elaine Nessle, CAGTC executive director.

A key theme of the white paper focuses on how the manufacturing landscape is evolving, and, in turn, requiring improvements of the domestic freight network. And it explained that today’s current infrastructure, which is “designed to accommodate large shipments for smaller populations consuming fewer goods, does not meet the needs of today’s consumers.”

What’s more, the authors explained how manufacturing and the transportation of materials are interwoven, but as the private sector has shifted to meet new demands, the U.S. national infrastructure network has stalled out, due to years of underinvestment that is challenging economic growth potential.

They also explained that major investments are required to alleviate chokepoints, address first and last mile connectors and fund projects of national and regional significance, noting how infrastructure investment is required in order to support domestic goods production.   

Citing data from the National Association of Manufacturers, the white paper said that since 2010 more than 800,000 domestic manufacturing jobs have been created, with the sector’s growth occurring nearly double the pace of the general economy, while U.S. manufacturers sold $4.4 billion in “Made in the U.S.A” goods in 2014.

A large reason for this is partly due to supply chains adapting to changing consumer demands, given how manufacturing and supply chains are intrinsically linked, the authors said.

When asked in what ways supply chains are adapting to consumer demands as it relates to domestic manufacturing, Inman said in an interview it is due to various factors.

“Americans today live much differently than previous generations,” she said. “We are consuming far more – whereas in 2010, the U.S. Department of Transportation estimated that each American required the movement of 40 tons of freight annually, that number has jumped to 63 tons annually. While previous generations shopped locally, we are now shopping globally thanks to the Internet of Things; exposure to practically infinite options is, in part, driving increased consumerism. Supply chains must respond accordingly. Freight movement is a derived demand and the supply chain responds to what consumers are seeking. Because customers – being, manufacturers – are constantly changing, and so are their needs, supply chains will always need to be adaptive.”

Another key theme of the white paper focused on how “Building to order is replacing “building to stock,” with the demand for customized products forcing companies to re-evaluate high-volume supply chains and the practice of mass producing products. This proliferation, it noted, leads to smaller portions of total markets being dominated by a single product and leads to manufacturers being unable to rely on high-volume and steady demand when building out supply chains and storing products and leading to companies needing to “splinter their supply chain and respond immediately when demand decreases to avoid needlessly storing excess inventory.”  

The question of build to order being a game changer compared to build to stock circles back to cost of capital playing a role, said Inman.

“Currently, cost of capital is quite low, but, were it to rise, the cost of capital would drive up the cost of manufacturing, and thus, the cost of the product,” she said. “Consumer demand for ‘build to order’ is a piece of the equation when manufacturers are considering near shoring or reshoring, as a short supply chain is preferable in this instance. While it diminishes the need for high volume of the finished product, consumers will still expect quick turnaround, despite customization.

“Henry Ford famously saying that his customers could have a Ford in any color, as long as it is black. Those days are long gone, and today, it is rare to see any two cars that are exactly alike due to infinite customization options. As demonstrated by the auto industry, manufacturers are purchasing from each other. Individually manufactured pieces – such as windshield wipers – of a vehicle are moving through the supply chain to be combined into a finished product. Today’s supply chains need to be agile to meet the shifting needs of manufacturers.”

Another factor raised in the white paper is how intersection of e-commerce and logistics continues to gain traction and subsequently changing the way goods are delivered and adding stress to existing infrastructure.

This development has led to consumers demanding precise and immediate deliveries, with logistics services providers facilitating the hiring of third-party delivery services to drop off single item deliveries at residential addresses in suburban or urban settings, the authors said. And they added that increases in e-commerce and on-demand delivery are putting increasing pressure on fast-growing cities to rethink how they manage traffic congestion, as last miles can be costly and congested, with major challenges related to urban delivery.

Inman said that private sector innovation, while significant, is just one piece of the equation, saying there is a well-documented need for goods-moving infrastructure investment.

“Many trends are taking place now that will further stress the system: increasing population combined with growing consumerism, the near shoring/ reshoring of manufacturing, and growing urban population centers to name a few,” she observed. “These elements all point to a congested future, and without enhanced system capacity and reliability, these positive economic drivers will seek opportunity elsewhere.”