The Infrastructure Challenge: Perspectives on the Road Ahead

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1 The Infrastructure Challenge: Perspectives on the Road Ahead Halifax, August 8, 2011 Mary R. Brooks, 2011 Gamechangers Infrastructure Investment Captures Attention Heartland Corridor (streamlining a complex and difficult route to be seamless and fast; key to success was the public: private nature of this investment) Mary R. Brooks,

2 Partners, Suppliers and Port Users Are Restructuring Their Supply Chains Restructuring of the Supply Chain to drive business development: Many examples: Distribution Centres and Transload Operations (build traffic where it didn t flow before) Canadian Tire (the balancing of an imbalance operation; improved asset utilization via the extraction of empty moves) Forming corridor coalitions (putting the players together to make a corridor work) Photo: InboundLogistics.com Doing More with Less Is An Option The Long Beach approach in 2006: Reducing free time accelerates goods movement outbound (and the increase in logistics velocity reduces inventory carrying costs for cargo owners) Implementing pre-sailing arrival windows for exports minimizes terminal congestion (better terminal utilization increases effective capacity) Implementing PierPASS equivalent programs (encourages off-peak trucking and better gate and terminal utilization) I call this substituting intellectual capital for bank capital. Mary R. Brooks,

3 Small Investments Can Make Big Improvements Increasing use of on-dock rail to improve intermodal rail performance and maximize terminal efficiency (congestion management) Developing off-dock container yards to relieve terminal congestion (and add overflow capacity) Doing More with Less Also Means Addressing Administrative Burden Regulatory barriers and administrative burden remain. We need to match Best in Class Germany. Rank Country LPI Customs Infrastructure Logistics competence 1 Germany Canada U.S Rank Country LPI Tracking & tracing Timeliness International shipments 1 Germany Canada U.S Mary R. Brooks,

4 Doing More with Less Also Means Seamless Trade is the Goal In an increasingly connected world, the key will be an integrated approach to physical and policy infrastructure. (Transport Canada, 2009) Policy infrastructure is not low hanging fruit. (We need to support the Harper-Obama Beyond the Border and United States Canada Regulatory Cooperation Council initiatives.) Is Congestion an Issue for North American Ports Today? Port Range (ports) Estimated 2010 Utilization Capacity (M TEU) Pacific NW (5 ports, including 2 Canadian ports) 55% 11.5 Oakland San Pedro Bay (3) 65% 25.0 US Gulf West (3) 65% 3.7 US Gulf East (3) 33% 1.5 Miami Wilmington NC (7) 65% 11.6 Norfolk Boston (7) 63% 13.5 Halifax, Montreal, Saint John 56% 3.4 Source: Steve Rothberg of Mercator International, Speech at American Association of Port Authorities, Annual Meeting 21 September 2010 My conclusion: These gaps will not accommodate North American participation in global hub & spoke network developments. Mary R. Brooks,

5 Infrastructure is Really About Who Gets the $$$? Freight transportation system performance, especially on the publicly owned parts of the infrastructure roads, waterways, and airports and airways is hindered by operating practices that lead to needlessly high congestion costs and by investment decision making that often directs capital spending according to noneconomic factors. (pp ) Infrastructure is Really About Who Gets the $$$? When users of facilities are not responsible for the cost of providing service to them, accountability for investment decisions is weak. Furthermore, when facility use charges are not in place, pricing, the most effective tool for optimizing facility performance, is not available. (page 83). Mary R. Brooks,

6 Public Financing in the U.S. in 2006 Highways Aviation Waterways Seaports User tax fee revenue (US$ billions) Total expenditures (US$ billions) Capital Operating User fee revenue as % of expenditures 77% 90% 10% 95% Federal grants and direct spending (US$ billions) Source: Table 3.5 SR297. Since the release of SR297, Obama has announced legislation to develop a permanent infrastructure bank, one of the options proposed in the report. (Sept. 7, 2010) My Conclusions About Accessing Public Funds (Canada or U.S.) SR297: Greater reliance on market-driven investment decisions has the most promise for improving the performance of the transportation system (p. 224) The key to accessing public funding is: Demonstration of public benefits (mitigation of social costs like congestion, road safety, noise, air pollution, but also including benefits to non-commercial traffic, e.g. that by the taxpayer.) Demonstrating that productivity gains have been sought and achieved. Demonstrating that market mechanisms will not get entirely there because of unincorporated social costs not directly related to the project Mary R. Brooks,

7 What to Fund? (Example: Ports they already get 95% of revenue from users) Should public ports be funding infrastructure Only the infra-structure (below the waterline)? Only the fixed supra-structure (berth top, on-dock rail, container yard? Leasehold improvements like cranes? On-port access roads to terminals? Off-port access roads? Other off-port investments (transload facilities? inland DCs?) Off-port soft investments (agencies in other countries?) Where do we draw the line? What happens elsewhere? Port Authority Involvment in Funding Infrastructure in Europe Access channels (dredging) Lighthouses, buoys, etc. Radar and other electronic aids to shipping Exterior breakwaters Sea locks giving access to port area Land reclamaton for port works Docks, quays, jeses, including back- up land Warehouses, sheds, Other buildings Fixed cranes Mobile cranes Other cargo- handling equipment Railway infrastructure inside port area Road infrastructure inside port area Tunnels and bridges inside port area Canals and navigable waterways inside port area Locks other than sea locks Pipelines inside port area Railway infrastructure outside port area Road infrastructure outside port area Tunnels and bridges outside port area Canals and navigable waterways outside port area Locks other than sea locks outside port area Pipelines outside port area Source: ESPO Port Governance, June % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Port authority Government Private operator Other CombinaTon Not applicable Mary R. Brooks,

8 Critical Questions About Future Port Growth How have supply chains restructured after the Global Economic Crisis of ? How will they change in future with: Excess vessel capacity coming on stream in 2011? Cargo owners distrust of lines following the slow steaming move of ? Expansion of the Panama Canal in 2014? Changing price of marine fuel? Low sulphur fuel demands? Implementation of climate change initiatives on the industry Maersk s injection of Triple-E capacity? Maersk s manifesto of customer service and environmental stewardship? Have we seen the end of container terminal acquisition by lines and global financial infrastructure banks? Financing in Future Will Require Coalitions and Creativity The global economic crisis has chilled traditional forms of capital for all but the most robust of firms. Canadian gateway funds have mostly been spent; a new government with a majority has power to decide its participation. For ports, the container shipping industry is not a likely source of future funding as it has yet to absorb its coming double dip Ports are in a good position to broker coalitions and publicprivate partnerships at all levels. The key will be building the business case along with social cost mitigation and assessing inland opportunities. Who else can lead the development of corridor coalitions to begin to think like the users (who pay)? Universities make good coalition partners (research assistance, building the business case ) Mary R. Brooks,

9 Identifying Infrastructure Opportunities Where is the value proposition for each of the network players? Where are the opportunities? (I see this as a route-specific evaluation. Use your users, your customers and your customers customers to find the answer.) Infrastructure investment (Is an infrastructure play really required? Can we substitute intellectual capital for $$$?) Supply chain restructuring (Is there a compelling case for route change? Where will environment fit?) Coalition building (Are universities, trade associations, MOUs, effective in building relationships?) What is your vision? Mine includes improved performance of existing assets We live in interesting times. Thank you. m.brooks@dal.ca Mary R. Brooks,