Transportation: Infrastructure Improvements Crucial for U.S. Economy – DTN

Mississippi River Lock and Dam number 7 - From USGS

The very first thing Walter Kemmsies looks at when trying to determine a country’s gross domestic product is its infrastructure.

And the U.S. isn’t headed in the right direction.

“Our influence is waning day by day by day as long as we look to the past, and not put policies together that fit in a new world economy,” the chief economist at logistic consulting firm Moffatt & Nichol told attendees at the Agricultural Transportation Summit here. The conference is focused on identifying problems and solutions that the U.S.’ highways, railways, waterways and ports face.

Kemmsies has had a long career looking at global trade and infrastructure. He’s also worked on development plans and finances for ports, export terminals and shipping companies. He emphasized that the U.S.’ superior infrastructure, particularly the Mississippi River, helped the U.S. rise to its role as a global leader following World War I and II.

“I hope you do not get too depressed, but the course we are on is a course towards becoming a footnote in history and loss of influence both economically and politically. What’s very frustrating, from my point of view, is that it does not have to be that way. With a few changes, it could be a very, very different story.”

That infrastructure that built the economy is aging and not being repaired, replaced or updated. Some of the locks and dams on the Mississippi are now more than 75 years old, and Congress recently passed another short-term extension of the surface transportation bill, delaying critical decisions on how to fund road and bridge construction and repairs.

Kemmsies thinks the U.S. is on the verge of missing its opportunity to reinvest in infrastructure.

Since 2006, he’s been trying to explain that a weak dollar and weak economy created the perfect opportunity for investment, “because if we did, and the dollar came back, we would have a more efficient transportation system and could remain cost competitive.”

Now that the U.S. dollar is stronger than most other currencies, “our exports are getting clobbered. Everybody else out there now has a currency advantage,” he said.

Mike Steenhoek, executive director of the Soybean Transportation Coalition, said Kemmsies reinforced the argument that investment in infrastructure is a leading indicator of economic growth.

“There really are some strategic moments in time when you need to make those investments and get more bang for your buck. And if macroeconomic conditions change, then you’ve got that infrastructure in place that can really continue to propel your economy.”

The U.S.’ export market competitiveness will only increase once the new lock at the Panama Canal opens in 2016.

Competitors will gain on the U.S. even further once the new lock at the Panama Canal opens in 2016.

“Brazil’s cost will drop to about 15% below the cost of exporting soy from the U.S.” once that happens, Kemmsies said. “This is not a forecast. This is a mathematical certainty, and there’s more of this to come. With the dollar getting stronger, and with the U.S. not investing in infrastructure, you will see who is surging as a competitor to the U.S. and who is falling behind. When you trace it back to infrastructure spending, it’s very clear.”

Steenhoek said that while the bulk of Brazil’s exports are shipped from ports in the country’s south, newer ports in the northern part of Brazil will shorten the distance soybeans have to travel to market and can take advantage of newer, cheaper ocean shipping routes.

“We’ve always talked a lot about the source of our competitive advantage of the U.S.: It’s not due to a lower cost of production, it’s due to a lower cost of transportation,” he said. “So as that competitive advantage erodes, we in the United States need to ask ourselves: How do we stay in that position? We need to keep investing in our infrastructure.”

Kemmsies thinks the window of opportunity for ideal investment will close between 2016 and 2018.

“Does it make sense to invest? Yes, the demand is there, and everybody else is looking at that demand and trying to get a piece,” Kemmsies said. With currency strength weakening the U.S.’ competitive position and infrastructure aging, he thinks some of the U.S.’ financial wealth needs to be shifted to making critical infrastructure repairs and upgrade.

“We don’t have that much time left to make a decision,” he said. “If by 2018 I’m still here giving this same talk to you, then it’s time to head for the hills.”

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