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American ShipperIntermodal

Futuristic logistics concepts industry’s best hope for infrastructure investment?

As a complete overhaul of U.S. infrastructure looms, private investment in once far-fetched ideas and alternative technologies like Hyperloop might be the freight industry’s best chance at revamping outdated and overworked transportation assets.

   Much of the policy discussion underlying the 2016 U.S. presidential campaign can be traced to a single issue: jobs. While this topic is evergreen in political cycles, it has taken on more significance over the last year as the populace grapples with some serious long-term questions about what jobs will look like in the future, and the role that automation plays in that future.
   Much of this is unanswered—or unanswerable—at present, but there remains another policy issue that is intricately and inexorably connected to jobs, automation, and the workforce of the future: infrastructure. President Donald Trump has at various times mentioned a sweeping $1 trillion infrastructure plan to revitalize America’s roads, bridges, rails, and ports, among other things. The administration has proposed $200 billion in federal investment over the next 10 years in order to stir up around $800 billion in private investment, though even that plan appears to be floundering as of early October.

Investing In Innovation. Recent reporting out Washington, D.C., suggest Trump is backing away from the idea of private infrastructure funding—an idea many analysts found dubious to begin with. This means that whatever remains of his plan would rely heavily on states and cities to bear some of the brunt of infrastructure rejuvenation investment. Some analyses of the plan suggest it would provide no increase in infrastructure spending when proposed program cuts by the Trump administration are factored in.
   The plan hasn’t taken detailed shape yet, however, as infrastructure has taken a backseat on Capitol Hill to healthcare and tax reform. Infrastructure investment would undeniably foster job growth in construction, engineering, and a host of support industries, and would seem to be one of the areas where warring parties inside the beltway can find a common cause.
   The fate of U.S. infrastructure of course has huge implications for the transportation and logistics industry. As bridges, inland waterways, and highways crumble under the weight of their age and obsolescence, the trickle-down effect on supply chains is pronounced.
   Waiting for the executive and legislative branches to ride to the industry’s rescue on infrastructure has proven to be a frustrating exercise in the past. So maybe everyone is barking up the wrong tree?
   Perhaps independent, private technology investment will provide some of the infrastructure relief that the federal government can’t seem to.
   Broadly, there are two categories of this investment: those technologies that will physically enable automated or groundbreaking ways for cargo to move; and those technologies that better optimize the use of existing infrastructure.
   A third, potentially more impactful development is the trend of major global retailers essentially bypassing traditional freight transportation processes, providers, and infrastructure.
   Perhaps the most well-known concept in that first category of infrastructure innovation is Hyperloop One, largely due to the fame of its founder, Tesla Chief Executive Officer Elon Musk. The idea behind Hyperloop is essentially to build a set of large tubes through which people and cargo could be transported at hyper-speed, similar in concept to the pneumatic tubes that used to transport documents and other small parcels through buildings.
   The concept has garnered enough interest to attract investment from billionaire Richard Branson’s Virgin Group in mid-October. Financial terms were not disclosed, but the investment was sizable enough for the company to rebrand as Virgin Hyperloop One.
   Hyperloop is no doubt an intriguing concept, but is it practical in a logistics context? If you view any new technology as an option for freight, rather than a replacement, then the potential is certainly there. A Hyperloop connecting any two major points could conceivably serve not only passengers, but cargo as well.
   Think of the way belly space in passenger flights is used for cargo, not just the baggage of passengers. Flights between major cities don’t operate because of cargo; rather, shippers and forwarders take advantage of excess space on those flights.

More Pain, More Gain. Where Hyperloop might find cargo-oriented success is through point-to-point transits currently relying heavily on inefficient truck-based trips. Case in point: the drayage market in Southern California, where thousands of containers move in and out of the ports of Los Angeles and Long Beach on a daily basis.
   Alan Morrison, senior research fellow at PwC’s Center for Technology and Innovation, said in a 2016 briefing on the economics behind Hyperloop as a cargo-moving entity the investment needed to build the infrastructure required to run a Hyperloop 30 miles inland—roughly the distance from the ports to intermodal yards near downtown Los Angeles—would be paid back within 10 years.
   One major problem, however, is that the system wouldn’t have the capacity to move more than 1.3 percent of the current volume of containers. Morrison argued that the Hyperloop would move those containers more quickly, efficiently, and in a more environmentally friendly way than drayage trucks, but admitted that the fixed infrastructure was a constraint.
   “The cost of building and providing logistics for this type of scenario would reach into the billions of dollars,” he wrote. “This level of investment would require major long-term public commitment. While the U.S. Department of Energy gets excited about smart trucks and a 20 percent reduction in fuel consumption, Hyperloop promises much greater benefit—more pain, but more gain.”
   Hyperloop announced in 2016 that it was piloting a container movement project with DP World to move boxes from the terminal operator’s flagship facility, Jebel Ali Port in Dubai, to an inland container depot. The goal was to free up capacity by quickly shuttling boxes away from valuable terminal yard space.
   The bigger question, however, is whether there are more long-haul freight applications for Hyperloop than merely replacing near-port truck container movements.
   Dapeng Zhang, a transportation economist with Hyperloop One, made the case for the technology in a blog post earlier this year.
   “Our vision at Hyperloop One is to connect cities into mega-regions, and turn metro areas into metro stops,” he said. “This will inevitably improve the efficiency of freight supply chains. By connecting two distant metros, Hyperloop One creates a geographical cluster which could help reduce inventory costs, promote even more just-in-time strategies, and expand same-day delivery service areas. And by extending the effective economic boundary of a city, firms could have better accessibility to manufacturing hubs and retail stores, and save travel time.”
   Zhang noted that Hyperloop would initially be best suited as a means for “time-sensitive deliveries.”
   In a separate blog post, Hyperloop said that a theoretical line connecting Tangier, Morocco, home to one of Africa’s biggest container ports, with Spain would create a link that could transport ocean freight from the port to Madrid in just one hour.
   “A container off loaded in Morocco’s sprawling port of Tangier-Med could be at an air cargo center outside Madrid in less than one hour,” the company said. “Today, it takes four to six days to move a container by train and ferry from Tangier to Madrid.”
   That project would require either a tunnel running beneath the ocean floor or a floating tunnel suspended 25 to 60 meters below the water’s surface.
   “Even without the Gibraltar crossing, the domestic portion of the Hyperloop Spain-Morocco route would yield serious economic and environmental benefits,” the company reasoned. “The Mediterranean port of Algeciras, Spain’s largest by volume, lacks a robust and reliable domestic freight link north to Madrid and greater Europe beyond. Everything goes north by truck, adding to congestion, pollution, and accidents.
   “A Hyperloop link could transform Algeciras from a port focused almost entirely on transshipment today,” the firm added. “More than 90 percent of arriving containers go right back onto another ship. A high-speed, emission-free and continuously operating Hyperloop running north to Madrid could convert Algeciras into an import hub.”
   Indeed, Hyperloop’s greatest success in the freight world will likely come in transforming disconnected ports and nearby cities into discrete container corridors. The model fits for almost any major transshipment point, given that the funding and political will are there.

Radical Avoidance. The fundamental intrigue behind Hyperloop, however, is not about pods speeding in frictionless tubes across vast expanses of land. It’s that a radical idea might leapfrog the need for public investment traditional freight infrastructure.
   In that way, Hyperloop is hardly alone. Autonomous vehicles synced to automated freight matching and remote diagnostics seek to reduce the industry’s reliance on drivers and driver regulations. Rather than an employment disruptor, these ideas should really be seen as a model that will have adapted to current infrastructure constraints better than traditional models have.
   There is still much work to be done before autonomous vehicles hit the roads, but at least as far as the technology behind the concept is concerned, it is now a matter of “when,” not “if.”
   “Ultimately, trucks will be able to communicate their contents and destination with other trucks and with technology platforms that will automatically match shipments with trucks with available space, rerouting them as necessary,” the consulting firm Strategy& wrote in a September 2016 white paper. “As these digitally enabled, cloud-based solutions come on line, they will rearrange how the logistics business operates, rendering obsolete old business models and enabling new ones.”
   To give another example, supply chain management software providers for years have been helping shippers and logistics companies better utilize existing infrastructure through optimization tools. Solutions like transportation management systems, yard management software, and supply chain design systems essentially allow shippers to rationalize their networks based on existing infrastructure constraints. If roads were wider, ports less congested, railroads triple-tracked at higher speeds, for example, freight would be an easier process to manage. But this is not the case, so these kinds of systems help shippers and service providers better leverage the capacity that is there.
   Meanwhile, the last category of what we might call “radical avoidance” of traditional infrastructure is the way shippers—primarily major retailers—have started to build their own capacity and asset bases in logistics. Instead of farming all or most of their freight transportation needs out to providers, retailers have long dabbled with the idea of doing things themselves.
   That might include everything from owning a fleet of trucks—or ocean vessels, or even planes—to setting up an internal logistics service structure within the organization. Walmart’s e-commerce division, for example, acts as a distribution fourth-party logistics provider (4PL) for some of the online orders for its Sam’s Club subsidiary.
   Amazon has been gradually building itself into a full-service logistics provider, at least for its own cargo or those sellers that use its marketplace. This growth could include a multitude of services that cut out not only traditional logistics services providers, but also some traditional freight infrastructure. Is it really that difficult to picture Amazon operating a fleet of autonomous ocean vessels, calling at smaller, underutilized container ports, connecting to their own automated domestic freight assets?
   When considering the impact of radical ideas that avoid traditional infrastructure, let’s not stop at roads and rails. Containerships, long-haul trucks, drayage trucks, and every node in between are at some risk of being marginalized.
   There are degrees of likelihood involved here, of course. Autonomous trucks are very likely. Some application of Hyperloop’s technology is also likely, but a nationwide network of tubes handling the bulk of inland container moves is far less likely, at least in the short term.
   It’s important to remember that infrastructure development has a paradoxically inverse correlation with investment in that development. In other words, as the cost of a true overhaul of U.S. infrastructure grows higher by the day, the likelihood that the federal government will make the necessary investment in that overhaul is in turn diminished. And that makes radical, alternative, and privately funded, ideas all the more likely to become a reality.

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