The Importance of Infrastructure

As the bipartisan infrastructure bill advances through the Senate, its fate still uncertain upon reaching the House of Representatives, we thought it worth taking a moment to reflect on how infrastructure spending could reverberate through the economy. A terrific Bloomberg article, found at https://www.bloomberg.com/news/articles/2021-08-04/infrastructure-bill-ceos-hope-biden-congress-deal-can-fix-logistics-issues, uses I-81 in Pennsylvania as a jumping off point to discuss how infrastructure improvements could help improve US production and competitiveness by enabling greater “just in time” production.

Mike Dorning’s report delves into the challenges faced by a Volvo Construction Equipment factory in Shippensburg, Pennsylvania. The logistical hurdles faced by management are daunting:

A Volvo L90 wheel loader requires 1,574 parts. These components arrive from 226 suppliers across 17 countries. 

Any delays across America’s ports and highways can cause downstream delays at the Volvo plant

In 2019 accidents on I-81 in Pennsylvania shut down a travel lane about 11 times per week; about once a week a travel lane was shut down for over 4 hours. Virginia’s section of I-81 fared even worse

Congestion at ports can delay the receipt of crucial parts by days

Drivers are limited by federal regulations to 14 hours per day on duty, with a maximum of 11 hours driving, so traffic delays regularly mean that parts arrive a day later than expected

As trade and traffic have increased over recent decades, investment in America’s highways and ports simply has not kept up. Interstate tractor-trailer truck traffic rose 31% from 2000 to 2019; port traffic tonnage increased 11% at the 50 busiest ports between 2009 and 2019. In the meantime, the bulk of the US interstate highway system was constructed in the 1950s, 1960s, and 1970s. Infrastructure spending in the US is only about 1.6% of GDP, compared to about 3% across Europe and Japan. Volvo has estimated that infrastructure-induced delays saps productivity between 5% and 10%, as plants regularly readjust to delayed shipments, occasionally shutting down operations for hours, or even a day.

The bipartisan infrastructure bill would be the largest investment in infrastructure since the 1980s, with federal spending reverting nearly to levels not seen since the New Deal under Franklin Roosevelt. It appears such investment is badly needed, so we hope that progressives, moderates, and conservatives can come to an agreement and send a productive bill to the White House for President Biden’s signature.

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JMS Capital Group Wealth Services LLC
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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation.  Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.