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How Congestion Increases Transportation Costs

Transportation Costs

Much of the time, third party logistics providers (3PLs) can effectively help customers manage the effects of traffic delays on shipments. But it’s likely that unless infrastructure problems can be reduced, inefficiencies and higher costs could be in store for everyone. 

Congress has struggled to produce transportation legislation that would address infrastructure funding. Yet, both the transportation industry and business leaders have become more vocal in arguing that improvements must be made, and soon:

  • According to the Urban Mobility Report by the Texas Transportation Institute of Texas A&M University, the cost of U.S. traffic congestion jumped $115 billion in 2009 from $24 billion in 1982. The report also states that congestion costs the trucking industry $33 billion in delayed time and wasted fuel.
  • The U.S. Chamber of Commerce now compiles Transportation Performance Indexes, which offer national and state-by-state evidence that underperforming infrastructure is dragging down economic growth. Thomas Donohue, the group’s president and CEO, said, “As our economy recovers, the nation’s transportation infrastructure must be prepared to meet the projected growth in freight and population. In fact, a 10-point improvement in the new national transportation index could generate 3% more growth in the nation’s Gross Domestic Product. However, our index shows that from now through 2015 there will be a rapid decline in the performance of the system if we continue business as usual. Right now we’re on an unsustainable path.”
  • As part of its partnership with the EPA’s SmartWay program, an American Trucking Associations’ report offered ideas for reducing the environmental impact of trucks that idle in traffic. The report suggested that reducing congestion in 437 urban areas could eliminate 45.2 million tons of CO2 emissions over ten years. ATA suggested that infrastructure improvements can be paid for with a dedicated fuel tax.

Imagine that a 3PL handled one shipment per week (52 per year) for a company back in 2001. At the start, perhaps only three loads per year were delayed because of congestion; each instance of delayed shipments required between 20 and 40 extra minutes of time invested as the 3PL, shipper/receiver, and driver communicated to resolve the issue.

Spending one or two hours a year to handle all of the delayed shipments for this customer might not have seemed like a big deal.

Now, fast forward to 2011. As the economy picks up, congestion grows worse. Whereas there might have been 3 delayed shipments out of 52 in 2001, perhaps 6 shipments or more are delayed today because of heavy traffic. Multiply those delayed loads for a single customer by 20 to 40 minutes each, and multiply that by thousands of shippers each year. Pretty soon, you’re talking real time—and real money.

Why is this important? Even as providers automate functions to be more productive, they are losing productivity to congestion-related issues. Eventually, the shipper, the receiver, the carrier, and ultimately, all of us pay more as consumers for the inefficiency caused by infrastructure failures. That’s why many industry groups are calling upon Congress to act now to plan for infrastructure improvements, for the good of our overall economy.

Have you been able to quantify the impact of congestion on your supply chain? Comment below and let us know.