Friday, July 6, 2012

No, Really, the US' Infrastructure is in Crap Shape and Costing Us Big Time

From Taylor Marsh:
Yes, it costs to bury power lines, as David Frum addresses, but it’s not like there isn’t an economic whallup that comes with the crash of a rampaging storm. From Frum:
1. There’s reason to think that industry estimates of the cost of burying wires are inflated. While the U.S. industry guesstimates costs, a large-scale study of the problem conducted recently in the United Kingdom estimated the cost premium at 4.5 to 5.5 times the cost of overhead wire, not 10. [...]
3. Costs can only be understood in relation to benefits. As the climate warms, storms and power outages are becoming more common. And as the population ages, power failures become more dangerous. In France, where air conditioning is uncommon, a 2003 heat wave left 10,000 people dead, almost all of them elderly. If burying power lines prevented power outages during the hotter summers ahead, the decision could save many lives. [...]
…and have you heard about America’s unemployment, the latest bad news hitting Monday on manufacturing? This from Frum, a Republican: Burying power lines is a project that could put many hundreds of thousands of the unemployed to work at tasks that make use of their skills and experience. Do I hear an amen?

That Americans won’t join in together to do something so simple as burying power lines, which requires investing in an infrastructure that prepares us for what climate change will continue to deliver, is another sign of our diminishing greatness.

Because of the Tea Party and Republicans no one has to dare mention “climate change.” Just talk about the economic hardship of people who lose their entire refrigerator of food because they don’t have a generator, causing even more economic fallout we don’t need. Talk about the deaths due to extreme heat, when people are left without air conditioning, the inconvenience of businesses that lose capital amid the extreme weather, patterns that show no signs of abating.
Folks -- this really isn't that complicated.  The US infrastructure is falling apart.  Here is the report card from the American Society of Civil Engineers:
2009 Grades
America's Infrastructure
As an example, I live in Houston, Texas.  There isn't a street in my neigborhood that doesn't need major repair -- as in, tear the street up and lay down a new street type of repair.  And I'm living in the 4th largest city in the US -- and one that is doing pretty well economically.

And it's not just in Houston -- it's all over:
Inland waterways quietly keep the nation's economy flowing as they transport $180 billion of coal, steel, chemicals and other goods each year — a sixth of U.S. freight — across 38 states. Yet, an antiquated system of locks and dams threatens the timely delivery of those goods daily.

Locks and dams raise or lower barges from one water level to the next, but breakdowns are frequent. For example, the main chamber at a lock on the Ohio River near Warsaw, Ky., is being fixed. Maneuvering 15-barge tows into a much smaller backup chamber has increased the average delay at the lock from 40 minutes to 20 hours, including waiting time.

The outage, which began last July and is expected to end in August, will cost American Electric Power and its customers $5.5 million as the utility ferries coal and other supplies along the river for itself and other businesses, says AEP senior manager Marty Hettel.


Freight bottlenecks and other congestion cost about $200 billion a year, or 1.6% of U.S. economic output, according to a report last year by Building America's Future Educational Fund, a bipartisan coalition of elected officials. The chamber of commerce estimates such costs are as high as $1 trillion annually, or 7% of the economy.


Inland waterways, for example, carry coal to power plants, iron ore to steel mills and grain to export terminals. But inadequate investment led to nearly 80,000 hours of lock outages in fiscal 2010, four times more than in fiscal 2000. Most of the nation's 200 or so locks are past their 50-year design life.


The biggest railroad bottleneck is in Chicago. A third of the nation's freight volume goes through the city as 500 freight trains jostle daily for space with 800 passenger trains and street traffic. Many freight rail lines crisscross at the same grade as other trains and cars — a tangle that forces interminable waits. It takes an average freight train about 35 hours to crawl through the city. Shipping containers typically languish in rail yards several days before they can be loaded onto trains.

Manufacturers, in turn, must stock more inventory to account for shipping delays of uncertain length, raising product costs about 1%, estimates Ken Heller, a senior vice president for DSC Logistics. Caterpillar has built two multimillion-dollar distribution centers outside the city to increase its freight volumes so it can get loading priority at rail yards.


Highways, meanwhile, suffer from Congress's failure in recent years to assure long-term funding for a federal trust fund that pays for upgrades. The fund kicks in about $42 billion a year, but that goes largely to maintenance, and the fund is expected to temporarily run out of money in 2013.

Among those affected is UPS. The giant courier says that if each of its 95,000 U.S. vehicles is delayed an average five minutes a day for a year — a realistic figure — it costs the company $103 million in added fuel costs, wages and lost productivity.

Con-way, one of the largest trucking companies, often builds an extra day of travel into shipping schedules to ensure it meets customers' exacting just-in-time delivery demands, says Randy Mullet, head of government relations. Customers pay a premium for that.

In Texas, worsening delays on Interstate 35 between San Antonio and Dallas, much of which has only two lanes each way, forces regional grocery chain H-E-B to charge about 15 cents more for a gallon of milk, says Ken Allen, a former H-E-B executive and now a consultant for the company.


The nation's 600,000 bridges are also falling behind. Nearly a quarter are classified as "structurally deficient" or "functionally obsolete," according to the Federal Highway Administration. As of the end of last year, more than one in 10 were closed or had weight limits that barred trucks. For Illinois corn grower Paul Taylor, such a restriction on the Pearl Street bridge in Kirkland means he must drive three extra miles to deliver his corn to a grain elevator, raising his costs by about 5 cents a bushel.

Many unrestricted bridges, meanwhile, are strained, especially at border crossings. The busiest in North America is the 83-year-old, four-lane Ambassador Bridge, the only direct link between Detroit and Canada. The bridge, already impaired by its capacity, often closes lanes for repairs and empties onto a busy city street in Windsor, Ont. Delays, typically lasting two hours, are exacerbated by a Customs checkpoint that's not large enough for the traffic volume.

U.S. auto companies store extra parts at factories and closely space deliveries so that if one truck is sidetracked, another isn't far behind, says Kevin Smith, senior vice president for consulting firm Sandler & Travis. Ford Motor told a state legislative committee last fall that such maneuvers, along with extra freight expenses, add up to $800 to the cost of a vehicle.
Right now, the 10-year treasury is yielding 1.63%.  The US could borrow $1 trillion for infrastructure spending at an annual cost of $16.3 billion -- that's a steal in corporate finance land.  That means that for this to make sense, the annual rate of return on the investment would have to be a mere $20 billion.  And considering the jobs and increased efficiency that would result, it's easy to make the claim that the IRR would be far higher than $16.3 billion/year -- especially over the long term (as in 20+ years).