Happy New Year! I hope everyone had a fun and relaxing holiday. Now, it’s back to reality.
On Friday, in case you were still in a festive mood, The National Commission on Surface Transportation Infrastructure Financing put a damper on things. According to news outlets, the commission will recommend (in a report expected later this month) to raise the federal gas tax by 10 cents a gallon and the diesel tax by 12 cents to 15 cents a gallon. They will also recommend that fuel tax rates be linked to inflation, and that states raise their fuel taxes and make greater use of toll roads and fees for rush-hour driving.
With oil prices at $47 per barrel this morning, this recommendation is arguably more palatable today than last summer, when oil was trading at $147 per barrel and some politicians were calling for a “gas tax” holiday. Even so, tax hikes are never an easy sell and I’m sure these recommendations will be much debated.
These recommendations, however, are not surprising. I actually wrote about this topic a couple of months ago (“Choose Your Poison: Higher Toll Fees or Higher Fuel Taxes“). Simply stated, the way our country finances highway, bridge and transit projects is broken, and there is no easy or pain-free fix.
It’s also important to view these recommendations from a larger perspective, namely what actions President-elect Obama and Congress will take in the weeks ahead. In his weekly address this Saturday, Obama called for a quick implementation of “an American Recovery and Reinvestment Plan that not only creates jobs in the short-term but spurs economic growth and competitiveness in the long-term.” As part of his remarks, Obama said that “we must engage contractors across the nation to create jobs rebuilding our crumbling roads, bridges, and schools.” How much will this plan cost? Obama hasn’t announced a price tag yet, but aides say it could reach $775 billion.
So, what does this all mean for the logistics industry? First, logistics professionals must stay informed of what’s happening in Washington, especially in the first quarter. There are all sorts of proposed legislation, beyond gas tax hikes, that can have a profound impact on the industry, including carbon cap and trade and the Employee Free Choice Act. Second, the “economics of logistics” will continue to change-i.e., companies must evaluate the trade-offs between transportation, inventory, and labor costs on a more frequent basis. When fuel prices were on the rise, some companies responded by bringing supply closer to demand (“near sourcing”). A logistics executive I interviewed early last year, for example, told me that it was less expensive for his company (in the food industry) to activate several new distribution locations than to continue transporting products long distances from a centralized distribution center. Is this still true today, with oil prices back under $50 a barrel? What will happen to the cost equation if carbon cap and trade legislation is passed, or if the proposed gas tax hike is approved, or if interest rates change significantly?
“Change” was the mantra of last year’s presidential election, and change is what lies ahead for the logistics industry, for better or worse. Stay tuned.
