Caterpillar on the road
With U.S. infrastructure headed south, heavy equipment shipper sends 40 percent of cargo north.
Stu Levenick, president of Caterpillar, said aging U.S. transportation infrastructure and related shipping inefficiencies raise cost and reduce the competitiveness of his company and others.
“Our aging infrastructure and the shipping inefficiencies it creates has added an estimated three to four days of transit time. We estimate that this alone costs Caterpillar millions in cash flow,” he recently testified before the U.S. House Transportation and Infrastructure Committee. “Imagine the broader impacts throughout the national economy.”
Caterpillar is one of the largest manufacturing shippers by weight in the world, managing the transportation and logistics of 12 billion pounds of machines, engines and parts annually, Levenick said. The company’s exports amounted to $22 billion in 2012.
“The speed or velocity with which we can move goods, is one of the most critical factors in our overall success,” he explained, because of the need to reduce inventory in the supply chain.
“Goods must move at a consistent, high rate of velocity if we are to deliver a competitive advantage for our customers,” he said.
Levenick discussed the problems of poor infrastructure when shipping by truck, rail, water and air.
He said moving Caterpillar’s products by road is challenging both because of traffic congestion, and the large size and weight of some equipment.
“Many interstates within cities only have two lanes and as loads or commodities get larger, more lanes are needed to accommodate their size,” he said. “While many states are updating their network, the majority of the time considerations for movement of over-dimensional and overweight loads are not taken into account. This lack of planning leads to more circuitous routing which also leads to additional expense.”
Levenick said many bridges are either too low or old, with many of these structures on the East Coast presenting the biggest problem for the company’s loads.
“Restrictions on large loads increase costs and transit times due to shipper avoidance of certain bridges that cannot accommodate their size. These out-of-route miles can add up to 20 percent to transit time. Early bridges were also not designed to handle the current traffic flow which can lead to delays,” he said.
He noted some states require bridge monitors or state police to coordinate with the carrier, compounding transit times and costs. He also said shippers and carriers must deal with “various and often conflicting state regulations and permitting requirements.”
As an example of the kind of difficulty Caterpillar runs into when moving equipment over the road, he cited the company’s 797 off-highway truck.
Moving a chassis for this truck from the company’s Decatur, Ill. plant to a seaport “requires the plant to remove the engine and the transmission from the chassis prior to shipment. The weight of the overall unit cannot be moved through some East Coast states due to different weight restrictions. The unit must then be reassembled, resulting in added cost and delay,” Levenick said.
Trucking a 3616 series generator set from Caterpillar’s Lafayette, Ind. facility to the Port of Norfolk in Virginia requires a so-called “Super” permit that he said can delay shipments 10 days or more.
While railroads are investing record amounts in infrastructure, Levenick said “many rail lines, bridges, and tunnels cannot accept the physical (height and width) attributes of our products, and accordingly a greater number of rail switching yards and terminals are required, leading to added delays and increased cost.”
He said the federal government “should be a leading partner when opportunities to advance local, regional and national rail projects of significance are underway, and proven and measurable public benefits are apparent.”
Levenick said capacity constraints at major U.S. seaports are “forcing shippers to disperse their shipments through multiple ports instead of using a single port of entry, or divert shipments altogether through Canadian or Mexican ports.
“Caterpillar has come to increasingly utilize Canadian ports for both import and export containers due to improved transit times and costs,” he added. “Approximately 40 percent of Caterpillar’s imports and exports now move through Canadian ports, with 50 percent of our European imports arriving in Halifax.”
He said “our imports from Montreal, Canada arrive in Illinois two to three days faster and more cost-effective than those that arrive from Norfolk, Va. And service is also two days faster from Prince Rupert Harbor (north of Vancouver) than going through Long Beach, Calif.”
The growing size of ships limits the ports they can call at, and he said if East and Gulf coast ports are not dredged to accommodate the larger ships that will be able to use the new locks in the Panama Canal “we could be disadvantaged by millions annually to those companies that operate in countries where larger vessels can sail.”
Caterpillar’s reliance on Canadian ports drew fire from Rep. Janice Hahn, D-Calif., whose district includes the Port of Los Angeles. She described herself as “Miss Harbor Maintenance” because of her strong support for seeing the $9 billion in the Harbor Maintenance Trust Fund put to use for dredging and maintaining ports.
She told Levenick that she found his testimony “disturbing.”
“I feel like you are part of the problem and not part of the solution. You are shipping 40 percent of your product through Canadian ports, which means, basically, you are avoiding the Harbor Maintenance Tax. So you are avoiding paying that and that is the very money that we use to maintain our ports and harbors, and we are looking to actually expand the use of the harbor maintenance tax to possibly include landside improvements that relate to our port,” Hahn said.
“You are failing to pay it, you are avoiding it, and then you are using our infrastructure, and you are complaining that our ports are not dredged and our infrastructure is not maintained.”
Levenick also said at U.S. ports the “lack of integration and automation slow throughput considerably, delaying shipments and raising costs.”
Hahn responded by saying “automation is not going to be the answer to making us more efficient. If there is one thing we have to fight for it is good American jobs and there are good American jobs at our ports and automation may be coming and maybe it is a little more efficient, but it is not the answer and with automation comes the disruption of good American jobs. And I’m not sure that is what we need to be focusing on. There are other ways to be more efficient and move those goods.
“I’m disappointed that you are a board member of the U.S. Chamber of Commerce and you are abandoning our U.S. ports and shipping your products through Canada. I don’t think that is a good message,” she said.
Levenick told Hahn that Caterpillar would “love nothing better” than to ship through U.S. ports and “we find it, frankly, crazy that we can’t export efficiently on global basis from our U.S. ports” and that using Canadian ports was the only alternative to be globally competitive.
“Our customers around the world don’t care about U.S. jobs, they care about a cost-effective delivery of their product on time and at a competitive cost,” he said.
Hahn emphasized the need for last-mile connector roads between ports and highways as being critical to freight transportation and said she was disappointed when the Department of Transportation did not include them in a map of the primary freight network, calling it a “big oversight.”
“I’ve been told that cargo gets diverted not because of any fees or environmental regulations in our port, but because of landside congestion,” she said.
Levenick also said substandard technologies in the U.S. aviation system are harmful to Caterpillar.
He noted his company ships about 70 million pounds of mission critical service parts globally through Chicago O’Hare airport.
“These parts are typically needed at a customer site within 24 to 48 hours. Last year, the Chicago O'Hare airport's overall on-time arrival was about 75 percent—one in four flights experiencing some sort of delay. This significantly impacts our ability to service our products in the time our customers require,” Levenick said.
“We as a nation must do more than just fix this transportation network; we must also transform it into an integrated multi-modal system that will position us well for future leadership in the global economy,” he said.