INSIGHT: Massive US infrastructure work forecast

17 January 2008 16:20 [Source: ICIS news]

US surface transport infrastructure needs major work By Joe Kamalick

WASHINGTON (ICIS news)--A two-year study ordered by the US Congress has recommended that more than $11,000bn (€7,480bn) be spent over the next 50 years to repair and improve the nation’s transportation infrastructure - a mammoth undertaking that could give a major boost to the chemicals sector.

This week the National Surface Transportation Policy (NSTP) commission delivered its infrastructure mandate to Congress, warning that “The surface transportation system of the US is at a crossroads”.

“The future of our nation’s well-being, vitality and global economic leadership is at stake,” the commission said.

With hundreds of thousands of miles of US federal, state and local roads, bridges and private rail assets in various stages of disrepair, the commission said multiple levels of government and the private sector “must take significant, decisive action now to create and sustain the pre-eminent surface transportation system in the world”.

The commission report credited the steady growth of the country’s transportation system - from the trans-continental railroad of the 19th century to the 20th century’s interstate highway system - for the nation’s emergence as a global commercial power.

“All of this was facilitated by the foresight of private and public sector leaders who further developed the country’s infrastructure, including the interstate highway system, the nation’s freight rail system and urban mass transit,” the study said.

“Now we have outgrown this system,” the report said, adding that “We need to invest at least $225bn annually from all sources for the next 50 years to upgrade our existing system to a state of good repair and to create a more advanced surface transportation system to sustain and ensure strong economic growth.”

Over the next half-century, the US is projected to add 150m new residents, a 50% increase over its current population of more than 300m.

“This growing society will demand higher levels of goods and services and will rely on the transportation system to access them,” the study said. “This in turn will cause travel to grow at an even greater rate than the population.”

If the federal government fails to exert leadership to mount the needed and massive infrastructure remediation effort, said the commission, the inevitable result will be continuing deterioration of surface transportation assets, rising highway death tolls, increased road and rail freight and passenger congestion and a decline in trade.

“America’s economic leadership in the world will be jeopardized when we cannot reliably and efficiently move our goods,” the study warned.

The US chemicals industry has been complaining about inadequate rail capacity for years. Congestion on the nation’s major rail lines means that chemical cargoes are stranded on the system sometimes for weeks, producers must own and maintain perhaps double the number of tank cars and other rolling stock than really needed, and freight costs are disproportionately high.

A national effort to repair and advance the US surface transportation system would benefit the chemicals industry in two ways.

First, the sector would gain as a transportation customer. Improved rail and road facilities would allow producers to get their products to domestic consumers and to export ports faster and cheaper. Improved delivery times and reliability also could mean reduced on-hand feedstock and product inventory costs.

Perhaps more importantly, a long-term, $11,000bn repair and construction programme inevitably would drive increased demand for a wide range of chemicals and chemicals-based products, including construction materials, adhesives and sealants, concrete additives, paints, coatings and polymers, foams and insulation, etc.

For example, concrete construction typically requires large supplies of plywood forms, and plywood production consumes a lot of methanol derivative formaldehyde.

Kevin Swift, chief economist at the American Chemistry Council (ACC), notes that “on average, the construction sector directly purchases $8 in chemistry for every $1,000 worth of output”.

In addition, Swift said, “Indirectly, the sector purchases more than twice that as increasing construction spending generates sales of chemistry products through purchases of supplies such as plastic pipe, architectural coatings, construction products, sealants, concrete additives, etc.”.

Considering only the direct chemical product consumption of $8 for every $1,000 in construction work, an additional $225bn in annual transportation infrastructure repair and improvement could mean an extra $1.8bn in chemicals demand, or some $90bn over the anticipated 50-year run of the undertaking.

Greg Minchak, spokesman for the Synthetic Organic Chemical Manufacturers Association (SOCMA), said the massive national infrastructure project “would be a positive thing for our industry”.

“It would help us move our goods faster and more cheaply, and that’s a good thing,” he said.

On the chemicals demand and consumption side, Minchak noted that “a lot would depend on just how big the project would be”.

And there is the fundamental question of funding. Just where is the nation going to get $11,000bn?

The commission calls for a wide range of funding sources, including an increase in the federal gasoline tax, user fees such as highway tolls, and public-private cooperation in capital investments.

Minchak noted, however, that “pumping federal dollars into transportation infrastructure will be easier for Republicans and Democrats alike to approve”.

Every member of congress has interstate highways and bridges in their constituent districts that need work.

($1 = €.68)

By: Joe Kamalick
+1 713 525 2653

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