In the business manufacturing and services sectors the investment in roads helps make transportation costs/mile lower. That helps economic development because it allows for increased manufacturing and services specialization, and the productivity benefits that come as a result. It does this by making both domestic and international “trade” in goods and services between specialist firms cheaper. “Trade” is cheaper when the transportation costs are lower, thereby allowing specialists to obtain specialized inputs of physical and services components from even far away sources. Trade also lets them sell their specialized production and/or services at great distances thereby increasing their market area.
Even though specialist producers make very narrow focused lines of goods and services, they can develop large enough volumes to achieve economies of scale by being able to sell at great distances from home. They can also sell to far away markets because of the low transportation costs and speed/reliability of transportation times. So the specialist is able to focus on the narrowest of product lines and/or services and generate large gains in productivity. That specialist can also sell that specialized good or service worldwide with transportation costs of trade that are low and do not eat up the production productivity benefits that came from specialization. This helps maximize economic growth and wealth because specialization and the resulting productivity growth is the key to creating wealth.
From a freight perspective, trading specialized production back and forth domestically and internationally, with as little cost as possible, is about more than simply lowering transportation costs. Manufacturers trying to reduce the cost of their “trade” interactions strive to lower their overall supply chain logistics costs relating to everything from the costs of distribution center warehouses, to the costs of carrying inventory, to the costs of transportation.
The goal is to lower the total cost of trade logistics. From a supply chain logistics standpoint, lower transportation costs and improved transportation reliability, that results from transportation investments, allow manufacturers to substitute transportation for more expensive distribution centers and the inventory they hold. We don’t need inventory stacked up in multiple warehouses near every customer if we can rely on good transportation to quickly deliver what customers order in a fast and reliable way from a far away production site. By making these substitutions of transportation for warehousing/inventory costs, manufacturers have found that they can often lower total logistics costs because the costs of warehousing and inventory go down by more than the extra aggregate transportation costs. This is true so long as we can get lots of good transportation (fast and reliable) at low unit transportation costs.
These principles have allowed U.S. companies to implement just-in-time (JIT) production and distribution techniques that lower the overall costs of trade and logistics domestically as well as internationally. At the same time these principles are allowing for transportation speed and reliability to increase responsiveness to changes in global demand. Because transportation costs less after proper transportation infrastructure investment companies can actually afford to buy more of it. So their transportation inputs and costs may actually go up because they can afford to use more of it, and they substitute that transportation for previous use of distribution centers and inventory. This allows them to lower their total costs of logistics. But the key is reliable transportation systems and that takes investment in all modes of transportation, but especially highway transportation. Highways are key because trucking is the only mode that can offer the speed, reliability and low cost of unit transportation that is critical to the above supply chain logistics equation.
“Given the above points, in considering the return from transportation infrastructure investment, it is insufficient to simply estimate the savings in vehicle operating costs and the value of time savings as the principal investment benefits.” Instead, it is important to consider the impact that major network improvements can have in allowing firms to substantially restructure their logistics and distribution networks. “Firms faced with reduced congestion throughout a network can improve the reliability of delivery schedules so that smaller and more frequent deliveries are made. This in turn allows for a reduction in inventory. Firms may also eliminate distribution centers, clustering fewer depots around key centralized points in the improved transportation network.” Failure to account for these network economies can lead to a substantial understatement of the positive impacts of transportation infrastructure investment on productivity and economic growth. Coupled with the benefits of facilitating trade at lower costs, and therefore increasing specialization with resulting productivity gains, transportation investments can have major impacts on economic growth if they are targeted in a way that will maximize business benefits.
In the individual auto travel sector, transportation infrastructure investment helps personal mobility, and therefore quality of life and business productivity. It is critical in today’s service oriented economy that business specialists be able to travel wide distances to ply their specialized crafts. If they are limited to a narrow geographic area because it is too time consuming to travel greater distances then they will have to offer a broader less specialized range of services in their narrow geographic area in order to achieve the same level of sales. The result will be that they cannot specialize to the same degree, and they will not be able to offer the same level of benefits to customers because they have to be generalists.
Think about specialization in services. Technicians are traveling all the time — whether they are servicing robots in manufacturing plants, servicing personal computers or providing technical support to farmers. Also think about consultants that travel back and forth to clients. The number of individual specialist categories that drive our economy are stunning, and the number of specialists and the degree of their niche specialization is growing at a fast rate. Another category of business traveler critical to the economy and to individual businesses is salespeople, who are often highly specialized consultants/salespeople for highly technical services and goods companies. Consider such expeditors and courier delivery services as UPS and Fed Ex. Or consider even more specialized same-day delivery services that often use autos and pickup trucks to deliver small quantities on a daily basis all over the world. All this requires superior transportation speed and reliability. All these specialists require fast and reliable highway and other transportation infrastructure to facilitate their activities.
The companies that employ these specialists are looking for regions where they can locate in which there is ready access to the kind of transportation services that make it possible for their suppliers’ service/sales technicians to call on them quickly and reliably; and that in turn allows their own service worker technicians, salespeople/technicians, and courier services to call on their customers in a similar way. And, of course, these companies want access to as wide a pool of specialist and other labor talent as possible. In deciding where to locate their businesses, they in part consider where their potential workers will have the most travel mobility. The greater the travel mobility, the greater the pool of potential talent that is available to them because workers can effectively commute from greater distances. Companies also favor locating in areas where their workers will be happiest so they can draw more of the best-qualified specialists. Workers and their families need to have access to good mobility without congestion, unsafe roads, and poor road conditions. It takes transportation infrastructure investment and maintenance to make this happen.