By Jim Damicis, Senior Vice President Camoin Associates
Introduction
Transportation and Logistics is a central component of the economy. It not only supports numerous jobs and output within its own sector, but also enables other sectors, namely manufacturing and retail, to generate and distribute supplies and products nationally and globally creating new wealth through exports. This article will focus on the Transportation and Logistics Sector and related subsectors providing an understanding of economic performance, recent and emerging trends, and how to consider within economic and business development. While transportation of people via rail, air, bus, water, etc.… is a form of transportation, this article will focus on the warehousing and movement of supplies and products along supply chains – from inputs, to production, to end markets and directly related support activities such as freight arrangement, equipment repair. A full list of the subsectors, and their North American Industry Classification System Codes is listed in Appendix 1.
Economic Trends – Employment, Output, Earnings, and Occupations
The Transportation and Logistics Sector is an important and growing part of the U.S. economy. In 2017, there were 3.7 million jobs in the U.S. within the Transportation and Logistics Sector, representing 2.3 percent of total U.S. employment. This Sector has experienced significant growth in the past ten years as the country has emerged from the recension. Between 2008 and 2017 the Transportation and Logistics Sector experienced 12.7 percent growth adding 416,316 jobs. This outpaced the job growth of the U.S. as a whole at five percent. Transportation and Logistics is projected to add another 278,226 jobs through 2022 representing eight percent growth (see Table 1 and Figure 1).
Average annual earnings per worker in 2017 for the Transportation and Logistics Sector averaged $69,669 which was 12 percent higher than average earnings per worker for all U.S. industries. The Sectors total output in the U.S. in 2016 was $323 billion representing 1.8 percent of total U.S. output for all industries (See Table 2).
In terms of subsectors within Transportation and Logistics, two major subsectors are Trucking (local and long distance) which had 1.6 million jobs in 2017 and Warehousing (general and specialty) which had 952,206 jobs in 2017. Together, in 2017, these two major subsectors represented 67.9 percent of all Transportation and Logistics jobs. Freight Transportation Arrangement was also an important subsector in terms of employment with 233,735 jobs in 2017. This subsector includes companies that specialize in arranging freight transportation including freight forwarders, shipping agents, and customs brokers. In terms of job growth of Transportation and Logistics subsectors, between 2008 and 2017 General Warehousing and Storage added the most jobs with an increase of 268,749 jobs followed by Freight Transportation Arrangement, 27,889 jobs; Airport Operations, 24,002 jobs; Rail transportation, 20,321 jobs; and Specialized Freight Trucking, Long-Distance, 15,837 jobs1 (see Appendix Table 1).
To get a better understanding of the regional performances in the Transportation and Logistics Sector we examined and ranked 933 metropolitan and micropolitan statistical areas in terms of:
- Jobs added between 2007 and 2017
- Percent change in jobs between 2007 and 2017
- Concentration of jobs – 2017 location quotient (LQ)
Metros that added the most jobs in Transportation and Logistics over the last 10 years are relatively large and geographically dispersed. The Riverside, CA, metro tops the list, with two Texas metros, Dallas and Houston, as well as Chicago and Atlanta, rounding out the top five (see Table 3).
When examining Transportation and Logistics job growth in percentage terms, small metros in the Lower Midwest and Southeast dominated the rankings. Two Kansas metros, Junction City and Parsons, made the top 5, as did Arcadia, FL, LaGrange, GA, and Bartlesville, OK (see Table 4 and Figure 2).
Ranked by location quotient (LQ), the central part of the country rose to the top of the rankings. LQ is a measure of industry concentration. An LQ greater than one indicates that the industry is more heavily concentrated in a given metro as compared to U.S. as a whole. With an LQ of 8.09, the transportation and logistics industry is over eight times more concentrated in the Campbellsville, KY, metro than it is in the nation overall. Ottawa, KS, North Platte, NE, and Wilmington, OH, all have industry LQs over 6.5. In fifth place with an LQ of nearly six, Laredo, TX, is notable not only because its Transportation and Logistics Sector is highly concentrated, but also because it is a relatively sizable metro (see Table 5 and Figure 3).
Among the top occupations in the Transportation and Logistics Sector are Freight, Stock, and Material Handlers; Truck Drivers; General and Operations Managers and Supervisors; Mechanics and Technicians; and Cargo and Freight Agents. Many of the top occupations pay higher than average wages relative to all occupations in other industries. Future demand for workers will be driven by replacement demand (due to persons retiring or otherwise leaving the industry labor force) as opposed to growth demand (new jobs being created) although as indicated previously growth in the Sector is projected to outpace growth of all industries combined in the U.S. Most of the top occupations require less than a bachelor’s or associate’s degree with some requiring post-secondary training (see Appendix Table 3 and Figure 4).
Market Trends in Transportation and Logistics2
As mentioned previously, trucking and warehousing are the two biggest industry groupings among the Transportation and Logistics Sector making up 67.9 percent of 2017 employment. In terms of recent trends impacting these markets, both have seen increased demand as the nation has recovered from the recession. Increases in manufacturing and consumer products spending both have contributed to an increase demand for trucking and warehousing. Both are projected to continue to see growth in the U.S. as growth continues in manufacturing, retail spending, eCommerce, and global trade. Across the U.S. trucking and warehousing are most highly concentrated in the Southeast, West, Great Lakes, and Mid-Atlantic regions with IL, TX, CA, GA, FL NY, PA, and OH having the most establishments. While there are exceptions, location is connected to areas of high manufacturing and retail sector concentration.
For the trucking industry, which is the most widely used form of cargo transportation, critical issues which impact revenues and profits include price of fuel; workforce, particularly in long-distance trucking with labor shortages projected due to aging workforce and increased safety regulations; and Increasing demand for fuel efficient vehicles which necessitate short-term cost/investment increases but also lead to long-term industry gains.
For warehousing, in addition to increased demand resulting from increases in consumer spending and manufacturing output, the industry is experiencing increased demand from the outsourcing by producers (manufacturers) seeking to cut costs and preserve profit margins. This is outsourcing will continue to increase demand, even though some major producers have developed their own logistics capacities such as Amazon, Walmart, and Target. Overall eCommerce is also generating more demand driven by smaller sellers that lack or choose to forgo their own warehouse space.
Case Example: Increasing Capacity for Cold Storage Warehousing in Portland, Maine3
For economic development, investments in Transportation and Logistics infrastructure can be used as a strategy to support and grow manufacturing. Portland, Maine’s economic wellbeing has always been directly linked to its waterfront. The waterfront has supported fishing, tourism, as well as manufacturing including fish and food processing. To sustain this vitality into the future, the City of Portland and Maine Port Authority determined a need for a cold storage facility on the city’s waterfront to facilitate the transshipment of seafood and other products to and from the Port of Portland. After engaging Camoin Associates to assess market demand, the City approved a zoning change that allows the construction of such a facility on the waterfront, enabling port users to exploit multiple transportation options—the port, a rail spur, and highway access—to save on time and cost. The presence of all these amenities in a single location will allow the Port of Portland to attract a more diverse customer base and support the long-term economic vitality of the Portland region. Additionally, it will allow Portland to leverage recent investments by Eimskip to make Portland its major eastern port for shipments to and from Iceland.
The cold storage industry is comprised of establishments that operate refrigerated warehousing and storage facilities and provide services such as blast freezing and tempering. Over the past five years, the cold storage industry (nationally) has benefited from rising levels of consumer spending on food products and trade activity, which have increased the number of goods being shipped and generated demand for industry storage services. Companies involved in the production, distribution, and sale of food products constitute the cold storage industry’s most important downstream markets, though the industry also provides some services to pharmaceutical companies, hospitals and other players outside the food sector.
In addition to trends in consumer spending and trade activity, demand for industry services is also significantly impacted by the level of vertical integration in downstream markets. Typically, companies in need of refrigerated storage services outsource these functions to cold storage facility operators to avoid the substantial costs associated with owning and operating a warehouse. However, in response to rapidly-changing consumer preferences, some food sector companies have begun in-housing cold storage functions, providing more flexibility and control over products.
Considering these trends playing out both nationally and locally, and with an understanding that the manufacturing needs transportation and logistics infrastructure to flourish, the City of Portland and Maine Port Authority laid the groundwork to partner with Eimskip and a third-party warehouse operator to support economic development.
Emerging Trends in Transportation and Logistics
These market trends are based on recent past and current economic conditions. As in all industries however, due to the advancement and integration of digital technologies, major transformations beyond what the numbers can predict are emerging creating the “Tech of Everything”. In the Transportation and Logistics Sector, this digital transformation is evident in several ways.
E-Commerce and Just in Time Delivery – Over the five years to 2017, eCommerce sales are expected to grow at an annualized rate of 13.4 percent, roughly seven times the rate of brick and-mortar sales4. Many on-line businesses with limited or no brick-and-mortar stores and/or warehouses will continue to utilize third-party logistics services. Related to eCommerce is the demand by consumers and the industry for just-in-time logistics (JIT). Driven by a combination of product demanded “anywhere/anytime” and by the need to keep costs down, transportation and logistics are seeing increases logistics planning, monitoring, and management systems to enable JIT.
Autonomous Vehicles – As mentioned in the Sidebar by Simon Anderson, 2017 has been a huge year for advancements in autonomous vehicle technology and in 2018 the pace of advancement is only expected to increase. For the Transportation and Logistics Sector this can help increase safety, predictability, and even help to address severe labor shortages of long-haul by require less drivers per value of product moved and miles moved. The opportunities presented through autonomous vehicles can be further leverage and through smart-city advancements making travel within major hubs and cities more efficient.
Industry 4.0 and Digital Supply Chains – From production to warehouse to end user supply chains are transforming due to digital capabilities. Industry 4.0 is a term used to describe the fourth wave of technological advancement in manufacturing where multiple, if not all, parts of the manufacturing supply chain system are digitally interconnected including machines used in production, monitoring and control systems, and logistics all communicating with each other. All this communication allows for products to be made more efficiently, less expensively, and with improved quality.
Tips for Economic and Business Development
Based on the economic performance, market trends and emerging opportunities the following are tips for economic and business development.
- Consider the Transportation and Logistics Sector when trying to support and grow other sectors particularly manufacturing. Both are within the supply chain from production to market end use and both need each other to grow regionally, nationally and globally.
- Examining current zoning and land-use regulations to ensure that transportation and logistics uses can be located within or very near manufacturing uses. Many areas seeking to grow manufacturing limit transportation and logistics development or have overly restrictive limitations on warehousing and transportation related square footage within manufacturing facilities.
- Continue to track emerging trends in digital technologies impact the Transportation and Logistics Sector and be prepared to adapt. This includes investing in capacities for broadband, smart cities, smart infrastructure, and changing workforce needs.
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Emerging Transportation Technology Could Transform Your Local Economy A full-blown revolution in transportation is upon us, although today few even seem to notice. Rapidly emerging and converging technologies are pointing us toward a future where transportation is increasingly powered by electricity, automated, and shared. The shift from gas-powered, human-driven, and individually-owned vehicles will be transformational, and in some cases, catastrophic, for our current business models and local economies. To those not paying attention, many of these advancements may seem years, or even decades, away. However, with how quickly technology is advancing, now is the time to begin anticipating the possibilities. What is the current state of these three transportation trends and what might some future implications be for economic development? Electric Vehicles (EVs): EVs have been around for more than a century, in fact, in 1900 around a third vehicles were electric! However, new technologies and manufacturing innovations quickly drove gas-powered vehicles to the market domination that they still have today. Tesla can largely be credited with bringing the electric vehicle back, and now nearly every major automaker is in the beginning stages of converting their entire line-up to either full-electric or hybrid powertrains. With a rapidly-increasing number of EVs being manufactured, battery price per mile of range will continue to drop as their efficiency, weight, and energy density improves. Many countries around the world have another incentive to develop better EVs – staggering levels of pollution that is literally killing their citizens. This has been a major driver toward China’s incredible adoption of EVs over the last few years. Autonomous Vehicles (AVs): For decades, manufacturers have been slowly adding autonomous features such anti-lock brakes, adaptive cruise control, and automatic parallel parking into their vehicles. It wasn’t until the last few years though, that we began to see vehicles that can fully take the wheel. As AV technology rapidly advances, autonomous driving systems will become less expensive, safer, and more reliable. 2017 has been a huge year for advancements in these systems, and in 2018 the pace of advancement is only expected to increase. Shared Transportation: Uber and Lyft have already had a major impact in how we travel, especially in large cities, but they are still limited by the fact that they use expensive human drivers whose vehicles mostly run on gas or diesel. The combination of EVs powered by renewables and AV technology will revolutionize these services, because the price per mile to operate will be lower. Riders can eventually expect to pay a fraction of what they would pay today in a human-driven, gas-powered, car, especially as all of the related technologies continue to advance, and costs continue to fall. The widespread adoption of electric, autonomous, and shared vehicles (EASs) will do nothing short of completely reshape our communities and economies. What are some possibilities that businesses and economic developers should be thinking about today? Reduced shipping costs. Commercially viable electric semi-trucks were thought to be many years away due to current battery weight and costs, but Tesla’s recently announced fully-electric semi-autonomous trucks surprised analysts with both their lower-than-expected upfront costs and significant long-term operational savings. It’s clear that potential customers were convinced as well as orders have been placed by a variety of companies, including Budweiser and PepsiCo, which ordered 100 of the new EV trucks. Competitors are lining up also, and this points a future of lower per-mile “fuel” costs and far less maintenance. Continuously advancing autonomous features and platooning will drive down shipping costs even further in the coming years. More EAVs for local deliveries. It’s likely we’ll see an increasing number of local delivery vehicles that are full EV and autonomous. Amazon, known for being brutally efficient, could benefit from incorporating EAV delivery trucks into their growing fleet, and the USPS is already working on it for their mail trucks. Individual ownership of vehicles declines. The average personal vehicle sits parked 95 percent of each day. If transportation platforms can offer reliable, safe, and inexpensive rides wherever you want to go, it might be difficult to justify car payments, fuel, insurance, repairs, and looking for parking. Many families might start by going from two vehicles down to one. This could lead to significant reduction in total vehicular traffic opening new capacity for transportation of freight. Remote-driver “call centers” begin opening around the country. The first few generations of “mainstream” autonomous vehicles will likely need a back-up driver for the occasional time where road or traffic conditions are indecipherable for the vehicle’s software and sensors. Companies such as Starsky Robotics have been developing remote driving for commercial trucking for years now, but we’re just beginning to see it for autonomous cars. These operations will consist of dozens of drivers using either an arcade-like set-up to replicate the inside of a vehicle or advanced virtual reality devices. Many service and supply businesses become unnecessary. In a world of EVs that can travel 300+ miles on a full battery and charge at a growing number of places, how will the 150,000 or so gas stations survive? What about your local mechanic? EVs have far fewer parts to potentially break, and they don’t need oil changes or radiator fluid. They also hardly ever need to have their brakes replaced because of regenerative braking. The same dynamics for costs savings applies to cargo and freight transportation. While initial fleet replacement will require new investment, long-term cost savings are likely significant. Traffic-related injuries and deaths drop substantially. Current autonomous driving systems are already 7much safer than human drivers. So much so, that a UK insurance company recently offered a five percent discount to drivers that let their Tesla take the wheel. As EAS vehicles become a larger percentage of our traffic, traveling will be safer for everyone. The cargo and freight transportation industry is highly regulated for safety. These advancements to car and truck travel can also lead to lower costs for the Transportation and Logistics Sector. It’s time to seriously consider the possibility that the next car or truck purchase could be your last. Even if only a few of the possible implications mentioned above become reality the transformation to Transportation and Logistics Sector will be significant. Simon J. Anderson is a Minneapolis-based international keynote speaker and foresight strategy consultant with his company, Venture Foresight. He is the co-author of the award-winning book Foresight 2020: A Futurist Explores the Trends Transforming Tomorrow. To learn more about Simon and his work, visit SimonSpeaks.com. |
Sources:
1 Air and Rail Transportation job numbers include employment regardless of whether passenger or freight.
2 Summarized by Camoin Associates from IBISWorld Industry Reports
3 From Economic Assessment of the Proposed Portland Waterfront Cold Storage Facility, June 2017, Camoin Associates with industry trends from IBISWorld
4 IBISWorld
Bio:
Jim Damicis: Jim is Camoin Associates’ Senior Vice President. He has more than 25 years of experience in public policy research and analysis. Jim brings a holistic, innovative approach to Camoin’s data-driven economic development planning efforts. Through his work with the Communities of the Future and World Future Society, he is a national leader in preparing the profession, communities, and regions for an emerging economic future.
