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The American Economy—Faster, Smarter and Leaner
The changes at work in the American economy are profound. The agricultural and manufacturing economy of the 20th Century has evolved. Services are now the fastest-growing sector of the economy. Logistics and transportation sectors are second, which reflects the four underlying trends mentioned previously. Undeniably, manufacturing employment will continue to shrink, as it has for the past three decades. However, manufacturing output will continue to grow. Manufacturing employment is falling because of overseas outsourcing and also because of automation. Today’s modern robotics-filled factory requires less labor than its predecessor, but its output is significantly higher.
Importantly, productivity gains from investment in technology and improvements in manufacturing processes will increase manufacturing output and generate more—not less—demand for transportation. The overall value of industrial production will grow faster than the overall economy. The manufacturing that remains in the United States will create high-end, high-value products, America’s exports of the future. Durable goods manufacturing, which includes automobiles, high-tech machinery and electronics, will see the greatest growth. These sectors will increase at a compound rate of 5.4 percent annually, compared to overall American economic growth of 2.8 percent. Traditional manufacturing will continue to grow at a respectable rate of 2.6 percent a year.
The increase in American manufacturing output will be the country’s primary engine for exports. Such exports are sorely needed to combat America’s significant trade imbalance and to expand the markets for America’s best-paying employers.
Agricultural products will continue to be another critical product which America wants to export. American farmers have learned that processing raw commodities into higher value products is a prime means of increasing value and exports. Converting raw milk into yogurt, converting soybeans into processed cattle feed, and turning corn into corn syrup adds value beyond what the original raw commodity would provide.
Exports are critical to increasing markets for American farmers. In many Midwestern states, agricultural products are the first or second largest share of products moving on the freight networks. Trucks, railcars and barges all contribute to a network that moves bulk grain to processors where it is converted into value-added exports.
The stereotype of the American economy is one of declining Rust Belt towns, booming service industries and stagnant rural farm communities. With such a stereotype, one may believe that overall travel and trade will grow slowly. To the contrary, the real American economy demands increasing volumes of trade if it is to continue to grow. The economic sectors that remain robust will require far more trade and travel per unit of output than was required 30 years ago.
The Global Economy—Bigger, Farther, Stronger
Also driving fundamental changes in shipping patterns is the rapidly transforming global economy. What is shipped, who ships it, where it is shipped from and where it is shipped to all are transforming dramatically.
Today, the United States is the world’s largest economy followed by Japan, Germany, the U.K., France, Italy, China, Brazil, and India. (Table 1.) The Western focus of that global economy is shifting daily. Instead of European countries and the United States dominating the world economy, Asia will dominate in the coming decades. Not only will Asia produce more exports which America will want to buy, but Asia also will have the world’s fastest-growing consumer population—which American producers will want to reach.
Table 1. Rank of Nations’ GDP in Inflation-Adjusted Dollars
China, which was the seventh largest economy in 2000, will be the second largest economy by 2020 and is predicted to overtake the United States by 2050 as the world’s largest economy. Some say it could happen sooner. Along with China’s 1.3 billion people, India’s 1 billion people will propel their economy from the ninth largest to the third largest by 2040. These economies will be huge, they will be modern. They will produce and consume tremendous amounts of goods that will dwarf today’s trading volumes.
The only way to get American products to those consumers and to get Asian imports to America is by ocean shipping. Water freight will continue its unabated growth and it will continue to require increasing port capacity. Just as importantly, the highway and rail connections into those ports will be under increasing and unrelenting pressure.
Figure 1. International trade is growing as a percentage of the U.S. Gross Domestic Product.
The rapid increase in trade value and trade volume is expected to continue, with trade growing faster than the U.S. economy as a whole. In 1990, the combined value of U.S. imports and exports was the equivalent of 13 percent of the U.S. gross domestic product. That grew to 26 percent in 2000. Trade is predicted to be equivalent to 35 percent of the country’s GDP by 2020. (Figure 1.)
Both domestic and foreign trade drive a steady and powerful growth in freight movement. The U.S. economy is predicted to grow at a compound annual rate of 2.8 percent over the next 30 years. That growth will increase the national GDP by 130 percent. The growth in the economy alone will nearly double the amount of freight shipped.
Measured in tons, freight demand will grow from 16 billion tons today to 31.4 billion tons in 2035—an increase of 89 percent. Measured in ton-miles, freight demand will grow from today’s 6 trillion ton-miles to 11 trillion by 2035—an increase of 92 percent.
Freight demand is not only growing, but the patterns of movement are changing. Disruptions in West coast ports send Asian trade directly to the East coast. Expansion of the Panama Canal will increase all-water shipments from Asia to the East coast. Port expansions in Canada and Mexico will send freight into the United States over the land borders rather than through U.S. ports. Major corporations are constantly adjusting their supply chains in response to changes in markets and the origins of products. The challenge of growth is compounded by the volatility in the paths that freight follows.
