How E-Commerce Affects U.S. Surface Transportation

Import and Export Concept: Forklift truck, cargo container and plane at a dock yard against sunrise sky

Without government regulation, the supply chain industry could not exist in its current form. The United States government builds roads and the infrastructure needed to manage traffic on the ground, at sea, and in the air, so it’s natural for government agencies to be involved with every mode of transportation in the supply chain.

As the logistics industry and the world economy evolve, the government updates its regulations to keep up with the times. For example, e-commerce has relatively recently become a major factor in global trade. Now that the U.S. House Subcommittees on Highways and Transit and Railroads, Pipelines, and Hazardous Materials are considering 2020’s update to the Fixing America’s Surface Transportation Act, e-commerce is a concern.

What’s Different About E-Commerce?

E-commerce, specifically business-to-consumer sales, depends on intermodal transportation. In the brick-and-mortar retail model, retail outlets receive items in bulk, and consumers take them from the store to their homes or places of business. In the e-commerce retail model, goods go directly from warehouses to consumers. This final leg of shipping is called the “last mile,” and it represents a different way of thinking about shipping.

The U.S. federal government is a major source of funding for surface transportation projects. Shipping industry leaders are working to ensure that the government approves and builds the right projects to support thriving e-commerce. There are three areas of concern:

1) Collecting Accurate Data
Making better decisions starts with having the best information. Collecting accurate freight data related to e-commerce shipping is the best way to ensure that new projects are meeting the needs of today and tomorrow.

2) Increasing Flexibility
Trusting Congress to manage transportation projects and investment nationwide is a recipe for disaster. Since changes in last-mile shipping trends affect localized areas, building flexibility into federal grants and allowing local governments to manage local projects is a better way to go.

3) Reducing Greenhouse Emissions
The supply chain industry depends on large vehicles like trains, ships, and increasingly due to growing e-commerce, trucks. We often associate these vehicles with greenhouse gas emissions. According to the EPA, they expect the transportation sector to produce over 1,800 million metric tons of CO2 each year. The House subcommittees must consider options that encourage reducing emissions for shipping e-commerce to remain sustainable.

E-commerce has made goods more accessible and life more convenient for people in every corner of the globe, and it depends on efficient logistics to do so. Cooperation between the government and the shipping industry will ensure that e-commerce continues to make an overall positive impact.

An Introduction to the Inter-American Committee on Ports

The Port of Seattle on a clear Spring day

The modern world couldn’t function without global trade and shipping. International trade unlocks economic opportunities and gives billions of people access to the items they need at prices they can afford.

International shipping can’t take place without organized ports to help move cargo in and out of a region. Unfortunately, ports have a bad reputation in some circles—they’re undeservedly associated with corruption and inefficiency. The Inter-American Committee on Ports (CIP) is working to change this mindset. It’s the only organization that brings the national port authorities of 35 member countries together to improve shipping and logistics for everyone.

The General Secretariat of the Organization of American States founded the CIP in 2005. It’s primarily concerned with collaboration in the fields of navigation and port sector development. Though CIP’s work focuses on countries in the Western Hemisphere, people around the world feel the impact of its efforts.

What the CIP Is All About:

1) Helping Port Cities Win

The goal of the CIP is to make each port a model of inclusive, secure, and sustainable operations. The organization assists with port development projects in service of this goal. When port cities win, it’s good for everyone.

2) Policy Dialogue

Before policies can change, people need to talk about them. The CIP is committed to fostering a dialogue between different governments and trade organizations in its sphere of influence.

3) Increasing Capacity

Economists expect the importance of global shipping to increase. The CIP is preparing for this by working to enhance the capacity and capabilities of ports around the world. Improving port infrastructure is the best way to achieve this goal.

4) Technical Assistance

Computers and other technology have revolutionized nearly every industry, logistics certainly included. Technology can make ports run more smoothly and efficiently, but only if shipping professionals know how to apply it. The CIP supports programs to educate port employees about new technologies.

5) Cooperation with Private Sector

All too often, the public and private sectors are at odds with each other. Private sector entities would prefer to be left alone to work, while public sector entities are tasked with protecting people, facilities, and the environment. The CIP facilitates communication between members of the public and private sectors and helps them come to an understanding.

Shipowners Struggle to Find Financing

A row of Cargo ships getting loaded at a busy port

Oceangoing cargo ships are expensive. A ship capable of carrying 500 shipping containers can cost $10 million. A large container ship with room for 20,000 shipping containers may sell for more than $100 million. Even the largest shipping companies may struggle to raise this kind of capital, which has historically made financing the most viable option for shipowners. However, periods of uncertainty and global economic downturn have driven many banks out of the market.

Even the lenders who have stayed in the ship financing market are placing stricter conditions on their loans, a trend driven by increasing government regulation and simple economics. Providing funding for shipowners can be risky—a global recession could put a shipper out of business, or the rising cost of fuel could change shipping costs significantly. Many banks are searching for safer investments.

Alternative Financial Providers

No matter what the global economy and the banking industry are doing, shippers still need ships. When traditional financial institutions are reluctant to foot the bill for ship financing, there is an opportunity for other institutions to step in and fill the gap.

How are today’s shipowners dealing with ship financing struggles? Aside from banks and other traditional lenders, there are two important ways that shippers are raising money:

Private Equity
When you get a loan from a bank, you and the lender must agree on the value of what you’re financing and your collateral. In a specialized industry, this can be difficult. Private equity firms have stepped in to fill this need. These specialized lenders understand the risks, rewards, and volatilities of the shipping industry and plan their investments accordingly.

IPO
Any company that needs to raise capital may turn to selling shares of stock. This strategy can work well for large companies, but it has a history of mixed results. Investing in a small shipping company may involve more risk than many investors will accept.

Sustainable Shipping

Corporate responsibility is a serious concern for many businesses. Shipping uses large amounts of fuel and can generate a lot of pollution. This is a problem for many investors concerned about climate change and other environmental damage. Many lenders attach requirements for Economic, Social, and Governance (ESG) reporting standards to ensure that shippers are making efforts to operate sustainably.