IB Net Payout Yields Model

Deficient Infrastructure Costs Business

Another amazing story of how America is turning into a third world country. As China builds everything brand new, the US continues to allow our infrastructure from bridges to sewers to just crumble.

According to this Bloomberg report, 3,538 bridges were closed in 2010 while 150,000 bridges are structurally deficient.

How is it possible to not only allow a bridge to get into this state of disrepair, but also to allow a bridge to become closed? Businesses and consumers depend on them and life is majorly disrupted when one is closed.

Of course, that has become the issue and nature of the American sprawl. As communities move farther and farther from metro areas new infrastructure is built while the outdated roads and bridges are left to deterioate. This naturally encourages home buyers to move to where the infrastructure is brand new.

What would happen if the old bridges were replaced first? Would buyers or renters prefer to stay closer to downtown in that case?

Tulsa could become an interesting case study as the downtown loop was recently upgraded with every bridge stripped down and redone. Also, I-44 that passes through the middle of town is in the progress of being widened and completely redone.

While downtown looks much better, the updated I-44 involved clearing out a ton of outdated and dilapadated buildings not to mention over grown vegetation. The whole area looks 10x more attractive. Will this inspire businesses to relocate back into these areas?

Back to the article, what strikes me is that the cost to replace all the crumbling bridges at $140B nearly matches the estimated costs to businesses in 2010 alone of $130B. Whether from trips being extended by 10, 15, 20 miles or lost customers that will no longer visit a store, it amazes me that the lost productivity never makes the discussion. How can we not afford to replace them?

Minneapolis supposedly lost $73M in economic activity after the collapse in August 2007 of the Interstate 35W bridge. Imagine a FedEx (FDX) telling investors that it couldn't deliver packages for a few months because trucks didn't work.

It just seems absurd that governments are unable to fund crumbling bridges. Any city with updated roads and bridges must immediately become more attractive to new business. Whether from functionality and just appearance.

Just about anybody visiting SE Asia and specifically China claims how the US is starting to look like a 3rd world country. Maybe the spending in China can't last, but clearly the US can't afford to wait. China will become the preferred place for business if the US doesn't being spending more.

What ultimately sums up the issues is that both UPS (UPS) and FDX have had to assume bridge closers are inevitable. Naturally problems happen that can't be planned around, but when companies are spending productive time determining alternate routes knowing that government won't proactively fix problems, the US suffers.

Just like having tax professional spending millions of hours filing tax returns while other countries have them solving more meaningful issues, the country suffers. Some day the US will figure out this gigantic waste, but likely it won't happen until we're no longer the world super power.

Infrastructure and material companies would all benefit from higher spending, but just don't invest in any of them counting on it.

Highlights from the article:

  • Benton’s plight is playing out for small businesses across the U.S., where 3,538 bridges were closed in 2010, as customers shop elsewhere rather than take detours. 
  • With the average U.S. bridge seven years from the end of its useful life, and one- fourth of 600,000 crossings classified by regulators as “structurally deficient,” more places will be hurt by closings, said Barry LePatner, founder of LePatner & Associates LLP, a New York-based construction law and consulting firm.
  • The Minneapolis-St. Paul regional economy lost as much as $73 million after the collapse in August 2007 of the Interstate 35W bridge, according to a 2008 study by the University of Minnesota
  • The Sherman Minton Bridge, which carried about 80,000 vehicles a day across the Ohio River, was closed after cracks as wide as a 12-ounce soda can were found in the structural steel, according to the U.S. Department of Transportation.
  • A bridge built in 1929 over Lake Champlain in upstate New York was closed in 2009 after cracks were found. Residents had to take ferries to work and appointments. The ferry companies weren’t equipped for the volume and traffic to use them is often backed up for hours, he said. 
  • Companies like UPS, whose business model makes understanding the U.S. highway and bridge system a necessity, have developed information systems to reroute drivers when detours occur, Susan Rosenberg, spokeswoman for the Atlanta- based company, said in an interview.


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