This article is sponsored by ITE Management.
In the past 20 years, the world has plunged into a whirlwind of increasing instability and relentless uncertainty, putting a spotlight on resiliency in the global supply chain. Covid underscored the risks associated with inadequate availability of essential equipment, the Ukraine conflict further underlined the risk of a single source of supply for energy, the US-China relationship appears more geopolitically competitive than economically symbiotic, leading to a broader diversification of supplier nations, and populism is on the rise globally, leading to reshoring.
All these issues influence investments and greater government involvement in energy, security, and transportation and infrastructure policy. The goal is to ensure fewer supply chain and energy risks that could create social and economic disruptions.
Jason Koenig, founder and managing partner at ITE Management, a transportation and infrastructure investment firm, says the private sector has actively pursued solutions to become more flexible and resilient in an unpredictable climate. He observes that North American businesses have adapted by creating more interconnected supply chains, driving long-term investment in transportation and infrastructure.
Shocks to the system are unknowable, so how can supply chains ever be prepared for the unpredictable?
There are two key things: redundancy and proximity. Companies are demanding multi-modal supply chains that enable them to adapt if location-specific issues arise, and they are moving closer to their end markets.
It is a case of back to the future. In the early 1980s, geography was almost irrelevant for US manufacturers, with suppliers spread nationwide. Then, Japanese companies revolutionised efficiency with just-in-time inventory management, clustering suppliers near manufacturers and end-users. China’s entry into the World Trade Organization introduced a vast, inexpensive labour pool, prompting suppliers to move to China, followed by final production facilities.
Strategic national interests, geopolitical uncertainty and the need to avoid sole-source suppliers are reversing those changes. Production is returning to North America and other major markets, where colocation is the new key.
Suppliers are moving closer to end producers, who are, in turn, moving closer to their end markets. This reshoring and colocation trend mirrors the Japanese model but now focuses on the “just enough” supply chain model, creating redundant production that allows companies to quickly adapt to social, political or economic shocks. This enables companies to nimbly respond to shifting demand and collaborate more effectively.
What makes this trend reglobalisation and not just reshoring?
From a US standpoint, reshoring means bringing production back to North America. For cost, strategic and national security reasons, governments are pushing to reshore more manufacturing, technology, energy and agriculture operations to North America – not just in the US, but also in neighbouring Mexico and Canada.
What makes this a reglobalisation phenomenon is that North American labour is expensive, so companies need lower-cost production sites. Thus, production is moving from China to others more closely allied to the US – or at least geopolitically neutral – such as India, Vietnam, Malaysia, Indonesia and countries across Latin America.
How is the infrastructure coping with this shift?
Governments globally are allocating money to repair roads, tunnels, bridges and rail systems, but it is not enough to support all these shifts, so private industry is increasingly filling the gap. A meaningful example is the merger of the Canadian Pacific Railway with the Kansas City Southern, creating the first contiguous rail system from Canada through the US and into northern Mexico.
Railroads are one of the most efficient means of land transportation. Railroads are pouring billions of dollars of capex into new and improved track, creating an essential linkage.
Further, roads and labour shortages cannot support ever-increasing trucking volume, so you need to transport more through railroads or coastal ports. Essentially, the US government is laying the groundwork for North American growth and production, and private enterprise is capitalising on the opportunity to transport it.
“The US government is laying the groundwork for North American growth and production, and private enterprise is capitalising on the opportunity to transport it”
Are there opportunities in a more interconnected system globally?
Certainly, North America stands out as one of the most efficient regions due to its vast, contiguous landmass with abundant resources spanning from Canada to Mexico. Governments and businesses are collaborating to enhance efficiency and form partnerships worldwide, including strategic and economic ventures in countries such as India.
ITE is regularly contacted by companies and equipment operators to help them transport goods globally. It requires a lot of integration with port and rail systems so these goods can be shipped efficiently.
As investors, we favour the sizeable markets of the US and Western Europe. While India holds promise as a growing opportunity, it is crucial to proceed with caution and take deliberate steps. Success hinges on forging local partnerships, a challenge that demands a hands-on approach and presence on the ground.
How do you ensure that transport infrastructure really works more efficiently and benefits customers?
Trusted partnerships reign supreme. Beyond technology, it is the dedicated folks on the ground who keep things moving smoothly – managing processes, handling containers, chassis, railcars and ensuring timely deliveries. It is all about fostering effective communication, collaborative problem-solving and maximising efficiency. These hard-working people are the backbone, passionate about their work, incredibly committed and brimming with pride in their craft.
In today’s tech-driven world, GPS tracking is essential for companies to stay in the know about their inventory’s whereabouts. Those pesky port backlogs? Often, they were caused by a lack of insight into equipment and goods locations. It may sound simple, but until now, we didn’t have the systems we are unveiling today.
It all boils down to one thing: efficient asset location and utilisation. Tracking and managing assets, then feeding that information back to portfolio companies in a loop with customers, boosting supply chain timing and speeding up turnovers.
At ITE, we and our operating platforms are the ones owning the assets, managing the operations, building the systems, refining the data and collaborating closely with customers every step of the way. This alignment not only makes us a stronger partner but also ensures our assets are more reliable and valuable than ever.
“In North America, shifts in consumer behaviour are leading the [sustainability] charge”
How is supply chain infrastructure adapting to sustainability demands?
Sustainability is a top priority, pushed by customers and government. In Europe, green energy and sustainability laws are driving change, while in North America, shifts in consumer behaviour are leading the charge. Rail is seen as crucial on both continents, with places like California considering regulations for natural gas use in locomotives.
With change comes the need for redundancy, slowing down operations, which benefits owner-operators like us. Increased environmental consciousness also boosts demand for our services.
Moreover, there is a social aspect. The transportation industry generates many well-paying jobs, particularly in the US heartland where our facilities are major employers in their communities. We are committed to supporting our employees and their families through initiatives like healthcare and community programmes.
How can investors tap into these emerging trends?
We are a hybrid strategic and asset manager, deeply embedded in this dynamic industry. We believe this is the path to unlocking enduring value. We foresee sustained secular demand for transportation and related infrastructure assets due to global shifts.
For investors, seek a partner with expertise and a robust partnership approach across the ecosystem and one that has built a diversified portfolio and has an unwavering long-term commitment.
How can investors participate in this space?
With growing US markets and shifting supply chains and geopolitics, there is a shortage of essential assets like railcars, chassis and containers. Industry players who know how to operate these assets, own them, and can build a network of transport relationships, will thrive and become invaluable.
Transportation and infrastructure firms are aiming for seamless connectivity across the entire supply chain – from the first mile to the last, not just the middle. They are making it happen through strategic partnerships and improved data sharing.
We want to harness our assets and infrastructure and manage them with a data-centric approach to offer the supply chain ecosystem sharper insights for faster turnarounds and enhanced visibility for smarter planning by our customers, which should lead to more robust operations and yield stability.