Following the signing of the Infrastructure Investment and Jobs Act, there is excitement throughout the country about the expected impact for both companies and individuals alike. After all, with half of the $550 billion of new spending dedicated to modernizing and expanding the nation’s passenger and freight transportation networks, these federal funds are a game-changer, from investments in millions of jobs to the revamping of our country’s infrastructure. However, to reap the full benefits of the bill, businesses must re-examine logistic strategies before the rollout to help prevent prolonging supply chain shortages and ensure future growth.
Three Areas of Impact: Modernize, Decarbonize and Secure and Fund New Infrastructure
Nearly half of the government spending focuses on the modernization of outdated infrastructure spanning nearly all modes of transportation including roads, bridges, airports, rail, marines’ ports, and public transport. The goal is to create a more resilient transportation network that will alleviate travel networks and stabilize the larger supply chain. Meanwhile, one-third of the spending will work to upgrade the country’s power grid, support renewable power, safeguard the nation’s water supply and distribution system, and “climate-proof” critical infrastructure. Improvements in these areas will benefit all industries through greater efficiencies and supply chain networks.
As the effects of climate change have become increasingly evident, the bill has prioritized upgrading power infrastructure to deliver clean, reliable energy across the country and deploy cutting-edge energy technology for a zero-emission future. A recent survey found that more than half of consumers surveyed on environmental, societal and governance (ESG) efforts say that companies should be doing more to advance environmental issues. Companies must stay attuned to the growing interest in addressing climate change and use the bill as an opportunity to enhance these efforts.
Secure and fund new infrastructure
The pandemic has highlighted the importance of secure cybersecurity networks. Businesses must take advantage of the infusion of federal dollars to strengthen their own cybersecurity programs. The infrastructure agreement also redirects unused pandemic relief funds, strengthened tax enforcement for cryptocurrency and other offsets for funding.
Although the benefits of these programs are immense, there are also critical challenges that present the government and individual companies. It is essential to consider these challenges before the rollout to realize its full benefits.
Major implications and challenges
The bill will likely have the strongest influence on the industrial products sector through its enhancements in telecommunications, transportation, and logistics. But changes will not happen overnight, and effective execution will be key.
The package includes Buy America sourcing requirements to promote domestic manufacturing. Under this requirement, the cost of the components used to manufacture products that are mined, produced, or assembled in the United States must be greater than 55 percent of the total cost of all components. These provisions are implemented to incentivize domestic re-shoring of supply chains and investment in this country’s industrial automation but may pose a challenge to businesses.
Over the past year, it has been evident that there is a lack of skilled labor workers. This will continue to be tested as skilled labor workers are needed to implement key components of the plan. But with baby boomers aging out of the workforce and an insufficient amount of young people to replace them, companies will have to work overtime to train a new workforce.
How companies can prepare for the rollout
Companies must understand that the package represents a generational shift in the execution of projects. Federal agencies will have to oversee the funding, including administering new grants and designing new programs. Meanwhile, states will have to identify and execute projects on the ground. This process will take time, which will be evident in the likely lag of spend-out rates.
It is significant to note that the pace of federal funds disbursement will depend on the types of projects at hand. Using the example of the American Recovery and Reinvestment Act a decade ago, transportation projects, such as resurfacing or improving roads, materialize faster than more complex capital projects, such as new system expansions. Funding allocated to existing federal programs also tends to develop faster than funding in new competitive grant programs, which involves new rulemaking.
Companies will need to assess new requirements in areas including environmental permitting, cybersecurity, and sustainability. It will be essential to consider new business opportunities, especially in areas of the country where infrastructure gaps are the largest. Reassessment of better transportation systems must also be prioritized to optimize the global footprint.
To overcome the hurdles of the infrastructure bill and ensure a successful implementation, companies must carefully examine logistic strategies and establish a plan prior to the formal rollout.
Matt Comte is the Operations Transformation Practice Leader at PwC. The practice contemplates how global trade forces, rapidly changing expectations, the rise of digital, automation and robotics, market disruption and ESG impact how PwC clients plan, source, make and deliver energy and products to an ever-evolving customer base.