Engineers and infrastructure experts have pushed for a renewed national focus on overhauling the country’s infrastructure for years. However, so far, their warnings have gone largely unheeded. There is no shortage of massive-scale improvement and rebuilding projects just waiting to be done, and when it finally becomes a priority, construction companies will be at the forefront of those efforts.
The United States rose to become the global economic powerhouse it is today in no small part because of its early construction of national infrastructure. Connecting all corners of such a large country required an immense amount of work and ambitious planning. The efforts of countless laborers throughout our early history laid the groundwork for the U.S. we know today.
America’s continued prosperity depends on that infrastructure even now, but it has been showing its age. Much of the nation’s infrastructure dates back at least a century, predating widespread global industrialization. A lot has changed since then. The U.S. population now exceeds 320 million, exponentially increasing demand on the roadways, railways, and electrical grid crisscrossing the country. Some efforts towards modernization have been made, but many of the critical infrastructure systems are built atop the very same structures that date back to the 19th century.
A Massive Opportunity for Construction Firms and Investors
The American Society of Civil Engineers (ASCE) estimates the U.S. needs to spend as much as $2 trillion on infrastructure in the next five years alone. Construction companies will be at the coalface of those efforts if and when the necessary government dollars are allocated for rebuilds and repairs. According to JP Morgan Asset Management, this needed influx of infrastructure spending would be a boon for construction company share prices as well as those in adjacent sectors, including materials stocks, heavy machinery stocks and infrastructure ETFs.
Infrastructure is what underpins the whole U.S. economy, from the electrical grids that power entire cities to the roads that carry goods from one coast to the other. If it falls into disarray, the economy will take a hit right alongside it.
In a recent interview with Knowledge@Wharton, Wharton Finance Professor Robert Inman said that with budgets stretched thin, state and local governments are often forced to choose between infrastructure spending or funding programs like police and schools.
The last thing I want to know is that I’ve got to pony up $100 million to repair that when I’ve got 30 kids in a classroom.
“Here’s the dilemma: I’m a mayor. I’ve got a four-year term, I’ve got a lot of pressure to deliver on quality education and police safety. An easy thing to give up is going down and looking at the sewers, checking out my bridges and my roads. The last thing I want to know is that I’ve got to pony up $100 million to repair that when I’ve got 30 kids in a classroom. That’s the dilemma that local politicians face,” Inman said.
Inman also noted that as the population ages, demand for spending on programs like Medicare and Social Security will increase, making even fewer dollars available for infrastructure spending.
U.S. Infrastructure Gets Near Flunking Grade
Every four years, ASCE rates the overall state of U.S. infrastructure. It examines everything from bridges and roads to dams, ports, and electric and water systems. In its most recent evaluation from 2017, ASCE gave U.S. infrastructure a D+.
“We’ve taken a generation off of investing in our infrastructure,” Brian Pallasch, ASCE’s director of government relations, told WBUR.
Pallasch cited the U.S. Interstate Highway System, dating back to 1956, as an example of the interconnectedness of our infrastructure, and pointed out how the improvements haven’t kept pace with the needs of a growing population.
“There’s sewer lines and water mains and storm drains and electrical wires, fiber optic cables, that many times run through the right of way of these roadway systems or run across them. And so a lot of the utilities have to be reworked or relocated,” Pallasch said. “All the while, [you’re] trying to ensure that the traveling public gets to access the system.”
The fact that an almost 65-year-old highway system is among the younger examples of U.S. infrastructure illustrates the overall state of things. However, most key systems we rely on every day are even older.
Railroads (ASCE Grade: B)
The first public U.S. railways were built in the 1830s, but the technology quickly took root. After the Civil War, railroad use skyrocketed, growing from 35,000 miles of laid track in 1865 to 254,000 miles by 1916. According to University of Iowa research, 77 percent of the nation’s freight traffic and 98 percent of all intercity passenger business happened on the rails at that time.
Today, America’s railways deliver 5 million tons of freight and approximately 85,000 passengers daily, according to ASCE. Much of the system is privately run, and every year significant investments are made to keep the system operational. Despite these efforts, ASCE estimates that funding falls nearly $30 billion short of what’s needed to effectively modernize the aging rail system ($154.1 billion funding needed versus $124.7 billion provided). While European and Asian countries have put billions of dollars and years of work into modernizing their rail systems, comparable U.S. efforts lag considerably.
Highways and Bridges (ASCE Grade: D)
The Interstate Highway System allowed coast-to-coast transit by car for the first time. Understandably, it has been hailed as one of the key infrastructure projects of the 20th century. It has since ballooned to more than 164,000 miles of highways, including more than 600,000 bridges.
But taxpayer dollars and tolls alone aren’t enough to ensure smooth operation of all of those roadways, and the inability to fund the much-needed improvements directly impacts Americans’ pocketbooks. Crowded or poorly maintained roads cost the U.S. $160 billion in wasted fuel and time each year, according to ASCE. Two out of every five miles of America’s urban interstates are congested at any given time, and one out of five miles is in “poor” condition, per the ASCE report card.
Electrical Grid (ASCE Grade: D+)
Most of the power lines in use today were placed in the 1950s and 1960s, with an expected lifespan of 50 years, ASCE writes. Events like the 2003 Northeast blackout, which impacted parts of the Northeastern and Midwest United States and 50 million people lost power for two days, demonstrate exactly how vulnerable the system is. ASCE reports that our system is at full capacity, and that the shortfall between investment needed and funds available will be as high as $177 billion from 2016 to 2025.
McKinsey research says the maze of overlapping government regulatory bodies required to weigh in on every step of the approval and funding process results in projects taking longer than they should. The U.S. Department of Transportation says a major highway project takes 13 years from idea to completion.
With hundreds of billions of dollars of infrastructure work currently backlogged, the construction industry will have its hands full once rehabilitating our nation’s infrastructure becomes a national priority. The sheer volume of projects in the pipeline could be a decades-long boom for the construction industry.