Can Bus Market Turmoil Stop the ZE Revolution?

Supply chain issues have assumed a more prominent role in the American transportation sector, particularly in the arena of hi-tech, low-to-zero emission vehicles and systems. This was the case even before the recent pandemic and recession, and it has led to some industry reticence in adopting innovative technology.

The double hit of the health crisis and economic slowdown made these issues worse in so many ways, from manufacturing and import restrictions, to the availability of sophisticated components necessary for vehicles and systems, the availability of public and private funding, and the financial impact of decreased ridership as people simply stayed home. It’s a multi-pincered crunch that is still hammering the industry as the economy rebounds.

Are U.S. Supply Chain Issues Structural?

Supply chains are not a switch you can flip on with instant response. There are numerous illustrations of that, first with striking shortages of every day products, followed by flotillas of cargo ships staged outside domestic ports, where manpower and equipment shortfalls slammed efforts to catch up. And once those container ships were offloaded, there were the issues of port congestion and jumpstarting the distribution process.

Complicating this in the ensuing recovery period to date is the growing impact of the “Buy America, Build America” regulations and similar provisions in the Inflation Reduction Act and the Bipartisan Infrastructure Law.

The efforts to bring manufacturing of critical elements — including the manufacturing of chips, technology, and components — back to American soil is praiseworthy on the one hand, because it puts more control within the grasp of U.S. policy and provides employment and economic opportunity for Americans. But, these provisions also raise costs with their requirements for American-produced iron, steel, and other materials.

Another often-underappreciated aspect governing the transit supply chain are the special maritime preferences manufacturers must comply with when they ship products to transit agencies.

Cargo preference is another restriction applicable to federally supported activities, in this case requiring that a portion of “government-impelled” cargoes be carried on U.S.-flag vessels (46 U.S.C. §55305, 46 C.F.R. Part 381). When rolling stock and other products do come from abroad, federal transit law requires these transactions to use U.S.-flagged ships for transport; such restrictions can contribute to delays and added costs. Although cargo preference is not a Buy America requirement, a slow-moving cargo preference provision may complicate transportation projects that are subject to Buy America.

Congressional activities are trending even more in that direction: the Developing a Reliable and Innovative Vision for the Economy Act (DRIVE) H.R 22, passed by the Senate in July 2015, would increase the share of U.S.-made components and subcomponents required in public transportation vehicles bought with federal support from 60% to 70%.

A House version of H.R. 22 passed in November 2015, the Surface Transportation Reauthorization and Reform Act of 2015, would do the same. The qualification formulas for rolling stock manufactured domestically under the Buy America provisions now require in excess of 70% of the costs of all components be American and that assembly be completed in the U.S.

These rules have a particular impact on the development, manufacturing, and use of high-tech vehicles, as well as the systems on their routes that take advantage of new technology to enhance customer experience and operational efficiency. For buses, the issue is with sub-suppliers, most of which are North American companies, but which are undoubtedly themselves supplied by foreign companies.

There are potential avenues for waivers, but they also tend to be complex and cumbersome, undercutting many potential gains, limiting access to relevant foreign products, and adding layers of complexity to already complicated and expensive undertakings.

Maintaining Foreign Relations

On the other hand, the same rules that can improve the situation for American industry and worker security can also put us at odds with traditional allies and suppliers, and arguably, it can encourage retaliation.

The U.S. is a signatory to international agreements that restrict discrimination against trading partners in government procurement. Currently, 43 World Trade Organization (WTO) members, including the U.S., have made binding commitments under the WTO Agreement on Government Procurement (GPA), whereby each provides access to the others’ national procurement markets and requires foreign products to be treated no less favorably than domestic ones.

Although the U.S. is a WTO GPA signatory, state and local governments are excluded from coverage, even if federal funds are involved, unless they voluntarily agree to comply. Even when the federal government provides grants or loans to state and local authorities for transportation projects, it may attach domestic sourcing restrictions to these funds without violating international obligations.

Tackling the Issues

To get a handle on supply chain and other industry challenges, APTA President Paul Skoutelas announced the creation of a Task Force on Bus Procurement to identify the causes of financial instability, propose immediate and longer-term solutions, and consider alternative procurement approaches.

Also, LA Metro recently convened a number of conferences, from which an Industry Advisory Council emerged. Although it’s ostensibly focused on the challenges posed by major public events like the Olympic Games and the World Cup, the issues of demand and supply overlap into the planning of these mega-events.

And of course, there is the constant specter of politics, international as well as national and local.
In other words, it’s a simple puzzle that will be easily figured out in short order. Not.

There are some areas where the challenges are less tangled. Bringing back manufacturing capability from China, while neither simple nor quick, is a strategy that will largely garner support and will likely be imitated by our friends. Lessons of the pandemic are obvious to even the casual observer.

In 2008, Congress incorporated a provision in the FY2009 Defense Act specifying that cargo preference requirements also apply to cargo imported if the federal government provides financing in any way. It would require that at least 50% of such cargo must be shipped in U.S.-flag vessels, subject to U.S. Department of Transportation (DOT) oversight to issue regulations and guidance to govern the administration of cargo preference by other federal agencies.

The Maritime Administration (MARAD) submitted a draft notice of proposed rulemaking for Office of Management and Budget approval in December 2011. According to a GAO report in 2022, MARAD has not developed regulations, primarily due to challenges in reaching consensus with other agencies on how to implement cargo preference requirements.

In addition, Congress made a change to Buy America in the Moving Ahead for Progress in the 21st Century Act (MAP-21), which reauthorized federal highway and transit programs in 2012, as it applies to highway funding. It is designed to prevent the segmenting of a project into smaller parts, some federally funded and some not, to exempt segments from Buy America requirements.

MAP-21 requires that FHWA Buy America requirements apply to all contracts eligible for assistance within the scope of a project’s National Environmental Policy Act of 1969 (NEPA) document if at least one contract for the project is federally funded.

"For want of a nail" is a reminder that seemingly unimportant acts or omissions can have grave and sometimes unforeseen consequences.

Accessing Technologies

Another point where this comes to a head in the transportation industry in transition is access to vehicle manufacturing and technology, for energy storage, for electronic systems, and for a whole variety of specific components because, as project management teaches, when a critical-path task is stalled due to the lack of some particular element, that dominoes down the line. 

In an earlier survey of vehicle production, vehicles 30-feet or under increased in 2020-2021 by 66%, although the actual number of vehicles was a relatively insignificant 330 units. The 35- to 40-foot segment experienced a slight 1% decline to 3,715 units, while the small 45-foot segment increased 7% to 417 units.

The most significant change reported was in 60-foot vehicles, which saw two successive years of decline, a 65% drop between 2019 and 2021. However, a recent report notes an uptick in orders, including a five-year contract from Pittsburgh Regional Transit for 15 zero-emission, battery-electric New Flyer Xcelsior CHARGE NG™ 60-foot heavy-duty transit buses

Other approaches would include additional government support for allied areas, including tech hubs, battery manufacturing, and sourcing of critical materials to drive the shift to electric transportation.

Cited in a White House fact sheet, “The Bipartisan Infrastructure Law, CHIPS & Science Act, and Inflation Reduction Act combined will invest more than $135 billion to build America’s electric vehicle future, including critical minerals sourcing and processing and battery manufacturing. The Bipartisan Infrastructure Law alone invests more than $7 billion to help domestic manufacturers have the critical minerals and other necessary components to manufacture the batteries we need to meet our climate goals.”

Will Policy Changes Be Enough?

Legislators cite scaled up federal investment in supply chains and American manufacturing, including a new supply chain resiliency program, $16.9 billion for Department of Energy R&D and energy-related supply chain activities across critical technologies like batteries, $2.4 billion for the Manufacturing Extension Partnership, and $1.2 billion for the Manufacturing USA program.

Pulling on funding from a variety of sources, ranging from EDA Build Back Better Regional Challenge Program under the American Rescue Plan to the U.S. Innovation & Competition Act, competition is on to build technical development hubs across the country.

The challenges of a recovering supply chain are intensely interwoven with the challenges of a conversion to zero-emission transportation future. The question is, can the political will match the public and government demands? Although more time and a slower pace would do wonders to help the market adjust more naturally, it isn’t really an option, given climate actions urgently needed.

What is encouraging about tackling this problem is that these challenges combined with policy consensus around international economic competition and climate action might all put the U.S. on to the path of something this country has needed to pursue for some time: a cohesive approach to industrial policy, which leverages the needs and demands of the combined governments — federal, state, and local — to maintain an industrial base that supports research and development, as well as a sustained manufacturing base that can be augmented when demand requires, meaning less reliance on overseas suppliers. Not a total solution to supply chain issues, but certainly an approach to tame them in the future.

About the Author: Cliff Henke is Sr. VP/Global Coordinator, ZE and BRT; and Gregg Moscoe is Assistant VP, Bus Fleet Operations ZE and BRT at WSP USA.