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Wed 17 May 2017 - Impact
A Q&A with Parag Khanna on why supply chains will rule the world.
Second in a series of conversations during Infrastructure Week. See the previous Q&A with Dan Katz, Transportation Policy Counsel at Hyperloop One.
One person who has never lost faith in the long-term trend toward a more tightly connected global economy is Parag Khanna, a self-described “geo-strategist” who grew up in India, the Middle East, America, and Germany, studied diplomacy at Georgetown and earned his Ph.D. at the LSE, and now lives in Singapore.
Khanna spends much of his time in and between leading global cities, meeting with businesses and governments to persuade them of the virtues of strengthening the economic and physical links between them. His recent book Connectography, published just over a year ago, is a guide to the world where megacities compete over the strength of their connective infrastructure and where supply chains are a more potent geopolitical force than nation-states. Khanna identifies Hyperloop as a catalyst for linking economies more tightly, so we thought we’d catch up with him to explore his latest thinking.
Khanna: I’ve been saying we need to transition from thinking about maps as political geography — antiquated, rectangular longitudinal states based on a vision from the 18th century — to a functional geography of connected urban hubs. The recent analysis done by urban geographers from Dartmouth College and the University of Sheffield, using data on millions of U.S. commuters, reveals how the functional geography of America is clustered around 40 particular urban nodes and corridors, more so than the political borders of the 50 states. You can see it in credit card data, too, and so many different ways. If we connect those hubs, we would become what I call the United City-States of America.
You can also see it at the international level. A lot of attention is going to China's One Belt, One Road initiative, but let's just take North America for example. Part of the reason you have politicians backing down from the plan to rip up NAFTA is the recognition of functional geography. Once you stop to think about how much timber, or oil and gas the U.S. gets from Canada, and how the automotive supply chains with Canada and Mexico are linked, and what would be entailed in a trade war, it makes no sense. The most important word in international relations is not sovereignty, it's reciprocity. Functional geography teaches us how much we physically and materially gain from each other every single day.
Khanna: Supply and demand is the most powerful law in history and the most powerful organizing force in the world. Supply chains depend on infrastructure, and the more we have, the more frictionless supply chains can become. But in almost every single category the infrastructure we have is woefully inadequate. Even though there is a glut in the number of ships at sea, for example, there is a huge inadequacy in the size of port terminals. The largest container ships, like the Maersk Triple E class or the CSCL Globe, cannot dock at a single American port right now. Not even Los Angeles has a terminal berth tall enough to handle the world's largest ships. And so it sails between Rotterdam and Dubai and Singapore and Shenzhen. It doesn't come to America. There's inadequacy in aviation, in terms of the geography of certain fleets and airport congestion. In rail transportation, we have the stumbling inadequacy of the U.S. passenger transportation system, which is now looking at more funding cuts to long-haul Amtrak service.
Supply and demand might be a market principle but there's a qualitative element to it. If trains get stuck, no one is going to take them. But at the same time, if you build good transportation people will take it. The same will go for Hyperloop. If the administration says, well, no one's riding this Amtrak, therefore no one wants to cross America by rail, they're kind of missing the point, which is that, well, no one wants to ride that way of crossing America by rail because it takes too long. If you made it really good, the demand would be there to engage the supply.
I also think it’s important to point out the virtues of supply-led growth and investment-led growth — and the ability for connectivity to act as a catalyst for economic growth. A lot of Western economic theory disputes the value of supply-led growth, but I think the critics are wrong. China is a profound example that investment and supply-led growth begets demand. China's investment-led growth has had such a massive catalytic effect on the distribution of people and job creation across the country — and created a significant rebound since the financial crisis — because people were able to re-sort themselves geographically much more effectively with low-cost high-speed rail to find new jobs after the demand shocks to their manufacturing and export sector in 2009. The fact that Dubai and the entire UAE corridor is the fastest growing urban geography in the world is largely due to investment in infrastructure. Today's bright spots in the global economy have a very solid infrastructure.
Khanna: I see a few options. The first is a supply chain solution for high-value goods. Cheaper things usually go by ship and the highest value things are either digitally transmitted or flown on planes. In between, you have this middle level where Hyperloop can compete for high-value goods in certain categories. Certainly, it makes sense for moving people. In Europe, rail has very significant passenger throughput because it is of higher quality and cities are not that far apart and trains can really cut the transport time. These are people for whom time matters such as tourists or people who conduct business in multiple places. There is very clear evidence that there is a very large unmet demand for human mobility between dense urban geographies — and the entire world is becoming dense urban geographies. In terms of the transportation of goods, Hyperloop may not at first compete for the huge volumes of freight that go by truck and rail, but because the infrastructure gap is so significant (especially in the U.S.), it's going to be a very long time before we see a lot of improved and expanded roads and highways or efficient driverless trucks come around.
The issue is that it takes a long time for infrastructure to get done in America, especially with the public sector so heavily involved. It could very well be that the private sector can do a better and faster job at this, as was the case with chartered railroad companies of the 19th century. I see Hyperloop as the natural successor to the transcontinental railroads and interstate highway system, but a Hyperloop not for the 19th and 20th-century political geography of America but for the 21st century functional geography of America.
Khanna: If Amazon is an example, it's a global example because the reason people say Amazon is going to beat out Apple and Google to become the first trillion-dollar market cap company is because it's expanding its on-demand model everywhere in the world, whether it's through Prime Air or drones or its expansion of warehousing and M&A in India and the Middle East and all over the place. Warehousing is a very fast-growing asset class in real estate, and the geography of warehousing combined with Hyperloop technology could be a really interesting way of fulfilling the global growth of the on-demand retail and e-commerce market. On-demand retail only works if it's backed by a very high-quality logistics infrastructure. Alibaba wouldn’t be worth close to $300 billion in market cap if it didn't have a speedy logistics network behind it. You need Hyperloop if you want to see that segment of the economy grow faster and to new heights in America and elsewhere.
Khanna: There's no question that agglomeration is a good thing for an economy and makes cities more productive. That doesn't mean you want to have one giant built-up urban mass without a logic to it. This is what China has managed to avoid with its administrative configuration. China has 24-26 urban clusters and each is administratively re-defined to fuse and collaborate because they have better roads and rail networks connecting them.
The cities of the Pearl River Delta (see map below) have become the driving force in the Chinese economy because strong physical connections have allowed an incredible flow of product innovation and ideas. Companies have shifted their operations from Hong Kong to Shenzhen, and then Shenzhen to Dongguan, because these cities are more seamlessly connected and are clearly enriching each other from Hong Kong to Guangzhou.
There's no question that having these logistical agglomerations among cities increases the efficiency of commerce and flow of ideas within them. That's why we need to see this happen in the United States between Boston and Washington, between San Francisco and Los Angeles, and between Dallas and Fort Worth. The 4 states around Chicago want to plan their rail and transportation networks much more closely so there is a larger catchment area for the city of Chicago. Regional planners want the economic density and wealth of Chicago to radiate outward more efficiently into second tier city areas.
Khanna: The usual litany of things, top of which is short-term fiscal thinking. Remember that infrastructure spending is an investment and not consumption, so governments should not be penalized by credit markets for making investments with very long-term economic payoffs. We simply need more appropriate accounting methods. Being a fiscal hawk is fine if you're talking about how to manage entitlements but it's not okay when you're talking about infrastructure because otherwise, you end up half-building a road. It's the ultimate paradox to issue short-term financial instruments to pay for long-term infrastructure. We also need financial regulations that allow insurance companies and big pension funds to hold infrastructure on their balance sheets as assets and not as liabilities. Infrastructure is the most stable asset class over time, and it's preposterous to have so many disincentives for these enormous pools of capital (pension, insurance, and private wealth) that want stable long-term assets. Every dollar spent on infrastructure has a higher return as stimulus than other kinds of stimulus. The massive monetary expansion by the U.S. Federal Reserve Bank of the last decade has delivered almost no measurable net gain in terms of long-term structural U.S. economic growth. We should be doing everything in our power to get these pools of capital into infrastructure.
NIMBYism and over-regulation are also problems. You need to have a certain alignment of forces at every level of government to push through approvals. You also need a shared, almost utilitarian approach if we're going to enable the new functional geography to benefit a large number of people as opposed to the old political geography of very narrow parochial interests defeating large, substantial national investment priorities. There's also disagreement over what to do: Should it be airports or should it be rail? I’m not a guns-or-butter type, I think it's all-of-the-above when it comes to infrastructure, because having studied this all over the world, I know the demand is growing. An America of nearly 300 million people has a barely adequate infrastructure. Now imagine an America of 400 million people and a North America of 600 million people by the year 2040 or 2045. It’s fairly obvious that it's not about this silly 2017 conversation about airports or rail — the answer is obviously both. Within our reasonable lifetime and fiscal planning period, we need to be thinking about serving almost twice as many people as there are right now. I don't know how to make people see that other than through maps...which is what I try to do all the time but, you know, this should not be a difficult conversation.
Khanna: We’re going from Scotland to Singapore, the furthest distance on earth that you can travel by continuous rail. No Hyperloop, unfortunately, but that's almost the point...to do it the slow way. It’s going to be about 3 months and the rule is you can't touch Russia because Russia makes it really easy with one rail that covers about ten thousand kilometers. So instead the route is going to cover Western Europe, Eastern Europe, Turkey, Iran, Central Asia, China, and Southeast Asia. The whole point of the trip is to highlight the fact that Eurasia, the world's largest land mass, is really a single continent. It has two-thirds of the world's population, ranks as the fastest growing economic zone of the world, and trade growth between Europe and Asia is expanding much faster than trade between either of them and America.
It’s an intellectual dream of mine to see the unification of the Eurasian continent. It's sort of what Genghis Khan thought he was doing —but that was back before we knew the world was round. Eight hundred years later, hopefully, we can achieve the same feat in a more peaceful way with railways as the unifying agents of this great land mass.
Khanna: It might be less romantic but at the same time would be a lot more practical. But I don't do things unless they involve some degree of pain. We’re making this trip not just for the romanticism but to point out some necessary improvements. And that's obviously where Hyperloop would come in.
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We're a privately-held company on a mission to create fast, effortless journeys that expand possibilities and eliminate the barriers of distance and time.
There are too many people caught bumper-to-bumper in traffic, who have to make a hard choice with their family on where to live and work, and who are limited in their access to experiences and opportunities. We're building a system that will give back time and deliver the travel experience of the future.
The number of cars is set to double worldwide by 2040, same with air and trucking. We are already dealing with the effects of pollution, lack of access, and congestion. If we only invest in the same technologies we’ve had for more than a century, tomorrow will look like today, only much worse. It’s been over a century since the Wright Brothers first showed us human flight was possible. It’s time for a new era in transportation capable of carrying us forward for the next 100 years.
To date, we have received over $400 million.
A major investor of ours is DP World, a leading enabler of global trade who sees the potential of sustainable hyperloop-enabled cargo systems. Additionally, we are backed by the Virgin Group, an industry leader across rail, aviation, ships, and even spacecrafts. For more on our investors, visit the company page.
Virgin Hyperloop One is the only hyperloop company that has a strategic partnership with a mass transportation company, the Virgin Group, an industry leader across rail, aviation, ships, and even spacecrafts. Another key partner of ours is DP World, a leading enabler of global trade who sees the potential of sustainable hyperloop-enabled cargo systems. Other industry-leading partners include KPMG, Foster + Partners, Systra, BIG, SNCF, GE, Deutsche Bahn, Black & Veatch, McKinsey, Deloitte, Jacobs, Turner & Townsend, ARUP, and Steer, among others.
No, there’s no connection with Elon Musk.
We aren't just building a hyperloop; we're building a network of public and private partners to scale an integrated supply chain ecosystem. Our business model is based on partnerships that create local jobs and opportunities for those who choose to invest in this technology. We are working at the highest level of governments around the globe to put in place commercial agreements to make hyperloop a reality.
Hyperloop is a new mode of transportation designed to eliminate the barriers of distance and time for both people and freight. It can travel at speeds approaching 700mph, connecting cities like metro stops - and it has zero direct emissions. The journeys can be booked on demand so there’s no wait time or delays.
With hyperloop, vehicles, called pods, accelerate gradually via electric propulsion through a low-pressure tube. The pod floats along the track using magnetic levitation and glides at airline speeds for long distances due to ultra-low aerodynamic drag.
On May 12th, 2017, we made history two minutes after midnight when we successfully launched our vehicle using electromagnetic propulsion and levitation under near-vacuum conditions at our full-scale test site in the Nevada Desert. We've since run hundreds of tests, acquiring validated knowledge that only comes from real-world testing. For more info on DevLoop, our 500 m test track, visit our progress page.
We estimate that the top speed for a passenger vehicle or light cargo will be 670 miles per hour or 1080 kilometers per hour. That is about 3 times faster than high-speed rail and 10-15 times faster than traditional rail. The average speed vehicles travel will vary based on the route and customer requirements.
A perfect vacuum would decrease the drag on the vehicle even more, but not significantly. We have already gotten rid of 99.9% of the air in the tube. Lower levels of vacuum than this are important if you are performing scientific experiments, but the cost would not be worthwhile.
Hyperloop is an entirely new mode - think the best of trains, planes, and the metro. Hyperloop is on-demand, offering flexible travel schedules with no stops, no transfers, and no weather delays – all at speeds about 3 times faster than high-speed-rail and less cost. Hyperloop is highly efficient, with a smaller environmental impact than high-speed rail because the closed system can be tunneled below or elevated above ground, avoiding dangerous at-grade crossings. The VHO system is 100% electric and can reach higher speeds than high-speed rail for less energy due to our proprietary electric motor and low-drag environment.
Fast, effortless journeys go hand-in-hand with journeys where everything works reliably without interference, and where all passengers feel comfortable and safe. The Virgin Hyperloop is designed to be inherently safer than other modes, with multiple redundancies in place. Our system operates autonomously in an enclosed tube and is not susceptible to weather delays, accidents from at-grade crossings, human error, or power outages. Our proprietary high-speed switching architecture eliminates unsafe track configurations and moving trackside parts, a failure point of traditional rail with mechanical switches.
As new mode, we have to prove our safety case to regulators and work with them to develop a regulatory framework, so passengers can ride the hyperloop in years not decades. We are encouraged by the support we are seeing at the local and federal level around the world to support hyperloop certification based on the fundamentals of safe operating that are already standard practice. In March 2019, the U.S. Secretary of Transportation, Elaine Chao, created the Non-Traditional and Emerging Transportation Technology (NETT) Council to explore the regulation and permitting of hyperloop technology to bring this new form of mass transportation to the United States. This Council is an important step forward in recognizing hyperloop is a new transportation mode and that we need to shift our mindset and acknowledge that this technology does not fit into a regulatory structure that is over 100 years old. The European Commission’s Directorate-General for Mobility and Transport (DGMOVE) has also been leading discussions with hyperloop companies to advance regulatory standards and, in India, the Principal Scientific Advisor (PSA), Prof. Vijayraghavan, has set up an independent committee called the Consultative Group on Future of Transportation (CGFT) to explore the regulatory path for hyperloop. For more, visit our regulatory progress pages.
While flying through a tube at more than 1000km/h might seem like a thrill ride, the truth is we are able to mitigate any uncomfortable acceleration forces within our controlled environment. The journey will be so smooth, you could sip a coffee the whole time without spilling a single drop. Normal acceleration and deceleration of 0.20 Gs will feel similar to a train. As a comparison, flooring a typical sedan gives between 0.4-0.5 Gs and commercial airplanes see 0.3-0.5Gs depending on the plane and load.
Pods will continue to travel safely to the next portal even with a large breach. Our response to a breach would be to intentionally repressurize the tube with small valves places along the route length while engaging pod brakes to safely bringing all pods to rest before it is deemed safe to continue to the next portal. A sustained leak could impact performance (speed) but would not pose a safety issue due to vehicle and system architectural design choices. This assessment is based in solid understanding and analysis of the complex vehicle load behaviors during such an event.
Without a massive leap forward, pollution from the transportation industry is expected to almost double by 2050 - well above the carbon budget. By combining an ultra-efficient electric motor, magnetic levitation, and a low-drag environment, the VHO system can reach airline speeds for 5-10x less energy (depends on route length) and can go faster than high-speed rail using less energy. In regions like the Middle East, we could power the system completely by solar panels which cover the tube. As fighting against climate change becomes an existential issue for cities across the globe, hyperloop will create a new, shared, electric mobility model for helping to permanently reform an industry with some of the world’s highest carbon emissions.
We are designing Virgin Hyperloop to be more efficient than other modes of transportation. Modern jetliners use up to 10 times the energy we use per passenger-mile over the entire journey. We can cruise at 500 miles per hour for less energy (per passenger) than an electric car doing 60 miles per hour. At peak speed, the VHO system consumes approximately 75 watt hours per passenger kilometer (Wh/pax-km). To put this in perspective, the fastest conventional maglev train travels at about half our speed and consumes 33% more energy.
Our system is 100% electric with zero direct emissions. We're energy-agnostic. Our system can draw power from whichever energy sources are available along the route and support a transition to a renewable energy-powered future. In regions like the Middle East, we can completely power the system with solar panels which cover the tube.
It’s similar those new electric vehicles that are so quiet they need to create noise to indicate movement. With hyperloop, we eliminate sources of mechanical noise, like wheels on track, and we actually have a sound barrier inherent in our tube design
DP World Cargospeed is a global brand for hyperloop-enabled cargo systems operated by DP World and enabled by Virgin Hyperloop technology. These systems will deliver freight at the speed of flight and closer to the cost of trucking for fast, sustainable, and efficient delivery of palletized cargo.
The focus would be on high-priority, on-demand goods – fresh food, medical supplies, electronics, and more.
With DP World Cargospeed, deliveries can be completed in hours versus days with greater reliability and fewer delays. It will expand freight transportation capacity by connecting with existing modes of road, rail, ports, and air transport, and will provide greater connectivity with manufacturing parks, economic zones, distribution centers, and regional urban centers. This can shrink inventory lead times, help reduce finished goods inventory, and cut required warehouse space and cost by 25%. DP World Cargospeed networks can also enable just-in-time, agile manufacturing practices.
The Virgin Hyperloop is unique in that it doesn’t need to be passenger-only or cargo-only. We are designing a mixed-use system that fully utilizes system capacity while maximizing economic and social benefits. However, it is possible to run cargo commercial operations while certification and regulation are still ongoing for passenger use.
We are working with the most visionary governments around the world to make sure you can ride the hyperloop in years, not decades. Our goal is to have operational systems in the late 2020s. Our ability to meet that goal will depend on how fast the regulatory and statutory processes move.
We are working with visionary governments and partners around the world to make hyperloop a reality today. To learn more about our projects around the world, visit our progress page.
Capital and operating costs will range widely based on the route. We recently released a study that showed our linear costs are 60-70% that of high-speed rail projects. In addition, we expect the operational costs to be significantly lower than existing forms of transportation.
It’s simple – if it’s not affordable, people won't use it. We are looking to build something that will expand opportunities for the masses, so they can live in one city with their family and work in another. Currently, that kind of high-speed transport is not feasible for most people. The exact ticket price will vary for each route, but a recent study showed that riding a hyperloop in Missouri could cost less than the gas needed to drive.
We are in the business of serving local needs, not the other way around. Public and private support is key. In some cases, we will respond to solicited bids with partners when we feel the technology matches the project’s objectives. In other cases, we will make an unsolicited bid for a project when we see that hyperloop could offer a unique solution to market needs.
While the technology is different, the process for building a hyperloop is similar to that of building a highway, railway, or any other type of linear infrastructure. The first stage is project development. This phase includes feasibility studies, and then more detailed engineering reports and environmental impact studies. Once a project is approved to move forward, a consortium is formed to finance and deliver on the project.
Many infrastructure projects succeed or fail based on right-of-way issues. We are designing a system that requires only about half the right-of-way as high-speed rail and can more easily adapt to existing right-of-ways. At high speeds, the VHO system has a 4.5 times tighter turn radius compared to high-speed rail and can climb grades that are 6 times steeper, reducing the disturbance at crossings. Portals will be purposely integrated into and support existing communities and landscapes. Low noise levels will expand opportunities to build hyperloops closer to the city center.
Hyperloop also holds enormous promise for rural communities. Virgin Hyperloop systems can be built below or above ground, which means no one’s farm needs to be cut in half. Our system enables rural areas to retain residents, who can now have more access to urban job centers, educational opportunities, and health care facilities. Additionally, hyperloop could enable freight distribution centers to be placed in rural areas, leading to job growth and industrial clusters. After a system is built, there is the opportunity to add additional on and off-ramps, supporting a greater number of people along the route.
Transportation infrastructure has traditionally relied on extensive government funding. This is because the benefits of clean, safe, and efficient transportation are enjoyed by the entire community, not just the user buying a ticket. However, most existing mass transportation modes are unprofitable and hindered by existing infrastructure built in the past century or by legacy systems. We want to change that and are focused on public-private partnerships. By developing a new mode of transportation from scratch, we're able to leverage technological developments that have occurred in the last century, especially the IT revolution. We're able to keep maintenance costs low, energy efficiency high, and transport tens of thousands of passengers per hour. This keeps margins and accessibility high, contributing to more financially attractive returns than if the corridor was served by existing modes. These benefits aren’t just hypothetical. While this is an exceptional case due to high demand, a third-party evaluation found that our Mumbai-Pune Hyperloop Project could be funded 100% by private capital. In the U.S. we see enormous potential to attract investment from the private sector, leveraging public investments. Involving government stakeholders as well as potential private investors early in the project development process is critical.
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