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How Will Federal Budget Cuts Impact Freight?

Sequestration

The impact of federal budget cuts, known as sequestration, is making headlines in the national press. The topic is also beginning to show up in the freight transportation trade publications. Essentially, sequestration would significantly reduce federal spending at government agencies and drastically reduce spending on defense. Some clear areas of impact to freight transportation will likely be:

  • Imports: Any furloughs or staff reductions at Customs, USDA port inspectors, and other agencies that inspect and clear cargo at sea and airports may slow down the release of goods being imported.
  • Truck Freight Crossing Borders: The same dynamic will be true for freight crossing an inland border like Laredo, or in Detroit.

The severity of the slowdowns is the wildcard. The question everyone is asking is, in a political calculation to accelerate the necessity of ending the sequestration, will the furloughs and slowdowns be designed to be as disruptive as possible OR will they be designed to have as little effect as possible?

While the impact to staffing levels at the ports has been a focus, here are some other possible impacts to the flow of freight across the country:

  • Freight Imbalances: If federal workers and contractors see reduced paychecks through furloughs, some areas of the country may see decreased consumption overall. Because of the sheer concentration of federal workers, the mid-Atlantic corridor from Washington, D.C. to Norfolk and the area around San Diego may be hit more severely than other areas. Will this create an unanticipated freight imbalance much like we see with a severe storm or hurricane? If so, chances are this would unfold slowly. Yet the speculation of the extent any furloughs would impact non-essential workers and whether pay would be reimbursed or merely delayed could create additional insecurity.  This is an interesting area, because not every impact has the potential to be negative. For example, I heard of furloughed workers in the 1995 shutdown taking short-term construction jobs. Could they even become truck drivers?
  • Regulatory Rulemaking: Many rules creating uncertainty in the industry have already been delayed. Will reduction in staffing at agencies further slow the rulemaking process for HOS, CSA Safety Fitness Determination, and those associated with the Food Safety Modernization Act?
  • Department of Defense: The significant spending slowdown at the DOD would reduce freight flows from both a decrease in the consumption of goods and a decrease in the depot-to-depot and deployment moves across the country. While many motor carriers service this part of the market on a niche basis, there are some LTL and national carriers who could see a significant part of their freight portfolio slowdown. What impact would this have on the rest of the market as this capacity searches for freight?

 

What other areas do you foresee cuts in federal spending having on the transportation market?

Comments

Hugh Sutherland

Hi Jason, Trucking companies, especially O/Os seldom realize that transport is a "derived demand" business which follows GDP trends and therefore adds to the risk of not following Macro economic indicators. Unfortunately, in down turns it necessarily means downsizing of fleets and driver retrenchment. This requires fleet owners to dispose of excess equipment at depressed market prices, in some cases negating vehicle lifetime earnings.

2.22.13

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John Fitzpatrick

Good post. I'd also add that consumer confidence will be the first thing to go if our elected leaders (again) fail to come together and problem solve. That will have an impact on the markets, consumer spending and ultimately the freight industry. Big ticket items like auto purchases and new home sales immediately will drop off, as will retail sales. With autos, raw materials and finished consumer goods taking a hit, so too will those who haul them. And the downward economic spiral will begin anew.

Is it any wonder public trust in Congress is at historic lows? It will be the worst kind of crisis...a preventable one that was of our own making, despite ample warning.

2.24.13

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Transglobal Express

Sequestration could have serious consequences for the operation of furloughs and could essentially bottle-neck the freight industry. I agree with Hugh though the responsive nature of the freight industry means that it is not surprising that employment within the industry fluctuates or could fluctuate heavily on a yearly basis.

3.13.13

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