Trucking slowdown will quickly cause supply shortages

But higher fuel costs will be likely be absorbed by smaller companies, say industry watchers  Economic News  Forum Is Canada's economy red-hot or not?

TORONTO (CP) -- Truckers blocking highways and causing shipping delays to protest high diesel fuel costs will quickly cause supply shortages that could raise prices of all types of goods, industry watchers said Tuesday. But tough competition will pressure many to absorb extra fuel costs without passing them onto consumers, triggering tough times and layoffs for smaller truckers, shippers and producers along the supply chain.

To keep warehouse costs down, most manufacturers try to control inventories by relying on just-in-time-delivery -- having parts shipped as they're needed on the assembly line. While more efficient, just-in-time operations also rely heavily on truckers for supplies, and any holdup will cause shortages, said Jayson Meyers, chief economist of the Alliance of Manufacturers and Exporters Canada.

The initial impact on manufacturers who can't deliver their products on time will be lost business, lost customers and potential penalties, said Meyers.

But if fuel costs remain at current high levels, they will likely come out of already-thin profit margins of many Canadian companies.

"The real issue is who's going to absorb these costs," Meyers said in an interview from Ottawa. Because many companies already compete heavily on a North American and even global scale, it's not possible to raise the prices of consumer goods and still remain competitive.

"The situation is that it is going to be very difficult to pass these costs on," Myers said.

Truckers at the Nova Scotia-New Brunswick border defied a court injunction Tuesday by sticking by their TransCanada Highway blockade that refused to allow any trucks past.

By early evening, the protest had diminished to 220 rigs, roughly half its original size.

Other truckers staged protests in Newfoundland, Quebec and around Ontario over the fact that diesel prices -- which have risen 150 per cent in Eastern and Atlantic Canada over the last year -- have made it impossible to make a decent living.

All fuel prices have risen sharply as the global price of crude oil remains within the $30 US range. But diesel, which comes from the same product as home heating oil, has spiked higher due to steep demand and short supply world-wide, said Bill Simpkins of the Canadian Association of Petroleum Producers.

A particularly cold winter on the U.S. eastern seaboard has drawn heavily on supply. And this has crept into the eastern parts of Canada as well.

In the U.S., where truckers are also staging protests, the spiraling costs are perhaps most apparent in the Northeast states. In New York and the District of Columbia, for example, diesel costs have hit $2 US a gallon, the American Automobile Association said. Last year, the U.S.-wide average for diesel was $1.07 US a gallon.

With some large trucks averaging just 2.4 kilometres per litre and fuel tanks that hold as much as 550 litres, truckers on both sides of the border say their costs are astronomical.

The situation is significantly different in Western Canada and western parts of Ontario where homes are generally heated by natural gas rather than oil. This has kept diesel prices significantly lower -- a reason why most of the trucking protests are east of Manitoba.

The good news in all of this, according to the petroleum industry, is that respite in the form of warmer temperatures is just around the corner.

"We suspect that this is a short-term spike, as temperatures warm up -- because of the spring there will be less demand," said Simpkins. "And the supply issue should even itself out."

Joanne Moreau, an economist with Statistics Canada, said "It's really hard for us to measure what the impact is going to be" on the Canadian economy and inflation from higher fuel costs.

She said it's difficult to determine how much consumers will end up paying as extra costs will likely be swallowed by the various companies through the supply chain.

"There's always the competitiveness of each industry that comes into play there," she said. "If you're part of a very competitive industry, they may not pass on the increases."

"There's a chain effect there and it all depends how much every player is absorbing that cost increase."

Christian Lemire, president of the Purchasing Management Association of Canada, said the trucking protests will be felt immediately on his 7,200 members across the country.

"The slow-down we are seeing today will have an impact first on the level of productivity, as well as costs and maybe some shortages," Lemire said from St. Hyacinthe, Que.

Lemire said transportation costs, in general, amount for about 20 per cent of the price of any given goods. As trucking costs rise, that will inevitably push up the costs of everything -- fueling inflation, he said.

"If the trucking industry is paying double for fuel, the end result is the majority of Canadian customers will have to pay for that."

Link http://www.canoe.ca/MoneyEconomic/eco_feb22_truckers_CP.html

-- Carl Jenkins (Somewherepress@aol.com), February 23, 2000

Answers

Our moron governments in action. As long as we depend on diesel fuel powered trucks to deliver product to their destinations then the gubmint has a vested interest in maintaining or subsidizing the cost of fuel at a certain price level. There is NO substitute for trucks. But diesel fuel is a way to derive vast amounts of revenue (far more than they put into the roads) therefore we have the current situation which of course punishes the people.

If trucks average 5 mpg and research found a way to eke out another 1 mpg that's a savings of 20% But I think a lot more money is spent on researching toys.

-- Guy Daley (guydaley@bwn.net), February 23, 2000.

You can rest assured that the large truck tractor manufacturers spend vast amounts of money in R&D, searching for reliable ways to eek additional efficiencies from their units.

One recent improvement has been the electronically-controlled fuel injection pumps in large over-the-road tractors. Until recently, those pumps (which deliver the fuel at over 1000 psi to the fuel injectors) were strictly mechanical. That made varying fuel delivery timing limited to a mechanical device; the electronic systems have proven far better at tailoring fuel timing and quantity delivery to the cylinders. Which is one reason why the over-the-road trucks you've been seeing for awhile don't smoke anywhere near as much as older ones used to. Excess smoke, especially black smoke, let alone whitish smoke, is not a sign of complete fuel combustion in a diesel.

Regarding taxes, it has long been an ongoing debate as to whether the road taxes cover the wear and tear on roadways caused by trucks. The important factors are not total weight, but psi exerted by each tire and the spread (distance) between axles. Ever stand by a roadside and watch a heavy vehicle go by, slowly? The road compresses slightly and then slowly returns to shape.

The article itself points to reasons why I've been watching that Canadian situation with much interest. If this situation continues to develop apace, we are looking at consumer price inflation as well as supply disruptions. As in JIT systems stressed like those (inventory control) systems may not have been designed to compensate for.

As to why the protests have been predominately in Eastern Canada, I suspect the reasons have much more to do with population density and with the fact that Western Canada has its own production and refinery facilities. If Western Canadian crude or refined product has to be shipped to the East, that's another cost to pass along. And another vulnerability to pipeline problems to be considered.

-- redeye in ohio (not@work.com), February 23, 2000.