Trucking slowdown will quickly cause supply shortagesgreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
JIT related shortages as a result of a fuel crisis were one of the redicted possible outcomes of y2k problems. A fuel crisis was also predicted, and that's what we've got.1973.
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."
-- Carl Jenkins (Somewherepress@aol.com), February 23, 2000