How inflation is going to affect the transportation industry?

Inflation is the new economic reality in the US and the world over! Though vehemently denied by the Federal Reserve and seemingly all economists at the end of 2021 and early beginning of this year, it is clear by now inflation is here to stay and it is hardly temporary as initially argued by the Feds. Clearly the soaring prices are going to affect all of us, but how specifically will it impact the transportation industry?

The US consumer price index (CPI) measure stirred some speculation and open debates early in 2022 when the index rose 7.9% in the 12-month span ending February 2021—marking the steepest annual increase since February 1982. Officially, attributed to the ongoing war in Ukraine and China’s continued COVID-19 lockdowns, which are affecting consumer price expectations, it was rather the loose monetary policy and frivoled money printing backing up the lockdown free checks that possibly triggered it in the first place. Regardless of its causes, it is now clear the inflationary effect is not temporary, with our nation’s inflation rate—now at a 40-year-high— and expected to remain high well into 2022 and even further still. Crucially, the restrictions in China and the conflict in Ukraine will complicate efforts to solve supply chain challenges and make likelier the prospects of continued price shocks around food and energy, directly affecting the transportation industry.

As we’ve previously written, the surge in the cost of fuel, is already directly affecting all Americans, an expected effect following the ban on Russian oil and gas imports. The diesel market in the United States in particular is in the midst of its greatest crisis since the 1970s oil shocks, with diesel supplies rapidly dwindling, as the U.S. national reserves decreased by 43%. Naturally, many truckers are concerned about their livelihoods due to rising diesel costs and the threat of fuel restrictions. Rising fuel costs are a serious challenge for businesses of all shapes and sizes, exacerbating the already rocketing inflation. High diesel prices combined with increased material and labor costs means companies across the nation, especially those in the manufacturing and logistics industry have to cope with the added costs by increasing the cost of their services, reinforcing the inflation spiral. Meanwhile the continued deficit of qualified employees and truckers impairs their ability to quickly react to the price shocks and the adjusting supply chain dynamics.

The transportation industry is by far one of the most affected industries of the economy as a result of these rocketing fuel prices. Worryingly its vital role in the US economy, means the increased costs of transportation are now spilling over into further price increases for most consumer, commodity, and industrial goods. Fuel surcharges are typically included in contracts by trucking companies to compensate for rising diesel prices, yet smaller fleets and independent owner-operators, who make up most of the highly fragmented truck sector, will find it more difficult to pass on the additional costs, as the growing operational expenses are already squeezing the operators. To make it worse, the base shipping prices on the trucking spot markets are falling due to waning freight demand, which can be a worrying sign of the looming recession if the tightening will backfire. Consequently it is imperative for transportation firms to increase their efficiency by implementing solutions that might decrease fuel consumption and optimize their operational processes. New transportation equipment with lower fuel consumption, logistical software solutions, as well as optimized freight transportation procedures, are just a few of the measures that come to mind. As is prioritizing pay and wage flexibility to ensure truckers’ commitment to the industry.  

At AGM Trucking we do our part, having implemented the measures referenced above during the last years, and continuing to analyze ways in which we can become more efficient by catering to our truckers expectations and our customers’ dry van transportation needs in the most cost and fuel effective ways.