Saturday, April 26, 2008

Updated Risks Of The Truckers' Strikes

As I have previously noted in Risks Of Truckers' Strikes, the risks of the Truckers strike are real. I confirmed this with Michael (JB) Schaffner, one of the organizers of the April 28 truckers’ march on Washington, D.C., who said there has been tremendous support and sympathy for the truckers and their plight. Since my write up on Tuesday, there was a change to the truckers’ route. This is a FYI for those who are interested in joining in or just wanting to stay out of their ways.

The independent truckers have nothing more to lose as their fuel cost continues to go up while their freight rate does not. With the cost of diesel now approaching $4.20 per gallon, nearly 130% increase from 2007, the truckers’ pain has become more acute. If the trucker’s rally on Monday April 28 is successful, which I think it will be, it will set the stage for the nationwide strikes, one planned for May 1 and a second planned for May 5. According to Michael (JB) Schaffner, the national strike on May 5 is going to be a weeklong strike. So, please plan accordingly by stocking up on essentials well before then.

Risks Of Continued Truckers’ Strike[i]
Impact to the overall U.S. economy: Nearly 100% of all durable and non-durable goods are transported at one stage or another by trucks and these two items account for 22.6% of the 2007 Gross National Income (GNI) of $12.4 trillion, or $2.8 trillion. So if the national truckers strike is successful, then each day that the truckers are on strike will result in a loss potential of $7.7 billion to the GNI.

Impact to the businesses: Trucks strike will mean that businesses dealing with perishable items will most likely will suffer significant losses as the critical parts and supplies are not delivered. They will also face tremendous loss of revenue from inability to deliver their perishable goods to the market. Cost of this is included in the impact to the overall U.S. economy.

Impact to import / exports: With devalued dollar, export is the only bright spot in the current economy. With the truckers’ strike, virtually all shipping will cease. This component makes up 12.9% of the GNI, or $1.6 trillion. Every day that the truckers strike, $4.4 billion in imports / exports of goods are affected.

Impact to Consumers: Those consumers who did not plan appropriately will have to do with staples or find alternatives. Consumers make up the bulk of the U.S. economy with 64.6% of GNI, or 8 trillion. For each day of the truckers’ strike, there will be a material impact on the consumers’ willingness to purchase goods. Even if 10% of the consumers were affected by the truckers’ strike, it means a potential loss of $2.2 billion per day.

Impact to Diesel Spot Prices: Spot prices will drop temporarily and then recover as the week wears on.

So, a daily monetary impact to the U.S. economy is approximately $14.3 billion (this is revised upward from the initial calculation of $10.7 billion due to the revised GDP figures from BEA).

I still think that the government should provide relief to the trucking industry from the Federal tax of 24.4 cents per gallon of diesel fuel. Diesel consumption in 2007 was about 46.6 billion gallons[ii]. Applying the total cost of the diesel fuel tax relief to this amount would be approximately $11.4 billion per annum, or less than one day’s worth of truckers’ strike. Hopefully, the Bush administration will take notice of the truckers’ plight and their tremendous impact on the overall U.S. economy to find a solution to the high price of diesel.

Ed Kim
[i] Data obtained from BEA U.S. GDP 4Q 2007 revised, table 9:
[ii] According to the EIA, approximately 46,645,142,880 gallons of diesel fuel (labeled as distilled fuel oil) was consumed in 2007. Relaxing the $0.244 tax on the distilled fuel oil would cost the U.S. approximately $11.4 billion

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