Will winter chill the boom?

By Peter Bradley, Editor in Chief -- Logistics Management, 10/1/2000

In Great Britain last month, retail store shelves were nearly emptied, not because of a shortage of goods, but because of a transportation crisis generated by high fuel prices. The crisis developed when truckers and others stopped driving and instead began blockading oil refineries. The protesters, hard hit by high fuel costs, were calling on the British government to reduce fuel taxes.

The protests had begun in France, where the government gave in to demands for fuel subsidies, and soon spread across Western Europe. Although truckers are crucial to the operation of the entire Western European economy, carrying the vast majority of goods moved on the continent, individual carriers in the highly fragmented industry frequently lack the leverage with customers needed to pass on rising fuel costs. As a result, the truckers turned, angrily, to the government for relief. The protests in England had far-reaching consequences for the economy, costing it about $350 million a day, according to news reports. That's about 10 percent of the nation's gross domestic product.

The fuel tax burden in Europe is far higher than it is in the United States. In Great Britain, for instance, taxes account for about 77 percent of the retail price of fuel. In the United States, it's closer to 24 percent. So the taxes make a far more inviting target there than they do here.

But now we face the long winter, and with it the potential for a serious runup in fuel prices and the chance for real harm to the economy. Crude-oil prices last month reached a 10-year high even after OPEC agreed to increase production. Analysts seemed to think that the few hundred thousand barrels a day that OPEC nations would add to the world's total output-about 76 million barrels a day would provide little relief. The federal Energy Information Agency predicts volatile prices through the winter, with the potential for price spikes like those that sent retail diesel prices soaring last winter, especially if the winter is a cold one.

We've already seen increases in freight rates that in part reflect concern about increasing fuel costs. Further adjustments to fuel surcharges, where they exist, could increase logistics costs more. Rising fuel prices will almost certainly do great harm to many owner/operators who lack the leverage to pass on rising costs.

The economy got through last winter relatively unscathed. But inflationary pressure caused by rising energy prices again this winter will hurt some sectors of the economy.

There is little shippers can do to resolve a problem created by global economic forces. But it will make sense to keep a close eye on the mercury over the next four months. As it drops, freight transportation challenges are sure to rise.