It's often been said in this space and elsewhere that the supply chain is the circulatory system of our nation's economy. The factories that take in raw materials and pump out finished goods are the heart of the operation. The networks of roads, runways, rail tracks, and ports are the veins and arteries. Trucks, planes, and trains are the red blood cells that move all the stuff through the system.
Well, the results of the blood work are in, and the prognosis is not good. The red cell count is down (motor carriers, for the purposes of this analogy).And the system is looking distinctly anemic.
What's happening to all those carriers? The story of long-time New Jersey trucking company Jevic Transportation provides some clues. Not that long ago, Jevic was held up as a shining example of a small to medium-sized operator that was not only thriving, but flourishing in a post-regulatory market. Not anymore. On May 19, with little notice to employees or customers, Jevic closed its doors.
Though Jevic's shutdown caught some off guard, the carrier had been in declining health for some time. After being sold to the Florida investment firm Sun Capital Partners for $40 million in 2006, Jevic had repeatedly failed to meet its owners' profit expectations.
Like all truckers, Jevic faced the problems of weakening demand as the economy slowed, higher insurance costs, and a tightening credit market. But in the end, it was soaring fuel prices that dealt the death blow. As hard as Jevic's managers struggled to hang on, the cost of fuel needed to keep the rigs running made it impossible for the company to turn a profit.
It's unlikely that the Jevic shutdown will turn out to be an isolated case. Truckers large and small face the daily struggle of trying to eke out even a tiny profit. Like Jevic, they've fought the good fight, investing in efficiency-enhancing technology and bending over backward to keep up with their customers' changing needs and to meet those demands. But for some, the combination of slumping volumes, the pressure to hold down rates, and, in particular, skyrocketing fuel costs will ultimately prove more than they can bear.
Unfortunately, there's no economic equivalent to a blood transfusion to fix the problem. No one expects fuel prices to drop anytime soon. Quite the opposite, in fact. In recent years, growth engines like China and India have been developing a powerful thirst for oil. Intensifying global competition for a commodity in limited supply virtually guarantees that prices will continue to rise.
We all realize that the world's supply of fossil fuels is finite and that we must wean ourselves off those fuels. But it will take time to kick the habit. The search is on for alternative sources of energy—biofuels, nuclear power, wind, the sun, and more. But the plain fact is, there's no short-term solution at hand. It could be years, perhaps even a full generation, before our economy can break its addiction to oil.
In the meantime, we cannot just stand by and watch the trucking industry collapse. We must find a way to buy the truckers some time.We need to provide some relief from spiraling fuel prices.And the only way to do that is to increase supply.
Here's where the government can help. Though it won't be a politically popular move, it must act now to remove roadblocks to domestic oil exploration and drilling. To put it bluntly, the government must listen to the demands of the free market economy.
There's no time to lose. The patient is not well. The longer its symptoms go untreated, the greater the risk of heart attack or stroke. We need a dose of federal medicine, and we need it sooner rather than later. Our nation's economic well-being is at stake.