Skip to main content
Publish date:

Transport Headaches Won't Drive Economy Off Cliff

Traffic snarls and checkpoints are bad news for truckers but aren't expected to drag the economy down.

The Sept. 11 attacks and subsequent delays to land and air transportation probably won't have a decisive impact on the teetering economy. But the precise effect of the snags, which pose bigger problems for some industries than others and in some cases could be short-term positives, won't be clear for months.

"It's hard to say what the ultimate impact will be," says Gerald Cohen, senior economist at Merrill Lynch. "We won't know for six to nine months." Cohen said transport delays could encourage companies to build up inventories, and lead to a ramping up of production, but that they could also hurt earnings by slowing the production process.

Following the attacks in New York and Washington, the Federal Aviation Administration banned cargo and passenger aircraft for two days, creating significant order backlog. In the mean time, security checks have created delays at the Mexican and Canadian borders and elsewhere of up to 20 hours for some trucks carrying cargo.

The direct one-time costs to the transport companies are not great. One analyst estimated that integrated carriers like


(UPS) - Get United Parcel Service, Inc. Class B Report



(FDX) - Get FedEx Corporation Report

lost $1 billion from the attacks, while another analyst put estimated losses for the entire cargo transportation industry at $5 billion to $10 billion. In a $3 trillion-a-year economy, that's peanuts.

Of course, tighter security controls and potential reductions in air transport could generate ongoing costs for the industry and its customers that are difficult to estimate. One analyst said United Parcel Service ships 13 million packages every 24 hours domestically, or about 541,000 per hour. With average revenue per package of $8, every day that UPS loses an hour, it loses $4 million in revenues. One concern is that transportation companies could pass higher costs along to customers that are already strapped for cash.

The U.S. currently spends one trillion dollars a year on transportation and logistics, of which 60% is outsourced. And some companies have already slapped on security surcharges for cargo, including




TheStreet Recommends


But these are primarily passenger airlines, which saw demand hard hit by the events of Sept. 11. Meanwhile, the cargo industry received $5 billion in subsidies from the government, which might make it harder for companies to justify higher prices.

Most susceptible to delivery delays are companies that are highly dependent on just-in-time inventories, because their products have short shelf lives. Automotive giants


(F) - Get Ford Motor Company Report


Daimler Chrysler



General Motors

(GM) - Get General Motors Company (GM) Report

, as well as high-tech chipmakers and software outlets, fall into this category. In fact, Ford, Daimler Chrysler and GM were forced to temporarily shutter some production plants during the week of Sept. 11.

"Technology companies are particularly dependent on just-in-time" inventory, said Rick Black, analyst at Blaylock & Partners. "The biotech field, they send a lot of small packages on a frequent basis. The automotive companies lobbied heavily to government to increase efficiency at the borders. All kinds of durable goods manufacturers, like companies that make washing machines -- they don't want to hold on to inventory, because these parts age very quickly. You only order what you need based on your demand."

Ultimately, these companies won't be forced to cut production unless demand falls. In fact, some might increase production or double up on orders to protect against a less-reliable delivery system. Some economists say the delivery delays could even have a positive impact in the short-term.

"Business near term may be concerned that some things they really need may be tied up in transportation hangups," said Maury Harris, chief economist at Paine Webber. "But maybe they will order more. They could double their orders, this could make their numbers stronger in the long run."