From The Eagle's Nest

June 2018

Tariff’ic or Not?

Unless you have been living under a rock for the last few months, you have heard about the tariff’s President Trump is imposing on foreign steel and aluminum (25% on steel and 10% on aluminum respectively). The discourse this month is not to talk about my opinion and/or if I think it’s right or wrong; there has been plenty of debate already about that. What I want to discuss and get everyone thinking about is, will this affect the trucking industry and, if so, in what way(s)?

Well, for starters, an increase in the cost of steel will inevitably get passed down to the customer, it doesn’t take a rocket scientist to figure that out. Just like you are seeing rising costs of other commodities due to ELD mandate, HOS regs and higher fuel prices. Initially, companies digest these costs in order to maintain the business and service, but they will not do that for long. Jim Foote, President and CEO of CSX confirmed in an interview with CNBC back in March. To quote, “We would absorb the initial costs, but over time that cost, like everything, gets passed on.”

So what does that mean for the carrier? Well, we have yet to see, but can use history as a lesson to speculate what “could” happen. In the past when the cost of a product has increased, companies would try to mitigate the extra cost by driving down the cost of transportation. Unfortunately, for steel companies, this is no market for cutting costs in transportation as everyone is feeling the “capacity crunch” in trucking. Alternatively, we have seen companies consolidate their operations closer to their core customers, thus maintaining fair prices while being able to service them effectively by keeping the transportation miles shorter. Customers outside of that service area will just have to pay more to get the products they need. This is a regressive measure that is not the best for the steel industry. It may work with more specialized goods, but steel is a commodity item and customers are not going to pay more for the same thing they can get from someone else at a better price; these customers would be lost to competitors. Lastly, depending on how long the tariffs last, you may see consolidation within steel production, with more larger players in the industry gobbling up the smaller guys because they can’t compete and/or small steel suppliers simply going out of business.

Finally, the cost of vehicles, including the cost of tractors and trailers, will go up. So, regardless if you see more domestic loads of steel and less container/dray loads from imports, if you are a trucking company wanting to add on new equipment…you are going to pay for it. Of course, at this point we can only theorize as to what may happen. Will it be good for the trucking industry as a whole and add more freight for flatbed and van carriers? You would think so. Will it increase domestic use of rail more so than before to help off-set the higher price of steel/aluminum? That would also make sense. Have we ever seen a tariff like this imposed in a trucking market like we see currently? That is a definite NO. Only time will tell if this will help or squeeze an already tight trucking market where alternative solutions and other options will have to be considered in order to meet consumer demands.

Joey Holder, DML, CTL

Director-Satellite Operations & Corporate Development
Eagle Transportation, LLC.

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