03/04/2022
While we all know that large-scale wars cannot bring anything good to the table for economies around the world, the current situation is somewhat special. Russia’s invasion of Ukraine could cause a serious ripple effect on supply chains and trucking in general.
Since the vast majority of Europe depends on Russia for oil supplies, decision-makers in Europe and their western allies have a challenging task of imposing sanctions on Russia without causing serious shortages in their own countries. Russia could easily retaliate and cut oil exports to both Europe and North America, which will then consequently cause a jump in oil prices. In fact, crude oil futures have already jumped to over $100 a barrel for the first time in 8 years.
Consequences and Inflation
In order to keep things simple, we will only scratch the surface of some issues that are likely going to worsen as the war progresses.
Firstly, Ukrainian ports and airspace are closed. Consequently, wheat and aluminum (major UA exports) have already jumped to their highest levels since 2008. This is rather alarming for the whole Eurozone, but what does this have to do with trucking in the US? Well, we can expect inflation to continue to weaken real wages for workers. In simpler terms, the CPI (Consumer Price Index) has already jumped over 7.5% which consequently leads to higher prices weakening the buying power of the average consumer, including truckers.
Supply Chain Issues
Now, while Russia has already been cut out of many international supply chains back in 2014 (due to the Crimean incident), the destruction happening around the Odessa port (which is temporarily closed) is definitely one of the reasons why this could hinder the US trucking industry.
Because Ukraine is one of the major producers of neon gases, the Odessa shutdown threatens to bring future chip production to a halt.
Because of these unfortunate circumstances and the lack of semiconductors, it is predicted that many trucking companies will turn to alternatives like zero-emissions powertrains and electric vehicles. This is, of course, a long-term goal and it’s not going to happen right away, but it will most likely be sped up due to current (and future) geopolitical clashes.
Gas Prices Likely to Soar
Naturally, one of the biggest impacts on the trucking industry is the inevitable increase in gas prices, particularly LNG. Russia is the #2 producer of fossil fuels in the world, and due to the current EU-imposed sanctions, prices have already soared up to 50% on Asian markets. The combination of crude oil and LNG prices soaring is going to significantly increase the expenses of any fleet, regardless of its size.
However, since LNG is not really widely used by Class 8 trucks, it’s the diesel prices that are going to have the biggest impact on the industry. Unfortunately, since everything is somewhat correlated in the macroeconomic sense, diesel prices are also expected to rise.
What Does This Mean for the Trucking Industry?
In conclusion, the trucking industry (at least in the US) is going to remain the same with a few cardinal changes down the road. As of now, it’s still functioning as expected, and while we can speculate about the future, we cannot predict it.
The important thing is to avoid widespread panic, unnecessary fuel hoarding and believing every doomsday scenario that shows up on the internet. The industry is going through some challenges, but it will definitely survive the current political situation as it survived all the previous ones.
