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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.

Is Transportation Feeling Sequestration’s Effects?

The Atlanta Fed’s Trade and Transportation Advisory Council recently convened at the Jacksonville Branch to discuss current economic conditions in the transportation sector. The conversation focused on various topics related to the movement of goods as well as on how fiscal tightening will impact the nation’s ports and airports.

A poll of the council members revealed that demand was slightly higher in the first quarter of 2013 for the majority of firms than it was for the same period in 2012. Most council members indicated that they are implementing price or rate increases whenever possible: trucking companies are able to assess fuel surcharges along with some nonfuel price increases as wage pressures mount for qualified and available truck drivers. Railroads continue to enjoy increases in intermodal volume as higher fuel prices drive some cargo from truck to rail. In ocean shipping, fuel costs are a percentage of the direct cost per load and thus have a material effect on the bottom line.

First-quarter 2013 employment levels were higher for a third of the council members than year-earlier levels, and half of the council members expect somewhat higher workforce levels over the next three to six months. The proportion of part-time/temporary workers has remained virtually unchanged. The majority of the council members are planning to increase the pace of capital spending; funding for capital expenditures comes from a variety of sources. Ports in particular are seeking more money from public-private partnerships.

The outlook for short-term growth by council members is less positive than it was the last time the Atlanta Fed conducted the poll, in October 2012. At that time, half expected higher growth for the next three to six months. Currently, just over one-third anticipate higher growth in the near term. However, looking out two to three years, nearly 90 percent are forecasting higher growth.

During the meeting, the council members were queried about the effects of sequestration on their industries, particularly as it relates to the furloughing of U.S. Customs and Border Protection (CBP) personnel. Members indicated that the expectation of air cargo and maritime shipping industries at the outset of sequestration was that the budget cuts would affect the ability of ports and airports to clear goods in a timely manner, which would impact perishables and just-in-time shipments. Sequestration originally called for customs agents’ overtime to be cut at ports all over the country, and in March, approximately 60,000 CBP agents received furlough notices.

Recently, there have been reports of delays impacting perishable imports at airports in the Sixth Federal Reserve District. The Miami Herald reported that imports of perishables such as flowers, fruits, vegetables, and fish are being threatened by slow cargo inspections resulting from cuts in overtime pay for customs officers. And as the flower industry gears up for one of its busiest days of the year—Mother’s Day—the potential for delays is concerning. About 90 percent of all flowers the United States imports arrive at Miami International Airport, where customs officers who specialize in perishable goods inspect them. Delayed inspections can result in the stems going bad or arriving too late to be transported across the country in refrigerated trucks. The millions of stems that come through Miami for Mother’s Day could be affected.

According to an April 3 American Shipper article, the CBP announced it was postponing plans to furlough employees after an enactment of a six-month budget for the remainder of fiscal year 2013. This appropriation gives the U.S. Department of Homeland Security more flexibility in implementing budget reductions by taking money out of other programs so as not to impact front-line personnel. This measure would provide some breathing room at ports and airports. In addition, alternative measures have been put in place, such as cross-training of inspectors and relying on private sector entities to fill in the gaps.

In addition to perishable imports, interruptions in passenger processing at airports are a concern—though these types of delays were problematic before sequestration. There have also been some reports of delays in the screening of passenger cruise ships. 

Despite these scattered reports of problems, however, the consensus of the Atlanta Fed Trade and Transportation Advisory Council members was that it is still early, and the long-term effects from fiscal tightening on cargo and travelers cannot yet be fully determined.

A look at the effects of sequestration on import volumes as cuts begin to take effect will be the subject of a future blog. As always, we welcome your comments.

By Sarah Arteaga, director of the Regional Economic Information Network for the Atlanta Fed’s Jacksonville Branch