Federal government shutdown clouds supply chain outlook

With the federal government shutdown now into its third week—and no clear indication of how long it could last—its impact on supply chains appears to somewhat still be coming into focus, noted various industry observers.

That is not to say there is not concern; there is, for sure. But, to be clear, well before the shutdown commenced on October 1, there already were a fair amount of supply chain concerns on various fronts, including: freight market conditions, in the form of excess capacity coupled with low demand; a depressed rate environment; and, of course, tariffs and related trade policy continuing to make for challenging market conditions, among other concerns as well.

From a trade perspective, the impact of the shutdown on tariffs is minimal, in that tariffs continue unabated at the higher levels, stated Greg Husisian, partner and litigation attorney with Foley & Lardner LLP.

“Congress has largely abdicated its role in setting tariffs which are which are just a particular type of tax,” he explained. “It is supposed to be with them, and Congress is not pushing back on President Trump. The [White House’s] trade team is continuing to negotiate tariffs with the partners abroad, and looking to expand on the deals that they've already announced for Japan, the UK, and the EU. They are moving forward with regard to USMCA negotiations, as the deadline is November 3 for comments on USMCA negotiations. As the shutdown extends, that could potentially impact the ability of public to opine and participate on that, because even if you file something and nobody is looking at it, then it's unclear as to what's going on. But Customs is working pretty much normally. As far as I can see, goods are coming in and the ports are being cleared. CBP is proceeding with its investigations, so the business of Customs is not shut down, even though the government is shut down.”

In terms of the economic impact of the shutdown, Paul Bingham, Director, Transportation Consulting, for S&P Global Market Intelligence, said at the CSCMP EDGE conference earlier this month, when the shutdown was in its first week, that a two-week shutdown would represent around a 0.03% reduction in GDP, with the result being a net loss to the economy.

“If it extends beyond 30 days, there could be some real disruptions to certain aspects on the functioning of the government,” he said.

That was backed up by a New York Times report, which said that, based on economists’ estimates, the shutdown will take between 0.1%-to-0.2% percentage points off of annual growth in economic output, “for each week it drags on, coming in at between $7.6 billion and $15.2 billion a week, based on hours that government employees are not working,” according to Oxford Economics, the report said.

Susan Spence, Chair of the Institute for Supply Management’s Manufacturing Business Survey Committee, was direct, saying that the shutdown will place more stress on the economy, in addition to other issues, like trade and tariffs.

And she added that, typically, a shutdown would not have the impact it seems to be threatening to have now [Editor’s note: Spence was interviewed in early October, when the shutdown began], “but the whole world is upside down, with tariffs and what is going to happen next and uncertainty, coupled with manufacturing new orders not flowing, companies reluctant to hire and not spending, too.”  

Given that the potential length of the shutdown remains unknown, it makes for a bit of a balancing act, in terms of planning for the present, as well as what happens next, too. One thing, for sure, is that that longer it goes on, the bigger the negative economic impact could be. Given the current state of freight markets, which remain largely depressed, it seems like a (hopefully) quick resolution is badly needed. But, for now, we wait and see what happens from here.