The War in Iraq: Effects on Freight
Since the start of the Iraq war in 2003 until its end in 2011, it tallied up over $1 trillion to the U.S. debt and cost over $1.06 trillion. The Iraq war was the U.S. response to the 9/11 terrorist attacks by al-Qaida and part of the War on Terror. This war also added $1 trillion to the U.S., which increased the base budgets for the Department of Defense (DoD) and the Veterans Administration.
The DoD saw a expanded the by $193 billion, and the VS by $47.7 billion. In addition to the debt amount, $819.7 billion in Overseas Contingency Operations was dedicated just to the Iraq War.
The following are costs taken from the 2014 Congressional Budget Services Report:
FY 2003- $90.3 billion
FY 2004- $90.0 billion
FY 2005 – $105.8 billion
FY 2006 – $108.3 billion
FY 2007 – $155.9 billion
FY 2008 – $196.8 billion
FY 2009 – $132.9 billion
FY 2010 – $83.4 billion
FY 2011 – $50.9 billion
2012-2014 – $7.8 billion
2015–2016 – $38.7 billion
While many Americans did not feel the cost of this war, future generations will continue to pay to the debt. One researcher, Ryan Edwards, “estimated that the United States incurred an extra $453 billion in interest on the debt to pay for the wars in the Middle East. Over the next 40 years, these costs will add $7.9 trillion to the debt.”
Between 2010 and 2011 we experienced a 24 percent jump in gas prices due to lower oil production. These climbing oil prices were reflecting the price of war. Oil prices are one thing that Americans continue to pay for. Following the recent drone attack on a processing facility and oil field in Saudi Arabia, oil prices rose 20%! One industry taking a big hit from this is transportation. This attack caused a 5% cut on of the global supply sending Brent crude rising to the most it has been since trading opened in 1988.
The future of the transportation industry
In fact 2019 has been the worst year for the trucking industry. During 2017 and 2018 the industry was booming and many companies were able to expand their operations. Thus far in 2019, over 600 trucking companies have failed.
For the most part, getting into the trucking industry is quite easy. All you need is a CDL, a truck, and a company to work for. Most of the time, drivers venture off after a few years to start their own small trucking companies. In fact, smaller fleets are trending upward while larger fleets for 100+ trucks are decreasing.
Venturing out into their own companies is very easy for some drivers due to the relationships they have made with shippers. Small carriers also often have lower overhead costs and have the ability to drop their rates under larger carriers making them more appealing to shippers. There is a deflationary effect this is having an impact on spot and contract rates with the rise of small carriers.
The last freight recession was in 2016, a good majority of the contacted rates were based on 2016 activity. Meaning this kept profit margins low from 2017 and early 2018 because rates are on an annual cycle. In early 2018 many carriers began to violate their contracted obligations to take on higher paying spot market freight. Spot rates began to grow way above contract with the high demand. During this time, carriers were getting over double their contracted rates and the spread was ignored.
What is the future of the trucking industry in 2020? Many analysts believe that the oil demand will peak in 2020 at 100 million barrels per day. For the foreseeable future, the demand for freight transportation will continue to rise. They American Trucking Association (ATA) predicts the industry will grow nearly 30% over the next 11 years.