• Dollars and freight

    We've been hearing a lot about the weakening value of the U.S. dollar recently. This is an important issue for trucking because it plays a role in determining what the balance between domestic and imported products will be over the short term as well as the long term. This, in turn, will affect freight levels. The U.S. dollar is the preferred currency for nearly all international trade, either directly
    July 1, 2003
    3 min read

    We've been hearing a lot about the weakening value of the U.S. dollar recently. This is an important issue for trucking because it plays a role in determining what the balance between domestic and imported products will be — over the short term as well as the long term. This, in turn, will affect freight levels.

    The U.S. dollar is the preferred currency for nearly all international trade, either directly of indirectly. As the Euro gains greater acceptance, however, the U.S. dollar will not be as dominant in the world market.

    In theory, devaluation of the dollar should increase the demand for U.S. goods both at home and abroad. When the value of the dollar decreases, imported goods become more expensive for U.S. consumers, and goods produced here become less expensive for consumers abroad. Consequently, the competitive position of products manufactured in the U.S. should improve here and overseas.

    Since imports account for about 25% of consumer demand, the 10% decline in the value of the dollar means that this demand would probably decrease by 2.5% — assuming prices stay the same.

    Under these conditions, what kind of increase in domestic market share can trucking expect? The answer is “not much.”

    The competitive advantage enjoyed by many of the Asian goods shipped to our market isn't likely to change as a result of the slight price increase a devalued dollar would create. These products are typically very labor intensive, so the significantly higher wages paid to U.S. workers compared to those in Asia prevent us from competing in this market.

    Products imported from the European Union, however, are often more sensitive to price changes, so we might see some portion of demand by U.S. consumers switch to products made here at home.

    For bulk commodity products such as grain, for example, we would normally expect a sharp increase in trade volume as the price of U.S. agricultural products becomes much more competitive.

    But since some countries will not buy genetically altered food products, the potential positive impact of a weaker dollar will be mitigated somewhat. Germany and France are the two most significant roadblocks to freer trade in genetically modified food products, although their motivation is primarily for political, not health, reasons.

    In spite of this, however, there have been some signs of substantial improvement in the international demand for U.S. agricultural products recently, especially from African countries.

    Although trucks haul a relatively small percentage of the grain itself, they are responsible for moving most of the commodities associated with supporting local farming communities around the country. That is the single biggest upside for this year and next when we talk about how a weakening dollar could increase freight traffic.

    Another area of concern is that of weakening domestic inflow of capital from other countries. As a result, interest rates are likely to go higher, which will in turn lead to a decrease in capital investments — especially in light of the deficits that are expected. We need the higher interest rates in order to attract the foreign capital we have come to rely on.

    In summary, it's not really clear what degree of benefit — if any — trucking will reap from a devalued U.S. dollar. The one thing we can feel somewhat certain about, however, is that the biggest impact will be in the farm belt, where freight traffic will pick up for both consumer and agricultural products.

    About the Author

    MARTIN LABBE

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