Sequestration—the series of mandatory cuts across nearly the entire federal budget—are set to take effect tomorrow. The $85 billion spending cuts will take $1.2 trillion off the budget from fiscal year 2013 through 2021 to reduce the nation’s deficit. With those cuts looming, however, I’ve been thinking about their possible impact on supply chains.
For instance, FAA Administrator Michael Huerta told the House Subcommittee on Aviation his agency cannot avoid furloughing its employees under its $600 million in automatic spending cuts scheduled to take effect, according to an article in Aviation Today. Huerta said the cuts will likely result in delays and cancellations at the nation’s busiest airports.
Flights to major cities like New York, Chicago, and San Francisco could experience delays of up to 90 minutes during peak hours because there will be fewer controllers on staff, Huerta says. FAA also expects that, as airlines estimate the potential impacts of these furloughs, they will change their schedules and cancel flights, he says.
Air traffic isn’t all that will be effected. Operations at the ports of Los Angeles and Long Beach may slow as well because having fewer U.S. customs officers on-hand would delay the flow of international cargo through the sea ports, port officials said in an article that ran in the Los Angeles Times. Indeed, officials of the two ports, which handle 40 percent of cargo that enters the U.S., warn that sequestration would deal a blow to the Southern California economy overall as goods headed to market are delayed.
How significant the possible disruption would be remains to be seen as it’s unclear how automatic budget cuts would be implemented by the U.S. Coast Guard, which provides security and inspects cargo vessels at the ports, the article explains. Nevertheless, port officials say they worry that cargo delays would add a few days of total travel time if federal agencies are forced to furlough workers.
“We’re very, very concerned,” said Art Wong, a spokesman for the Port of Long Beach, in the LA Times Article.
During the House Coast Guard and Maritime Transportation Subcommittee hearing this week, U.S. Coast Guard Deputy Commandant for Operations, Vice Admiral Peter Neffenger said that the loss of operating hours for the Coast Guard’s fleets of cutter and aircraft will be likely 25 percent, and will create a ripple effect on operations, reports an article on MarineLink. That’s because cuts in the discretionary budget and drop in operating hours could force the Coast Guard to furlough civilian employees and contractors, which could mean fewer marine safety inspections for vessels that call at the Ports of Oakland or Stockton, or delay the issuance or renewal of mariner licenses or security credentials for seafarers and dock workers at California ports. It would also mean there are fewer Coast Guard vessels and aircraft available to conduct patrols to prevent narcotic smuggling or human trafficking.
Perhaps more significantly, the National Association of Manufacturers (NAM) notes that deep cuts in defense expenditures will impair national security, cripple a vital part of the manufacturing sector, and have far-reaching negative effects on a broad spectrum of the U.S. economy. Indeed, the cuts in defense procurement will have a massive ripple effect throughout the manufacturing economy, affecting large defense contractors, tens of thousands of small and medium-sized manufacturers in the defense supply chains, and more than one million workers throughout the U.S., according to NAM.
“We have been very concerned about sequestration,” says Dorothy Coleman, vice president of tax and domestic economic policy for NAM, in an article running onThomasNet. “This has already begun to have a negative impact on the whole defense supply chain. A lot of small manufacturers are part of the defense supply chain. They aren’t sure how these cuts will play out for their business.”
That level of uncertainty could create additional problems throughout supply chains. Unsure of whether they will lose major accounts or see orders shrink, manufacturers may be unable to make their own capital investment and hiring plans. That itself would create additional ripples felt on through the supply chain.
What effects do you think sequestration may have on your supply chain?