What inflation means for transport sector employees?

What inflation means for transport sector employees?

“Rising consumer prices” has been a widespread phrase in headlines across Europe for the last several months, and with good reason: inflation rates have historically never been this high, having reached 8,6% in the EU and 21% in Lithuania alone.1,2 But inflation doesn’t mean only higher prices - it often signals upcoming recession, increase in unemployment rate, decreased saving value and harsher living conditions. Crucially, inflation also affects the most desired workforce - transport sector employees. Given that in times of recession the transport industry often suffers first, the work for drivers in the current economic conditions will often become much harder. 

Inflation isn’t just a price increase

Inflation is in essence a decrease in the value of money, with its most direct consequence being an increase in costs and prices at all levels. Because of this, the purchasing power of an individual decreases - you can buy less with the same amount of money than before. Currently, inflation rates are at 21% in Lithuania, mostly driven by big increases in food, water, gas, and electricity prices: that means people are able to afford less goods as the value of money keeps dropping.3 It’s important to know that during inflation countries often increase their interest rates, making investing harder while also decreasing the value of savings in long-term. Crucially, inflation affects literally everyone - even those whose work is the most desired in the market. Simultaneously, it’s important to note that companies also face increasing prices - when production costs increase it becomes hard to keep a profitable business. With current fuel prices increasing by 40% throughout the year, sustaining a business becomes even harder, and the risk of bankruptcy increases.4,5

Wage increases are not the solution

While fighting inflation, central banks usually raise interest rates to decrease the demand for money borrowed from banks. Recently, the European Central Bank increased its rates by 0.5% for the first time in 11 years.6,7However, such measures don’t always work - a 0,5% increase is very small, and it will take time to take effect. Simultaneously, interest rate increases negatively affect investments, hence slowing down the economy. Many people think that increasing wages helps to fight inflation, but that isn’t easy since during inflation production costs are much higher. Increases in operational costs make it impossible for companies to raise wages without borrowing money or shutting down - the wage increases themselves contribute to higher costs. Some companies might try to increase their service prices, but in that way they lose clients. Therefore, inflation eventually leads to recession.

It's important to understand that during the pandemic many companies tried to raise their employees’ wages disproportionately – some did so in order to attract more workers while others were taking advantage of the improved economic situation. However now, when countries are experiencing skyrocketing inflation rates and an upcoming recession, wage increases not only risk making the status quo worse but also add to the huge production costs. Therefore, increasing these wages once more is barely possible for most of the companies.

From inflation to recession

Inflation often leads to recession during which the transport sector suffers first. For transport companies, skyrocketing fuel prices contribute to the increased production costs. Some try to serve less clients, others work at a lower capacity. In such cases, to reduce production costs some companies lay off workers. If inflation remains high, many businesses might have to close down by 2023 - in that case, many drivers would lose their jobs. To make matters worse, the trucking sector will end up taking the brunt of the damage from the recession, as it’s still in the middle of recovering from the damage caused by COVID-19 limitations and by sky-high oil prices.8 But rising electricity and gas costs are affecting the transport sector, too. High prices of energy affect factories and when the production process of goods is negatively affected a chain reaction starts – industrial activity halts, haulers no longer have products to transport, they start losing clients, some companies must close and this eventually touches upon other sectors as well. Such problems very often lead to bankruptcies, therefore employees risk losing their jobs. Thus, jobs for long-haul drivers aren’t secured - the upcoming recession is increasing the risk of layoffs. And while road transport will always be a key sector, drops in demand for long-haul transport will weaken the position of truck drivers, as demand for their labor also decreases. So, in order to prepare for a recession, hold on tight to your job because finding a new one during an economic crisis won’t be easy.
 

 Infliacijos poveikis tolimųjų reisų vairuotojams

Sources:
1)https://www.statista.com/statistics/225698/monthly-inflation-rate-in-eu-countries/
2)https://www.lrt.lt/naujienos/verslas/4/1747769/liepa-20-8-proc-siekianti-isankstine-metine-infliacija
3)https://www.euronews.com/next/2022/07/29/record-inflation-which-country-in-europe-has-been-worst-hit-and-how-do-they-compare
4)https://www.business-standard.com/article/international/eu-states-using-strategies-to-confront-price-hike-at-gasoline-pump-report-122062200119_1.html
5)https://www.bbc.com/news/business-62090621
6)https://www.romania-insider.com/popa-bnr-more-rate-hikes-jul-2022
7)https://www.msn.com/en-us/money/markets/european-central-bank-takes-big-step-to-address-rising-inflation-fears/ar-AAZP36N
8)https://www.ti-insight.com/briefs/european-road-freight-market-projected-to-grow-by-4-9-in-2022/

Keywords: work for drivers, work for long-haul drivers, inflation, recession, inflation effects on transport sector