Impact of Partial Government Shutdown on the U.S. Supply Chain

Will the U.S. Supply Chain Be Impacted by the Government Shutdown?

What is a government shutdown?

According to U.S. law, the Congress is responsible for periodically passing legislative bills to approve federal government spending.  The bills may last for a year, a few months or for a few weeks and may be designed to fund part of or the entire federal government.  The federal government relies on an agreed upon spending plan to keep functioning. 

When portions of the government do not receive funding authorization, the federal agencies are forced to suspend operations.  Federal workers are furloughed or sometimes may be required to work without being paid.  As many workers live from paycheck to paycheck, there tends to be substantial absenteeism during government shutdowns as furloughed workers are forced to take on temporary work to support their homes and families.

The entire federal government can never shut down entirely.  Because some major federal programs are deemed mandatory spending.  This includes the military (with the exception of the Coast Guard), Social Security and Medicare.  For military veterans, disability and retirement payments made by Veteran’s Affairs are not suspended by a government shutdown.  New applicants for these federal programs may be forced to wait for assistance and service during a government shutdown, however.

What federal agencies are impacted by the current partial government shutdown?
  • Commerce
  • Agriculture
  • Transportation
  • Interior
  • Justice
  • Treasury
  • State
  • Housing and Urban Development
  • Homeland Security

Current estimates identify approximately 800,000 federal workers and 500,000 contractors as being impacted by the government shutdown.  In addition, there is a domino affect in cities across America and other businesses rely on federal workers and others affiliated with federal agencies to make purchases for goods and services to fuel their economies.  Since 1976, the federal government has experienced shutdown 21 times. 

How the Partial Government Shutdown Impacts the United States Supply Chain

Here is a brief look at how some federal government agencies are affected during the current government shutdown.

Department of Commerce

Data will not be published on matters such as trade, gross domestic product, housing construction and other topics.  This data is essential in enabling businesses to properly plan for the future as well as to service existing business and make critical decisions.  Commerce Department data is also essential for investors, regulators and policy makers.

Only operations deemed essential for safety or emergency programs are currently in operation.

Department of Agriculture

Workers can continue operations at the Animal and Plant Health Inspection Service due to user fees and trust funds.  This enables continued inspection for pests in fruit, vegetables and birds which are imported or exported.  Funding and reimbursement carried over would provide the means for the Food Safety and Inspection Service to continue meat, poultry and egg product inspections as well as laboratory work focused on identifying food safety threats and emergency preparedness.

Farmers and agricultural businesses are frustrated by the lack of real time information usually provided by the USDA.  In addition to the lack of data visibility needed to plan crop plantings and other timely or seasonal functions, the lack of financial support for farmers and ranchers is having a noticeable impact on those businesses and the surrounding communities.  Farmers rely on information provided by the USDA to make planting decisions.  The USDA closure also prevents farmers from taking advantage of government programs or assistance including the Dairy Margin Protection Program, disaster relief programs, crop insurance, loans for seed and other critical resources. In addition, insurance checks that were due to be processed for farmers and producers with operations negatively impacted by the trade war have not been sent to needy businesses.

In the short term, meat, poultry and processed egg inspection services continue. Other inspections including those of grain as well as of import and export activities are in progress

Department of Transportation

Clearly the most noteworthy impact is on the Federal Aviation Administration (FAA).  From the shortage of Transportation Safety Administration (TSA) workers due to increased incidence of absence to the furlough of 4,000 FAA inspectors, airline travel for the public and businesses has become more time-consuming and cumbersome.  Long lines, concerns about safety and other challenges are making consumers and businesses nervous.

Most agencies within the DOT can continue operations using carryover funding.  Services such as air traffic control, field inspections and security operations overseen by the Federal Aviation Administration will continue to be provided.

Most of the federal agencies which work hand-in-hand with state DOTs are able to continue operations due to a different funding structure.  Agencies which work collaboratively with or which operate within the federal DOT that are open during the government shutdown include the Federal Highway Administration (FHWA), U.S. Army Corps of Engineers and National Highway Traffic Safety Administration (NHTSA).

If the shutdown of the government continues, rulemaking from the Federal Motor Carrier Administration (FMCA) involving new proposals for Hours of Service may be impacted.

Department of Homeland Security

The customs clearance for cross border freight is one of the issues involving the supply chain that seems the most likely to be affected by the partial government shutdown.  The customs clearance process relies on approval from government agencies involved with Customs and Border Protection (CBP), which currently remains unfunded.  Customs officers are considered essential operational personnel, however, agencies that partner with CBP including the U.S. Environmental Protection Agency and U.S. Department of Agriculture are largely shut down, delaying clearances.  This is likely to delay cross border freight shipments.

In addition, C-TPAT security validation visits and processing are not continuing during the government shutdown.  Deadlines are being enforced for the trade community, however CPB responses may not currently be in line with normal timelines.

Federal Maritime Commission (FMC)

Operations of the FMS are on hold due to the government shutdown.  An independent regulatory and enforcement agency, the Federal Maritime Commission helps to ensure “reliable international ocean transportation supply system that supports the U.S. economy”.  Developed to help ensure the integrity and security of the U.S. supply chain and transportation system, the FMC helps to resolve cargo disputes, investigate complaints including those of Shipping Act violations; license shipping companies; hold entities responsible for mislabeled cargo shipped from or to the U.S.

 

Risks to the Supply Chain Related to the Partial Government Shutdown

 

Food Safety due to Reduced or Suspended Food Inspections

On Tuesday, January 15th the Food and Drug Administration (FDA) resumed some food safety inspections.  Suspended since the government shuttered operations on December 22nd, food safety inspectors are working without pay.  According to FDA Chief Scott Gottlieb, 31% of the FDA’s inventory of U.S. inspections are in the high-risk category, including but not limited to domestic surveillance inspections involving seafood, bakery products filled with custard; soft and semi-soft ripened cheese and cheese products, infant formula, sandwiches, fresh and processed fruits and vegetables.

Cybersecurity Risks

The incidence of cyberattacks against government agencies and private sector companies has been alarming.  With the recent government shutdown, concerns have intensified about the potential impact that the lack of a fully functioning workforce of cybersecurity experts may have both near and long term.

Organizations encompassed within the Department of Homeland Security, including but not limited to the new Cybersecurity and Infrastructure Security Agency that was launched in November are operating with skeleton crews.  This is of major concern as malicious actors will have more opportunities to execute cyberterrorism operations and malicious infrastructure needed for future cyberattacks.

Supply Chain, Freight Transportation and Logistics Planning

The lack of accurate, timely information is chipping away at the effectiveness of planning for the future.  In today’s extraordinarily fast world, the lack of real time information means that the U.S. supply chain will be increasingly farther behind.

Various government agencies track elements that are tied into U.S. supply chain and logistics.  From statistics involving new home sales, construction spending, agricultural prices and factory orders to that of advance inventories and the advance goods deficit, industry relies on government agencies for information to plan, forecast and make decisions.  This increases the level of accuracy, precision and uncertainty.

Supply Chain Disruption

Numerous agencies are specifically involved with regulating freight movement, transportation and logistics and safety.  Here are some of the potential challenges to transportation and logistics:

 

Customs Service Slowdowns

  • Because the CBP will not be fully functional during the shutdown, Customs broker licenses, permits and filer codes will not be issued
  • Allegations of trade fraud will not be responded to or reviewed
  • Trade data requests including commercial requests for ITRAC information will not be processed for response

Slowdowns in Customs Clearance for Specific Goods

  • This includes pharmaceuticals and medical devices, food products and goods that require certification and documentation, field examinations and sample collections by agencies such as EPA, FDA and USDA

Backups and Congestion:  Land, Sea and Air

  • Delays to and unevenness in the clearance process

Conclusion

With a temporary funding solution blocked by the White House, social media has been buzzing with stories about the impact of the government shutdown on federal workers and the economy.  What does the government shutdown mean for supply chain management?  While it initially is not anticipated to have a major impact on consumers, federal government agencies such as the Department of Transportation are largely shuttered although some operations may be functioning. 

For businesses that are concerned about cybersecurity and risk management, there is reason to be concerned.  The lack of real time information and activity by federal cyber experts may have a significant impact on the U.S. economy and freight crossing North American borders.  In addition, new risks may lie dormant until federal cybersecurity workers return to work en masse to unravel work by malicious actors.

Recently during the government shutdown, the White House has acted to bring some federal workers back to work, but unpaid.  From concerns about the slowdown of ocean freight and trade to that of inventory management, the supply chain industry remains open for business but worried about the impact of a long term government shutdown.  The lack of supply chain visibility and viable statistics typically provided by government agencies is limiting the effectiveness of supply chain forecasts and planning efforts.

With the top story in every newspaper the government shutdown, Americans wait for word from President Trump on when federal workers will be able to return to work and get paid.  Until then, Americans wait.  Tick tock….tick tock….

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