SCDigest: Is it Deja Vu for Oil All Over Again?
Through a special arrangement, presented here for discussion
is a summary of a current article from Supply Chain Digest.
started to become a concern in 2005 and 2006 when they rose from roughly the
$40-50 per barrel range into the $70s. This caused much angst, accelerated
the nearly decade long rise in U.S. logistics costs as a percent of GDP, and
had many companies here and around the world complaining about the growing
costs of transportation and input costs.
Then, in 2007, Goldman Sachs analysts
said we were heading for $100 per barrel oil. At the time, it seemed as if
the sky was falling. Many thought the global economy would come to crashing
halt, there would be blood on the streets, etc.
We got close to $100 for several
months at the end 2007, finally moving above $100 early in 2008, after which
the price kept rising to the July peak. There were new predictions for $200
per barrel oil. During those times, anything — some pipeline had to be shut
off in Nigeria for a few days — seemed to send prices strongly upward. Many
were blaming “speculators” bidding on
oil futures from the pits at the mercantile exchanges for the price surge.
starting in August, we saw oil prices rapidly falling under its own weight
and the recession that was already in full swing (even if we didn’t know it),
then collapsing with the financial crisis to under $40 per barrel in March
So here were are in 2011, and we are back to $100. It’s news, but not
the same level of news as it was just a few years ago. Why is that? Is it because
we have been there and found it really wasn’t quite as big a disaster as we
thought it would be? Or that $100 just seems not all that high when we know
we can get to $147?
So, my quick summary: I think we are going higher and could
easily see $120 oil before long. Logistics managers really need to be looking
at their budgets and discussing the potential scenarios with executives. Relook
at strategies and policies on fuel surcharges. I am not an expert on hedging,
and it could be dangerous at these levels if prices drop back down, but I would
at least consider the cost/benefits.
We will hear more and more companies in
2011 citing rising oil prices as pressuring profits, as Nike recently has.
Logistics costs and pressures once again move to center stage — both good
and bad for those of us in the business. “Green
supply chain strategies” get re-invigorated not for green reasons but
due to these cost pressure.
And maybe rising prices push us to trucks and then
cars that are powered by natural gas — abundant in the U.S., clean, and cheap
— to largely get us out of this mess.
Discussion Questions: Why do we seem to have less concern now over $100 oil than we did a few years ago? What lessons did the oil spikes of 2008 provide?