As consumers as well as drivers, we have constant reminders of the current high price of gasoline and diesel throughout the world. Of late, every time we fill-up our automobile with fuel, receive a delivery of heating oil (it’s been a cold winter here in the Boston area), or purchase food items at the grocery store, they each provide us top-of-mind reminders about how dependent our economic security remains tied to the price of fuel. As a sidelight, as an industry analyst at IDC, I came to discover that the price of oil was one factor utilized to even gauge overall IT spending in the economy.Catching-up on the news this week provided a more sober reality to the global supply chain impact of increased fuel prices, and what may come with continued business and government uncertainty in certain economies.
On Monday, press and industry reports out of China indicated renewed fuel shortages of gasoline and diesel were leading to growing lines at filling stations across major cities in China. Shortages first reported in southern and inland China appeared to be spreading to the wealthier areas of the north and coastal regions, including Shanghai and Beijing. While Chinese government officials called for calm among drivers, a policy of regulated fuel pricing is obviously clashing with the realities of market supply and demand. With inflation hovering at 8.7 percent, the Chinese government is resisting pressure to pass along market-driven price hikes, and the government-owned oil companies had no choice but to cut-off supplies to independent stations, in order maintain cheaper domestic fuel supplies to support current farming and public transport needs.
In the U.S, reports of average prices of a gallon of diesel approaching $4, have motivated independent truckers in Pittsburgh and other U.S. cities toward declaring “enough”, by parking their rigs in daily protests. The American Trucking Association is projecting a 2008 industry fuel bill of $135 billion in 2008, a 20% increase from 2007. Truckers, paralleling developments in the airline industry, are indicating the need for cutting back on equipment and available capacity, in order to save on fuel costs.
And on the oceans, a report this week form the San Pedro port complex of Los Angeles-Long Beach, the gateway for 70% of entering west coast port traffic reported that import volumes have fallen 8.8% in both January and February, with three of the largest global carriers deciding to share space on the same ships, instead of operating regularly scheduled vessels for weekly services.
As these fuel trends continue, supply chain professionals can anticipate more cutbacks in available capacity, and thus flexibility or last-minute expediting of shipments may come at a very costly price. More importantly from a historic perspective is that the occurrence of groundbreaking price points relative to the overall cost of fuel leads to inflection points for supply chain strategy and decision making. I had the opportunity to view some very insightful research from highly noted Professor David Simchi-Levi of MIT that quantifies this phenomenon, and its long-term implications on supply chain strategy.
The bottom-line here is that the need for analytical based decision support tools and predictable planning in fulfilling demand and insuring supply has never been more important. We are reaching that point where the needs for trading off supplier sourcing, production, and inventory vs. transportation will be the key competency tools required in a competitive supply chain.
How many of you are utilizing these tools?