Escalating energy costs will add to supply chain complexity

New sources of energy might seem promising now, but may not meet anticipated demand in emerging markets, a leading energy analyst noted in a “Supply Chain Virtual Event” put on today by SCMR and sister publication, Logistics Management.

The event’s keynote speaker, Derik Andreoli, Ph.D.c, and senior analyst at Mercator International, LLC, observed that reserves don’t matter as much as production rates.

He added that the IMF forecasts emerging market growth to exceed five percent annually.

“Under the baseline GDP growth scenario, spare capacity approaches the danger zone,” he said. “But it does not reach that until 2015 under the most optimistic view.”

The model does not address the net export problem, he added. Nor does it address the net energy problem.

“It takes a lot more energy now, and lack of it may cause a decline in production,” said Andreoli. “Political risk premium isn’t priced either, in this model. The Libyan production question remains top of mind.”

Federal budgets in the energy “heartland” of the Middle East and Russia are vulnerable, and exports must remain strong, said the analyst. Spare capacity will be pinched by 2012 and 2013. Only if GDP growth slackens or if production is greater, can shippers avoid this scenario.

“Forget air cargo and LTL,” Andreoli concluded. “Try to manage at the micro level. Be prepared for rising prices.”

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