Fuel Volatility a Given for 2014

Subscriber: Log Out

Forecasting fuel rates has never been more difficult for shippers, maintains Derik Andreoli, Ph.D.c., a senior analyst at Mercator International LLC and Logistics Management’s popular Oil & Fuel columnist. When planning for 2013 energy fluctuations, logistics managers must keep an eye on several global issues, he says.

“For example,” says Andreoli, “what’s going on in Iraq and Iran? Will shale gas drilling rates and NG production and consumption remain stable? Will drilling rates and production of shale oil increase even as oil wells disappear? These are all questions looming large for shippers this new year.”

Lacking a crystal ball, the best anyone can do is evaluate the fundamentals of global supply and global demand, notes Andreoli. If demand grows faster than production capacity, surplus production capacity – the world’s buffer against actual supply shortfalls – will be diminished, and prices will rise. Conversely, if production capacity grows faster than demand, we should expect some easing in price volatility, though not necessarily price levels.

“Over the last two years, surplus oil production capacity has declined from nearly 5.5% of world consumption to a hair over 2%,” he says. “In absolute terms, this amounts to only 2 million barrels per day. This means that a disruption in any one of the world’s major producers will have a significant impact on prices. Unless surplus capacity recovers, any escalation of political tensions in any of the world’s major oil producing regions will introduce a significant risk premium and prices will become increasingly volatile.”

Logistics managers can reduce their exposure to risk by concentrating on packaging and materials handling, he advises.

“Work with carriers to design an incentive program designed to reward carriers for increasing fuel efficiency,” says Andreoli. “How carriers pack trailers and containers is as important as how shippers pack their boxes, and shipping less air is the goal here, too. Outside of packing the trailer, carriers can gain significant fuel savings (close to 10%) from switching to single tires (as opposed the double tires which still dominate), and additional savings can be realized through the installation of aftermarket aerodynamics kits. Carriers can also save fuel by reducing idle time and slowing down. There are onboard GPS enabled technologies that can help here.”

Finally, says Andreoli, shippers should evaluate the location and size of distribution centers: “There is a trade-off between the savings that can be realized through mega DCs and the increased fuel costs that supply chains organized around them must accept,” he says.

SC
MR

Latest Podcast
Talking Supply Chain: The last-mile tech advantage
Last-mile delivery success depends on many aspects of the supply chain to work effectively together, but none is more important than the…
Listen in

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson

Patrick is a widely-published writer and editor specializing in international trade, global logistics, and supply chain management. He is based in San Francisco, where he provides a Pacific Rim perspective on industry trends and forecasts. He may be reached at his downtown office: [email protected].

View Patrick 's author profile.

Subscribe

Supply Chain Management Review delivers the best industry content.
Subscribe today and get full access to all of Supply Chain Management Review’s exclusive content, email newsletters, premium resources and in-depth, comprehensive feature articles written by the industry's top experts on the subjects that matter most to supply chain professionals.
×

Search

Search

Sourcing & Procurement

Inventory Management Risk Management Global Trade Ports & Shipping

Business Management

Supply Chain TMS WMS 3PL Government & Regulation Sustainability Finance

Software & Technology

Artificial Intelligence Automation Cloud IoT Robotics Software

The Academy

Executive Education Associations Institutions Universities & Colleges

Resources

Podcasts Webcasts Companies Visionaries White Papers Special Reports Premiums Magazine Archive

Subscribe

SCMR Magazine Newsletters Magazine Archives Customer Service

Press Releases

Press Releases Submit Press Release