Almost six years ago the American Recovery and Reinvestment Act (ARRA) was signed into law. Approximately a year later signs were placed on the highway between my home and work that said “This construction is funded by the ARRA.” The traffic on my commute is horrible, so I was optimistic about what was going to occur. Would they add another lane on the entire stretch of my commute? Would they create an extra lane prior to exits to remove congestion from traffic exiting and entering the highway? For some unknown reason it just occurred to me – those signs are gone, and nothing ever changed. What happened? What was done? Was anything done? If so, what?
And now on to this week’s logistics news.
- Oil Rout Puts $24 Billion of Truck Fuel Savings in Play
- How Cheaper Oil Affects U.S. Factories
- Descartes Acquires e-customs
- Cass Freight Index Rises in November
- From the “Self-Serving Research” File
A Bloomberg article references an ATA calculation that a decrease of 1 cent in fuel price amounts to industrywide annual fuel savings of $350 million. According to this calculation, the recent 70 cent drop in fuel price would amount to $24.5 billion in savings next year. This immediately reminded me of the business strategy concept of potential industry earnings (PIE). Who will capture these savings? According to the article, about 85% of the savings is captured by shippers through lower fuel surcharges. And trucking companies see these lower fuel charges as an opening to raise freight rates to capture some of the total reduction in shipping prices. Of course, competitive pressures will determine to a large degree who in the value chain will obtain the benefits. The article notes that decreases in fuel prices normally occur at times of low economic growth and demand for resources. However, today strong economic growth is increasing demand for cargo space. Meanwhile, the market for drivers is also tight, raising the possibility that drivers may be able to capture additional benefit in the form of compensation and benefits. It will be interesting to see how this plays out.
The Wall Street Journal also ran an article on the costs and benefits of cheaper oil prices. The article is focused on manufacturing and production, but is still of relevance to the logistics industry. For example, suppliers to oil exploration and production companies are likely to see decreases in business due to reductions in new projects. The article references companies such as GE for its oil and gas business, Dover’s heavy equipment and pump sales, and Rockwell Automation’s sales to the oil and gas industry. However, those companies that consume oil are likely to benefit from the price decrease. Examples include chemical companies that use oil as feedstock and manufacturers that use oil to power their factories. Finally, the reduction in oil prices translates to a reduction in gas prices that effectively serves as a break on consumers that spurs additional discretionary spending. In all, it is a net benefit to economic activity.
Descartes extended its presence in the global trade management arena this week with an acquisition of e-customs, Inc., a provider of electronic security and fiscal customs filing solutions in the UK. Its cloud-based solution provides both shippers and logistics service providers with customs capabilities to cost effectively comply with UK fiscal filing and security filing requirements. On the same day this week, Descartes also announced its acquisition of Pentant Limited, UK-based certified Community System Provider (CSP) offering customs connectivity and import/export inventory control solutions for ocean, truck and air cargo. Pentant and e-customs were opertated independently of one another, but were under control of common investors.
Transportation Topics reported that the Cass Freight Index for November increased, continuing its positive momentum. Shipping increased 4.2 percent, year over year. However, it declined 0.2 percent sequentially. Expenditures also increased (5 percent) year over year in November, and decreased a bit sequentially. The Cass Report stated:
The November Cass Freight Index showed a drop in total freight expenditures of 0.7 percent and a corresponding decline in shipment volumes of 0.2 percent. This was not unexpected given the fact that retailers stocked up early in anticipation of problems at the West Coast ports…..Not all shippers were able to avoid deliveries to West Coast ports in November and they are experiencing three week – or longer – delays in receiving their goods.
And from the “Self-Serving Research” file…
A survey indicates that almost one in five small businesses are facing supply chain bullyings. This was a survey of the Federation of Small Businesses members in the UK. The article goes on to discuss the forms of payment bullying and includes a number of quotes from the national chairman of the federation.
Transportation Topics reported on a study that details how federal spending on transportation infrastructure boosts the economy by creating jobs beyond the construction sector. Did I mention that the study was funded by the Transportation Construction Coalition? The coalition includes the American Road and Transportation Builders Association, Associated General Contractors of America and several labor unions, according to the article. The article also transparently states that the coalition study and others recently released are designed to build the case that Congress should pass a long-term transportation funding bill next year. Now I remember, reading this article reminded me of the ARRA project conducted on the route I take to work each day (see intro paragraph).
Have a great weekend!
This week’s video, Conjunction Junction by Schoolhouse Rock. Remember it? “Conjunction junction, what’s your function? And, but, and or…”