This Week in Logistics News (January 10 – 16)

I recently authored a Logistics Viewpoints post outlining the best supply chain conferences to attend in 2015. I do believe that conferences offer a great opportunity to collaborate, network, and learn about the specific topics and themes of interest. But have you ever been to a conference where it seemed like everyone was there just so others would know they’re still in the game?  If so, you might want to consider skipping that one next year….

And now on to this week’s news:

WTI Crude Oil

WTI Crude Oil

The ongoing precipitous decline in oil prices is arguably the most pervasive economic and geopolitical topic of the last six months. This broad-based decline in prices is shifting fortunes across countries, sectors, and industries. Manufacturers and consumers are benefiting from the lower oil prices in the form of reduced production, input costs, and gas prices. Meanwhile, crude price reductions come right off the top line of oil producers. Meanwhile, OPEC has not cut production – allowing supply levels to remain high. The IEA said that the lower prices will eventually begin to decrease supply and increase demand. But these effects are not yet seen. As Steve mentioned in his recent post, short-term price declines do not necessarily result in declines in production, as exploration companies need the revenue to pay off debt, regardless of whether or not prices are high enough to cover fixed costs or contribute to bottom-line growth.  However, new production plans will be postponed if the investment is not financially feasible. Here is a  quote from the Reuters article, quoting the IEA report:

“The most tangible price effects are on the supply front. Upstream spending plans have been the first casualty of the market’s rout. Companies have been taking an axe to their budgets, postponing or cancelling new projects, while trying to squeeze the most out of producing fields,” it said.

Speaking of oil price declines and the pressure on production margins, shale oil production costs are generally higher than those of traditional oil fields. And Steve has noted in previous posts that the US shale oil supply chain has plenty of room for efficiency improvements. Well, now there is going to be an economic initiative, including a conference, on this very subject. The Enhanced Bakken Supply Chain Initiative “aims to reduce costs and increase efficiencies for Bakken operators while expanding manufacturing and logistics business development in the Bakken region.” The first annual  Manufacturing and Logistics Conference (ManLog) will be held March 25-26, 2015 in Williston, North Dakota (Note: Logistics Viewpoints has no affiliation with this initiative).  The shale oil supply chain is indeed an interesting, a-typical supply chain that is pressed for capacity, squeezed by prices, and in need of efficiency improvements. I believe shale oil and gas will offer great opportunities well beyond what I believe to be a short-term (less than 2 years) slump in crude prices.

The Cass Freight Index for December posted year over year gains for both shipping and expenditures, but substantial month to month declines as is typical due to seasonality. Railroad and trucking shipments were higher than in December 2013, despite Los Angeles and Long Beach port difficulties. Lower than anticipated retail sales and a reduced need for restocking was noted as a possible contributor to the substantial month to month reduction in freight shipments. And on that note…

The US Commerce Department reported that retail sales decline 0.9 percent in December, marking the largest decline since January 2014. However, the Reuters report noted that the decline may be a result of seasonal smoothing methods applied to the monthly data. Also, the seasonal factor may also boost the January 2015  retail sales number. Gasoline prices also affected the number, as gasoline station sales are included in overall retail sales. The article also states:

The National Retail Federation, which looks at a subset of retail sales that excludes automobiles, gasoline stations and restaurants, said 2014 holiday sales increased 4.0 percent from a year earlier, the fastest since 2011…..Separately, the Federal Reserve in its Beige Book said consumer spending increased during the holiday, with “modest” year-over-year gains in retail sales.

From the supply chain integrity files, Northrup Grumman has been awarded a contract from the Defense Advanced Research Projects Agency to develop a system to improve the detection of counterfeit electronic components in the military supply chain. Counterfeit or reintroduced parts that make their way into the supply chain ” have questionable reliability and may not function as specified” and threaten the integrity of military products. DARPA also awarded $6.8 million to SRI International and $4.1 million to the Charles Stark Draper Laboratory for the same SHIELD program.

Have a great weekend!

 

This week’s video, as a tribute to the NRF Big Show, New York New York by Frank Sinatra.

 

 

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