Thread: Oil - movin on up

Crap.

gas at the pump has been going up noticeably around here lately.

Interesting article. I wonder how much transportation cost is actually involved in the shipment of goods via ship or train, as opposed to the fuel costs involved in shipping them from a warehouse to their final destinations.

I remember seeing somewhere recently that a gallon of diesel fuel was enough to move X tons of goods for, I think, hundreds of miles via train, it was vastly more efficient that moving the same weight via air travel or highway.

Perhaps before we begin seeing that contraction of globalization that he mentioned, we'll see a significant difference in the modes of transportation used.

Originally Posted by AmateurFlix

Interesting article. I wonder how much transportation cost is actually involved in the shipment of goods via ship or train, as opposed to the fuel costs involved in shipping them from a warehouse to their final destinations.

If you listen to the interview they talk about a few things that are not in the article. He addresses this question and basically says it depends on the good being shipped. He gives the example of steel costing $600 a ton and transport costs add about $90 on to that.

It would be nice to see a breakdown of transport costs for many common goods. If I find one I'll post it.

Originally Posted by NobleSavage

If you listen to the interview they talk about a few things that are not in the article. He addresses this question and basically says it depends on the good being shipped. He gives the example of steel costing $600 a ton and transport costs add about $90 on to that.

It would be nice to see a breakdown of transport costs for many common goods. If I find one I'll post it.

He is correct in that it depends on the goods being shipped. Variable transportation costs are a function of several variables: Mode, point to point designations, cube and/or weight of the product, value (dervived from pricing determinants) and time being the major variables that impact the variable change in cost/price of total goods price.

One can reach some general conclusions, however, that are fairly applicable observationally. Everyone involved in manufacturing of goods and commodoties generally express their shipping costs as a unit of cube or weight with assumed lead times. Lead times are normally an assumption that are revisted with a change in relative shipping costs (As AF points out, rail or intermodal - rail/truck combinations - are less expensive but lead times are longer and reliability is much lower - which is an opportunity that IBM is heavily involved in marketing solutions to the rail industry). That time/value/reliability equation usually is the operative assumption in modal selection.

Generally, the higher the value of the good and the lower its weight or cube, the less impact changes in transportation costs will have on the ultimate cost of the good. For example, diamonds have negligible transportation costs while a desk or chair from Office Depot may be relatively price sensitive to changes in transportation costs, as would rolled steel which is dense, heavy and of low value to weight relationship - I bolded the word may because fuel costs may go up but other costs decline and one may never see the direct relationship unless you are making that commodity and know your mix of costs.

Increasing oil prices will have somewhat of a double edged-sword impact in the US in terms of trade competitiveness. It will decrease the competitiveness of US agricutural commodities worldwide - which is our second or third leading export depending on whose valuation one uses - and increase our direct competitiveness in relatively low value manufactured commodoties which will create jobs, albeit lower value added thus lower paying ones (Certainly, however, higher value added than ag. commodities). The indirect benefits, however, would be more substantial if it did result in core commodities being less expensive to produce in the US or EU for that matter, but would have a longer cycle of return due to other variables (in the US, most specifically, the availability of certain technical manufacturing labor pools that have been supply constrained over the past decade)

As far as shipping via truck in the US vs. Ocean freight, up until about 6 months ago (when I sold the next to last of my manufacturing business interests), the cost per unit of cube or weight to ship something from North Carolina to California was roughly the same as to ship it from Shaghai to Los Angeles. Because ocean shipping has a relatively higher fixed cost structure than overland transportation in the US and EU, oil price increases will have a magnified effect on costs of overland transportation compared to ocean, to answer the query you were getting at AF.

To sum it up, when you look at a thing, the bigger or heavier it is relative to its value, the more price sensitive it is going to be to changes in oil prices as it relates to transportation.I would say that in general, you can calculate about $2.40 per cube at current shipping rates for goods that are cube intensive (meaning they cube out a truck or container before reaching maximum weight) for getting the thing from Shanghai to somewhere in the Southeast of the us, about $2.00 or a bit less to LA from the same place. And it costs (or did) about $2.00 per cube to get it from one coast to another. Weight is another issue for things like steel, but I don't know the shipping quotes in units of weight off the top of my head.

My experience is, as well, that in ocean shipping, fuel costs may be about 10% of that - tough to always tell, even if one is in the ocean line business, because of the fixed cost component it will not be the same for everyone. Of course, as feul becomes a higher percentage (meaning variable costs as a percentage of total grow), then ocean shipments become more sensitive to changes in fuel costs - ie. it is not a linear relationship. So, at current rates, a 10% increase in fuel costs would likely - all other things including capacity usage being equal - result in a .1% increase in the cost of shipping that cubic foot or pound. But, when feul prices jumped last summer and feul surcharges for ocean freight went up about 15 basis points, many of those charges were not passed on in actual invoices because capacity utilization was declining - a critical metric for high fixed cost businessess.

I actually see nothing but benefits from higher carbon based energy prices, not only for the US but for the vast majority of countries that are not oil exporters. I am a believer that a carbon tax would be significantly more beneficial in reaching our combined energy, carbon emissions, diplomatic, economic and military goals than the craziness of Cap and Trade would be and an increase in carbon based energy prices is the same as a tax. The short term pain will produce longer term benefits, and when expressed through higher carbon based energy market prices, those benefits will be produced not just in Koyoto accord type-countries in which Cap and Trade is being implemented as a global political compromise, but globally, including supposed "developing" countries (many of which have received an outsized benefit from the US willingness to encourage low relative oil prices over the past 18 years or so). I also likely run against the grain of most Americans, however, as I like cities over suburbs and still love factories and making shit.

Filled up at $2.87/gal today here in San Jose, California today.

its the driving season, so companies price gouge these days. The usual.

Don't despair the prez will nationalize that as well and make the slice of the nationalized companies pie chart a bit larger. It is part of the master plan. Once he reveals that he is a muslim he will control the world's oil supplies and rule all.

Now really, all of the oil producers became used to the revenue the high prices and they are trying to do everything possible to raise the prices up to where they can make a decent living.

They're hovering right around $2.50 out here now, but considering that this time last year they were damn near $4, I'm relatively alright with it.

Originally Posted by GForce

Don't despair the prez will nationalize that as well and make the slice of the nationalized companies pie chart a bit larger. It is part of the master plan. Once he reveals that he is a muslim he will control the world's oil supplies and rule all.

Now really, all of the oil producers became used to the revenue the high prices and they are trying to do everything possible to raise the prices up to where they can make a decent living.

Wut?

Originally Posted by GForce

Don't despair the prez will nationalize that as well and make the slice of the nationalized companies pie chart a bit larger. It is part of the master plan. Once he reveals that he is a muslim he will control the world's oil supplies and rule all.

I am sorry watching too much Glenn Beck - my mind got a away from me.

I know that the dollar going down in value has a lot to do with oil prices and may be one of the main contributing factors that need to be taken into account.

Due to the unemployment in the US and the general recession fear the amount of miles being driven is way down. I can see it on the freeways in SoCal.

Supposedly oil inventories are up in the US because of the decrease in demand.

Europe is not any better from what I read.

China surely cannot be doing as good as it says since it sells most of its products to Europe and US. Perhaps they are the biggest consumers of what they produce.

Again, what you may have at play is the typical market gamemanship that drives prices up based on speculation.

Assuming that the US is successful in developing viable and inexpensive alternative energies it is just a matter of time before oil has a lesser role in the US economy. However, this is going to take time as all goods in the world move by oil powered motive devices, i.e, diesel trucks, diesel trains, diesel ships, jet fuel and so on.

To convert these means of transport to some other means of energy will cost mega bucks. It will happen albeit slowly. Some of us may not be here to see it.

I believe that technology exists to capture the energy's sun in space and beam it to collection stations on the earth and convert it to electric energy to power residential and commercial needs. If this was ever accomplished it would have a significant impact on oil use.

So somewhere in the future oil producing countries should be asking themselves what else can they produce so their economies do not fall into ruin should oil not be in high demand. Perhaps they will never be in that position if we do not take alternative energy seriously enough.

We have been through these type of energy crisis before and seem to forget about them as soon as the prices at the pump fall to what we consider acceptable levels. Fuel efficient cars were selling at a brisk pace until gasoline starting its downward trend a few months back. However, with the new GMC and Chrysler americans may no longer have a choice but to buy what they make. I hope Ford hangs in there.

I think the real news there is that the Saudi's are concerned about oil prices spiking

regardless, I would think the Saudi's would benefit the most from an oil shortage.

or perhaps that hint is to create speculation toward a possible shortage and drive prices up.

Unless they can find a market for all of the sand they have high oil prices is their only hope. I think the whole purpose behind Dubai is to make it a destination and diversify their economy.

It is just a matter of time before somebody gets serious about finding other sources of motive power. Sure oil will be around for a lot of the other derivative products but if we found alternate fuels for motive power and electrical production it would have a huge impact on the oil industry.

I remember someone telling me that once upon a time there were a lot horse buggy makers in the Indiana and Michigan area. The ones that saw themselves as being in the transportation industry started to make cars and some eventually became General Motors and saw on. If you ever have a chance to visit the Cord museum in Indiana you will see there were a lot of cars named after the person that built them.

I think more and more oil companies see themselves as being in the energy business not the oil business. Tobacco companies as well.