The Rising Cost of Crude Oil Casts a Cloud over the Economic Recovery

<p>There is a direct inverse correlation between increases in crude oil costs and economic activity. According to new report on CBC News, for every $10 increase in the cost per barrel of crude oil, GDP decreases by 0.5% over the next 2 years. Journal of Commerce Economist Mario Moreno estimates that U.S. consumer spending growth, excluding gasoline and other energy, is reduced $11 billion, or one-tenth of a percentage point, for each 17 cents that average gasoline prices for all grades rise above $2.90 a gallon.</p>

<p>Thankfully business conditions are improving in 2011 and freight volumes are more robust than they have been the past couple of years. As reported in a previous blog, freight rates are increasing. Shippers are taking less of a “bunker mentality” and are now looking for ways to optimize their carrier networks.</p>

<p>This past week I read an article entitled, “Not an Automatic Decision”, written by Eric Johnson that appears in the February issue of American Shipper. Since my company has been involved in numerous freight transportation e-procurement projects over the past seven years, I thought I would share my perspectives on this topic.</p>

<p>There are a number of signs that shippers may come under pressure for freight rate increases this year. An economic recovery is under way. Robust retail sales in the latter part of 2010 may result in some inventory restocking in the first quarter of 2011. This may increase the demand side of the curve. If the recovery has legs, there may be higher shipping volumes during the historically stronger second quarter.</p>

<p>A terminal tour has long been a key element in the freight transportation purchasing process, particularly for medium and large size LTL shippers. After the sales, pricing and operations planning work has been done, a tour can be a turning point in either maintaining an existing piece of business or obtaining a new one.</p> <p>In my work, I get to see a good number of terminal tours, hosted by a variety of carriers. I also get to see how shippers respond to these tours. No matter how good a job has done leading up to “the terminal tour”, this particular event can be a “make or break” in securing an account. In the competitive world we live in, a few mistakes can cause a shipper to pursue another option. In many cases, the carrier may not even realize the mistakes they made. Here are few tips.</p>

<p>There have been a lot of words written about “Green” strategies, Lean Manufacturing, Lean Supply Chains and Sustainability over the past decade. It has often appeared that the actions taken by North American based companies have not lived up to the rhetoric. While reducing carbon use and water consumption have been laudable causes, the cost of change has been an impediment to progress.</p>

<p>At this week’s annual SMC 3 winter meeting in Atlanta, David Tuttle, director of digital strategy at TMP Worldwide, a New York-based advertising and communications firm, gave an outstanding and informative presentation on Social Media and Logistics. He was able to “connect the dots” in a way that helped everyone grasp the potential of social media as a tool to build a business. Here are some of the highlights of what he said.</p>

<p>We have all read the horror stories about the trucking company bankruptcies experienced during the recent economic downturn and the high unemployment level in the U.S. that is hovering at almost ten percent. The good news is that many indicators are pointing in the direction of an economic recovery. Retail sales have been edging upwards, the ISM index has been staying in positive (growth) territory for months and there have been several reports highlighting increases in freight volumes, particularly for intermodal transportation.</p>

<p>While social media have been around for several years, 2010 was a landmark period in their evolution. The popularity of the movie “The Social Network” and the designation of Facebook’s founder Mark Zuckerberg as Time magazine’s man of the year propelled this emerging phenomenon to widespread attention. The news this week that Goldman Sachs plans to invest $500 million in Facebook further cements the increasing value being placed on this movement and Facebook in particular.</p>

<p>I would like to thank the readers of this blog for their positive feedback on last week’s posting and for their suggestions on other items to consider in selecting a freight broker. Here are some items that should be added to the list that was included in that blog.</p>