The effects of falling oil prices on the green supply chain

Green Supply ChainThe green supply chain has never seen the oil industry as being comfortable bedfellows, but they do have some the same goals in mind albeit for different reasons. On one side of the coin you have the fact that the green supply chain is all about conserving energy by reducing the size of the world’s global carbon footprint.  On the other side of the coin you’ve got the OPEC nations who also want to conserve their deposits and reserves. Theirs however is not a goal born out of noble thoughts of world conservationism, but is based on keeping themselves at the top of the tree for a long as possible when it comes to dominating the world’s oil production and supply.

The importance of oil prices on the global economy

The green supply chain is in the foreseeable future, totally dependent in terms of needing plentiful supplies of cheap oil in circulation. When the barrel price of oil soared to $147 in July 2008 the effect on the global supply chain was to push prices up across the board. All the time that the world economy is booming, the higher costs of transportation and therefore end products are easier to sustain. But when economy falters and weakens, higher product prices begin to suppress demand even further.

The transportation sector opportunity to make hay while sun shines

Right now the price of oil is the lowest it’s been since 2009. The current $60 per barrel prices are welcomed by many as it heralds a reduction in terms of the prices of transportation, which should be passed on across the board and should signal lower product prices for consumers. We are now seeing the benefits of that as gas pump prices in gas stations around the world.

Low oil process allow for considerable room for movement in terms of passing the savings on, as companies involved in the logistics arena start to refill their coffers and welcome the return to the happier days of increased profitability.   It should herald a time of plenty; better profits for the logistics sector, cheaper prices for consumers, driving higher demand, which in turn will drive higher production; all of the ingredients for an economic boom.

Good for the global economy

Even the Saudis are playing the game, although their stance of allowing the oil price to freefall is undoubtedly a political maneuver aimed at driving some of its competitors out of the game by making their operations non-profitable. Speculation rests anywhere from $40 per barrel to $80 per barrel in 2015; but wherever it settles within that range parameter, the outcome can be expected to be good for global supply chain health and wealth.

The prelude to the next big economic slump?

If the Saudis do succeed in their game plan, the end result will return them to world domination of the global oil market. Once that is allowed happen, (who can prevent it?), the trend will be reversed and we’ll see a steady increase in the price of oil. This will put the pressure back on prices throughout the global supply chain, and may eventually signal the beginning of the next world economic slump.

The importance of maximizing container payload

It will be the job of global supply change management, (including green supply chain) to continue to find alternative ways of keeping the cost of transportation in check. Maximizing the payload potential of container space is the single biggest factor. All too often containers are only between and 50% and 75% full. By getting payload density closer to the 100% mark, significant savings can be had, which, when amortized across various products, can make a significant contribution to countering both increasing product costs, and rising transportations costs. It will also contribute to realizing the green supply chain goal of reducing the size of the global supply chain carbon footprint.

In the meantime procurement has to work closely with both the manufacturing industry and the packaging industry in order to make packaging as container-friendly as possible.

The search for a viable alternative fuel to oil must go on

The long-term goal still has to be the development of alternatives to oil fired fuel and energy. Shale oil has begun to have an impact, but it remains to be seen whether shale oil production will be able to stand against the falling oil price scenario. Probably not; especially if the Saudis continue to keep production oil levels stable.

The bottom line is that until a viable alternative to oil is found, supply chain management is always going to be at the mercy of the volatile oil roller coaster.


 

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