The End Of The Just-In-Time Model
In the New Republic, Bradford Plumer has a must-read on “The End of Aviation.”
Sounds portentous, but it’s a fascinating look at how high oil prices could literally destroy the aviation industry — an industry, Plumer notes, that was built on a business model of under-$100 a barrel oil.
Of the many consequences Plumer explores, the one most relevant for us is the decline of air freight:
“ … Companies like Federal Express bought up planes and transformed logistics and shipping in the United States, creating a system that sped up deliveries, gave the economy vast new flexibility, and fueled the rise of Internet distributors like Amazon and eBay. Air freight now plays a huge role globally, carrying, for instance, one-third of the value of all U.S. imports. And the system relies heavily on cheap fuel: Every night, FedEx keeps a number of empty planes up in the air, to better respond to requests at a moment’s notice.”
Not only air, of course, but sea-borne goods will suffer as oil gets increasingly expensive. This, in turn, would trickle down the entire supply chain. The “just-in-time” world was built in the era of inexpensive, plentiful fuel. If that world is over, as many believe, we could be faced with a major retrenchment in retail business models.
Now, we’ve been through periods of such energy and growth-related pessimism before. Perhaps we’ll look back in 20 years and wonder what the fuss was about.
But maybe we won’t.
Matt Sproull commented:
This is a letter that I came acress that explains a lot:
We’ve all had personal experiences with raising Fuel, Food
and Energy prices (just to name some of the most commonly talked
about issues) that have caused awareness of our economic times.
Company X's management wishes to reassure you that we are only
partially passing along the cost increases we have been
experiencing during these last few years and would like to share
with you a general overview of the causes: You have all been
hearing about the rising cost of metals such as copper, steel,
solder, silver, gold, etc. Increases of 20% and significantly
higher are being experiences with all of our manufacturers. Now
about Oil… Well, it makes the plastic and resin required in
virtually all of our products. Plus, after we build them we have to
ship them by Land, Sea, and Air. We know what’s happened to
transportation costs. A barrel of crude oil was less than half of
its current price, only a year ago. As you are aware, Company X
engineers and manufactures our products in Taiwan and China all
with the OEM certifications to meet and exceed US manufacturing
standards. So what’s going on in that part of the world?
Labor Rate has escalated by 22% in China and even greater in Taiwan
over these last few years and Labor laws now require overtime rates
that were never factored in our costing models. Plus the US Dollar
has experienced devaluation in this global economy against the
China Yuan by 25%, which simply means our dollar is only worth
$0.75, a similar experience with the Taiwan currency unit NT. These
are the primary causes for this pricing change.
Matt Sproull commented:
Kamon Iwanalaya commented:
My response was posted twice. Does that have something to do with
your name?
Kamon Iwanalaya commented:
Kamon Iwanalaya commented:
Costco has reluctantly begun passing along 5-10% vendor price hikes
to its customers. The good times are definitely over.
Kamon Iwanalaya commented:
Costco has reluctantly begun passing along 5-10% vendor price hikes
to its customers. The good times are definitely over.
Kamon Iwanalaya commented:
Kamon Iwanalaya commented:
