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Supply Chain by the Numbers

- April 28, 2016 -

  Supply Chain by the Numbers for Week of April 28, 2016

US Inventory Levels Continue to Rise; Pickens Says Oil Prices are Heading Much Higher; US Carriers Increasingly Reliant on Immigrant Drivers; New Ocean Container Alliance Roils the Shiiping Industry



That was the inventory to sales ratio for all US businesses in February, according to the monthly data reported by the Census bureau. Why is that significant? Because that ratio continues to rise, and is now at its highest level since mid-2009. The ratio is computed by dividing the cost of inventories held by companies by monthly sales. Coming out of the Great Recession, the ITS reached a recent bottom of about 1.24 in early 2011, but has been rising slowly but steadily ever since, now about 13.7% above that 2011 low. The ITS ratio has been rising for all three sub-groups the Bureau looks at - retailers, manufacturers and wholesalers - but clearly most dramatically for the wholesale sector, which saw the number at 1.12 in April of 2011before rising to 1.36 currently. Manufacturing inventories have risen the least, with retail in-between. What is going on? No one is quite sure. Certainly could be a sign of a slowing economy, though the rise has been a multi-year trend. Maybe we need more inventory optimization software.




That's where legendary energy investor Boone Pickens predicted the price of oil (West Texas Intermediate) will be at the end of the year, during an interview TV this week. That would be quite a jump from the low of about $32 seen in January, but not all that much more than the $45 per barrel WTI was fetching this week after strong recent gains. What's more, Pickens says he believes oil will spike all the way back to $80 or so by the end of 2017. What would be behind that increase? Simply supply and demand - "In November of 2014 we had 1609 rigs drilling for oil in the United States, today we have 342, that's enough [of an explanation] right there," Pickens said. If accurate, that jump would add a lot of costs to consumers and shippers in terms of much higher gas and diesel prices, but we will note that even somewhat higher prices will bring many US drillers back to again add to supply. Just a couple of weeks ago, the US Energy Dept. said it expects oil prices to stay low, with an average of $40.58 in 2017, versus $93.17 as recently as 2014.


That is the percentage of truck drivers in California who are immigrants - born outside the United States. That is tops in the nation, followed by the state of New Jersey at 40%. That news according to an article this week in the Global Post, which said that without the influx of immigrant drivers the current driver shortage would obviously be much worse. Of those immigrant drivers, about 70% are from Mexico and the rest of Latin America, the rest from all over the world, but heavily from India, the Middle East, the former Soviet republics and Europe. The US will need them all. Despite the growing immigrant driver pool, the American Trucking Associations estimates the current driver shortage at 48,000, a number could balloon to more than 170,000 drivers in the next 10 years. Some estimates are even higher.



That's the number of ocean container carriers that will be members in a new vessel sharing agreement (VSA) that will be called the OCEAN Alliance. The members of OCEAN are CMA CGM, the new combined COSCO Container Lines, Evergreen Line and OOCL. Under these VSAs, carriers pool capacity and operations while maintaining independent sales, marketing and pricing activities. Among other potential benefits, the alliances might make it more likely that the new generation of giant container megaships - with capacity of more than 18,000 TEU - might sail with enough cargo to realize their potential costs savings per unit. The move is roiling the contain indutry, as it involves members of three current alliances that are now being busted up, leaving 8 carriers as "orphans" which will now scramble for other combinations beyond OCEAN and the larger (by capacity) 2M. The analysts at Drewry expect a few additional mergers in the sector, and observe that "The structural industry change is about fewer, larger alliances comprising fewer, generally larger carriers than ever before."

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