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Supply Chain by the Numbers
   
 

- July 31, 2015 -

   
  Supply Chain by the Numbers for Week of July 31, 2015
   
 

Amazon Fulfillment and Shipping Costs Weight on Profits; Oil Headed Way Down, Analyst Says; Cost to Replace US Interstates is Staggering, Requires Tolls, Study Says; US GDP Lukewarm Again in Q2

   
 
 
 

23%

That is the combined cost of fulfillment and net shipping costs incurred by Amazon.com as a percent of sales Q2, according to its earnings release. Compare that to gross margins of just 35%, before lots of other costs, and it should be clear why Amazon can't make any money. Amazon did manage to eke out a very small profit in the quarter, when Wall Street was expecting a loss, sending its stock price soaring. The real story though was the continued growth in sales, once again defying the law of large numbers. Amazon's North American merchandise sales were up an astounding 31% in Q2, better than the 29% seen in 2014. International merchandise sales were up only 10%, but when you strip out the effects of currency valuations with the rising dollar, merchandise sales outside North America also would have been up 31%. Amazon seems unstoppable.

 
 


 
 
 

$35

That's about how low oil prices will fall by the end of this year, before rebounding a bit, according to a prediction made by Again Capital founding partner John Kilduff on CNBC this week. Continued weakness in demand from China and strong output across the globe will drive the price sharply down, Kilduff said, predicting that "We're going to take out the March lows of $43 and trade down to the $30s in my view." US. crude was trading around $49 Thursday morning, touching a four-month low this week. Diesel prices are also headed lower, with Saudi Arabia and China ramping up their refining capacities and now flooding the Asian market with diesel.  In much of the US, on the road diesel prices have actually fallen below the price for regular gasoline, despite higher taxes on diesel, in what continues to be good news for shippers and consumers.

 
 
 
 
 
2.3%

That was the first estimate this week for US real GDP growth in Q2 from the Commerce Dept., much better than the 0.6% (revised up from -0.2%) the government now says was seen in Q1. Still, the 2.3% figure was below the 2.6% rate generally expected by analysts, and about flat with the 2.2% rise in real GDP seen in Q4 2104. Consumer spending was up decently, but business spending remained weak, down at a 4.1% annual rate in the quarter. A couple of weeks ago, the International Monetary Fund revised downward its full year 2015 growth forecast for the US to 2.5%, from 3.1% in April, a decrease of about 20%. Growth in the low 2% range has simply become the new normal, though that's better than many other parts of the world.

 
 
 
 

$1 Trillion

That's at minimum the present value of the amount of money that will be required to replace all 47,000 miles of the US interstate highway system and do some selective widening, according to a 2013 report from the Reason Foundation. The cost may be as a high as $2 trillion. Why replace all 47,000 miles? Because the roads were built in the 1950s and 60s with a lifespan expectation of 50-60 years, and we are at that point now. All that from a new report from the Reason Foundation's Robert Poole Jr., who says that the only real hope for raising that kind of many is an electronic toll system for trucks and cars - 14 cents per mile for trucks, indexed for inflation, Poole recommends. That would be on top of the existing diesel taxes, by the way. While the costs would be steep for shippers in the end, Poole's logic makes some sense, though the American Trucking Associations remains strongly against tolls, commenting that it "will continue to strongly oppose the imposition of tolls in the Interstate system, particularly now as we've seen several states back off plans to erect tolls once the public sees just how bad they are for mobility and efficiency."

 
 
 
 
 
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