Rising Oil Prices Signal Higher Distribution Costs for Retailers, Manufacturers
NEWARK, N.J., Jan. 31, 2011 /PRNewswire/ — A steady rise in diesel fuel prices over the past two months, even before unrest in Egypt pushed oil prices near $100 a barrel, is raising distribution costs for retailers and manufacturers and spreading concerns that the inflationary pressure could undercut economic growth momentum, reports The Journal of Commerce.
Ship lines’ bunker fuel costs have topped $500 a barrel this year, nearly double recession levels, and direct diesel fuel prices across the U.S. have grown on average 60 cents a gallon over the past year. In raw commodities, the Industrial Price Index — jointly produced by The Journal of Commerce and the Economic Cycle Research Institute — reached a 53-week high the week of Jan. 21, up 33 percent over its 52-week average.
The Industrial Price Index is a leading indicator of economic cycles, and the higher pricing signals improving industrial demand that generally precedes an upswing in the economy.
But logistics and transportation industry officials are concerned higher oil prices that trigger fuel surcharges will raise supply chain costs. “Energy prices go up and down, and the volatility hides the fact that the long-term trend is up,” said Larry Lapide, research affiliate at Massachusetts Institute of Technology.
Climbing gasoline prices between December and January contributed to a drop in the Reuters/Michigan consumer sentiment index in mid-January. According to JOC Economist Mario Moreno, U.S. consumer spending growth, excluding gasoline and other energy, is reduced $11 billion per every 17-cent increase average gasoline prices for all grades rise above $2.90 per gallon. If they reach the 2008 prices of $4 a gallon, consumer spending on non-fuel purchases would fall $60 billion, or 6.5 percent, he said.
This week’s Cover Story, written by Senior Editor Joseph Bonney, examines how the critical fuel cost issue is impacting supply chain decisions and strategy planning for the coming year.
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SOURCE The Journal of Commerce