Fourth In A Series
Here we continue our exclusive wider view
of the world we operate in and what that means to air cargo.
In case you missed the first installment of the
series—just
click here. For the second installment, just
click here. For the third installment
just click here.
Gordon Feller, who’s been watching and worrying
about Asian cargo in particular and industry developments in general for
more than 25 years, has created this MegaTrends series exclusively for
Air Cargo News FlyingTypers.
Gordon did his formal academic training at Columbia
University in New York City, where he was a Wallach Fellow and a Lehman
Fellow, and completed graduate work in international affairs.
But as he likes to say—his real-world training
has come from the "school of hard knocks. "
Gordon Feller has written analysis and commentary
for the FT of London, Reuters, Thomson, Informa, Journal of Commerce,
McGraw Hill—and many others.
We welcome your comments and suggestions.
Geoffrey
Rising Economic
Importance Of Energy & Commodities
 Energy
supply and demand is likely to represent the biggest challenge of the
21st century. More than any other issue, it is at the mercy of global
economics, geopolitics, war, fiscal policy, and the battle between growth
and sustainability. Beyond financial services, energy is probably the
most global of industries and the industry with the broadest impact on
others. All of these factors result in an uncertain and changeable future.
Oil may be at the center of these challenges,
but it is, of course, not the only resource. Global demand is driving
us into a long-term transition away from oil toward natural gas, coal
and other alternatives, including nuclear power — despite the political
minefields. China’s formidable growth also drives demand for other
basic commodities; it accounts for 27% of the world consumption of steel,
and almost half of the world consumption of cement.
As the global population continues to grow,
demand for natural capital resources (such as water, fertile land and
clean air) will also become more important, economically and geopolitically.
Meeting the world’s growing food needs (demand is predicted to rise
by 50% by 2020) is just one of these challenges — with wide-reaching
impacts.
For instance, a third of all the milk produced
worldwide is now being transported to China to keep pace with its rapidly
growing demand (at a rate of 25% a year) with significant impacts on supply
and prices across the globe. Meeting the
world’s freshwater demands will be just as challenging: by 2025,
the combined population of the countries likely to face water stress or
scarcity will be nearing 3 billion.
In the short term, it is oil that has the
most wide-reaching implications. Demand for oil is likely to remain strong
with the emerging economies leading the growth. In fact, if governments
around the world stick with their current policies, the world’s
energy needs are likely to be over 50% higher in 2030 than today, with
oil making up 32% of total demand. As pressure on supply increases, geopolitical
factors take on greater significance and resource nationalism increases.
It is little coincidence that questions of Arctic sovereignty came to
a head at the same time as oil prices were ascending. A further cause
for concern is that the 5 day war in August 2008 between Russia and Georgia
forced BP to shut down a pipeline exporting oil from Azerbaijan to the
Black Sea — and there is an increasing tendency toward countries
shutting the door to big oil to cultivate their home-grown companies.
Geopolitical maneuverings like this have the potential to cause huge disruption
to supply, yet little can be done to mitigate the risk.
The fluctuating prices of commodities represent
another challenge with wide- ranging impacts — again with oil at
the center. Any commodity fluctuating so wildly in such a short period
(from USD$70 a barrel to USD$145 and back in the 12 months from October
2007 to 2008) would have an impact. The fact that oil is so widely required,
by industry and consumers alike, makes this impact all the more important,
hindering businesses’ and governments’ ability to plan. Indeed,
Mexico’s oil income stabilization fund has hedged the country’s
entire oil output for 2009 to manage the risk associated with this volatility.
Both rising and falling prices have impacts.
Rising prices put pressure on developed and emerging economies —
with some industries’ profitability (or even ability to exist) fundamentally
challenged, as evidenced by the collapse of numerous airlines in 2008.
Supply chain economics also comes to the fore; signifi cant rises in the
cost of transporting goods can override other factors, making it cheaper
overall to produce goods locally, even at a higher unit price. However,
low oil prices are not a solve-all solution and can impact plans to diversify
supply. Some projects to find more oil (requiring long-term planning and
investment) may no longer be worth doing: prices below USD$90 challenge
the economics of projects in the Canadian oil sands; prices below USD$70
challenge those of offshore projects in Angola.
Considering the alternatives Freeing the
world from its dependency on traditional energy sources would help counter
many of these issues — as well as solve some environmental ones
— but this will not be an instant solution. The current contribution
of renewable energy sources is relatively low (representing 3.4% of global
power generation), and the speed of a transition from a global economy
based on fossil fuels to one based on alternative energy is likely to
be slow in the absence of a major technological breakthrough.
Uncertainty over government subsidies and
regulation could hamper efforts further. However, the future remains promising.
Global investment in renewable energy surged to USD$148 billion in 2007,
and there are some significant success stories: wind power, for instance,
is growing at 30% per annum globally, already provides 20% of Denmark’s
electricity needs and is likely to provide up to 15% of the U.S. electricity
needs by 2020. The role of new energy technologies (cleantech) is expected
to be critical. The financial crisis and fluctuating price of oil will
put pressure on the economics of cleantech and its high capital costs
in the short term. However, the necessary and fundamental shift away from
oil will drive more corporate, private and government capital and foster
innovation to ensure cleantech’s increasing contribution to overall
global energy production in the next decades.
Of course, the most effective way to reduce
demand for energy is to use less of it — a strategy that also results
in reduced costs. The impacts of energy efficiency are most obvious in
heavy industry; for instance, the steel industry accounts for 10% and
27% of total electricity and coal consumed respectively in India, so any
efficiencies made there would be substantial.
However, the cost reduction impact can be
seen across all types of business — it is estimated that up to 80%
of the USD$10 billion annual energy bill for commercial food service in
the U.S., for example, could be saved by using more efficient equipment.
As global recession drives industry to cut costs wherever possible, the
scale of the savings possible will encourage businesses to act. It should
also drive investment in new technologies that promote and enable efficiencies,
a significant part of the cleantech agenda.
Gordon Feller
|
Further
synergies with three DHL Business Units, DHL Express, DHL Global Forwarding
and DHL Supply Chain, bring ocean freight, supply chain solutions, freight
forwarding, customs clearance and project handling services into the
Blue Dart product offering mix.
Air
Cargo News FlyingTypers leads the way again as the world’s first
air cargo publication to connect the industry to the broadly expanding
and interactive base for social commentary—Twitter.
August
11: Signs of normalcy as Pakistan and
Iraq agree to operate regular passenger flights 14X each per week via
Iraqi Air, PIA, Shaheen Air, Air Blue.
August
11: Quote To Remember. The greatest
problem with communication is the illusion that it has occurred—George
Bernard Shaw
August
11: Southwest Airlines bid $170 mill
for Frontier Airlines- tops $108.8 of Republic Airways. SWA wants to challenge
UA in DEN. Auction Thurs.
August
10: In China Li Peiying, former chief
of the Capital Airports Holding Company (CAH) convicted of taking bribes
was executed Friday in Jinan.
Contact!
Talk To Geoffrey