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Which sector of economy will be hit first ??

Discussions about the economic and financial ramifications of PEAK OIL

Which sector of economy will be hit first ??

Unread postby Rod_Cloutier » Sun 08 May 2005, 02:27:33

My personal bet would be transportation. Trucks, trains, and ships which transport all of our consumer products will be the first to feel the pinch of oil shortages. Having to pass on these progressivly higher fuel costs to customers we should see the beginning of general price inflation within the next year or two.

Freight companies operate on bulk pricing systems. The greater the volume being moved the lower the price. The larger the company, or the larger to contract and the lower the price they can negotiate. This says the little guys will be hit first, and hardest by these escalating fuel costs. Small businesses with low freight volumes and reduced negotiation abilities, should be the second sector to be hit hard by peak oil.

I would bet the third sector to be hit the hardest would be the public sector. When gas prices go through the roof, there will be enomous pressure on governments to reduce fuel taxes for consumers. As basic items inflate public government employees will demand raises to maintain their incomes. With falling tax revenues, tax rates at already unsustainable levels and increasing costs from entrenched unionized employees; the public sector will be next to fall.

I would be interested in others from this forum continuing this story of which sectors will be hit next and why! I look forward to reading your continuations !!
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Unread postby gnm » Sun 08 May 2005, 02:39:02

good assesment. I happen to know a small repair buisness who uses such a wide variety of parts that it would not be possible to stock them all and they have always relied upon small volume shipments as needed. Now thier suppliers are telling them that shipping is not included and will be adjusted as neccesary at shipping time - not even quoting it. And you can guess which way it gets adjusted...

so sector 2 impact is already happening...

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Unread postby RonMN » Sun 08 May 2005, 06:41:22

I agree...it's already happening...transportation has already gone up & still climbing. The airlines are dying...i know several truckers who need work but are turning down alot of jobs because they'll actually loose money.

Also think of how much transportation is involved in running a city (police, fire trucks, abulances, road construction, etc)...my home value was just raised 15% in ONE YEAR so they can charge me more taxes!

notice the price of food at the store lately? :cry:
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Unread postby eastbay » Sun 08 May 2005, 07:13:31

In this order:

1. Air travel
2. Auto manufacturing
3. Tourism
4. Everything else will start crumbling together soon afterwards.

Why? No more cheap oil.

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Unread postby Ebyss » Sun 08 May 2005, 09:08:46

One sector I think most people overlook too quickly is the "throw away" plastics industry... what I mean is, items such as "one time use bleach powerjets in big plastic bottles" that you just throw away after one use, eye drops that come in individual ten drop plastic droppers, dental floss in those individual plastic holders - again, throw away after one use. All that "one use only then dump it in a landfill somewhere" junk will disappear very quickly when the price of manufacturing plastics goes up (due to oil prices rising of course). Things will be built to last again...

Plastic packaging will also be less frequently used (thankfully). Who knows, maybe we'll go back to buying butter and sugar from big vats and carrying it home in our butter and sugar jars.

I do think Air travel and private transportation will be the first things to be hit though.
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Unread postby Andy » Sun 08 May 2005, 11:00:28

Agreed, discretionary transportation and its relative, tourism will be the first to succumb especially air.
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Unread postby Sunspot » Sun 08 May 2005, 11:10:12

It may all happen so quickly that identifying the first domino will be difficult, and irrelevant.
I'm getting very worried about what I see as a likely scenario: We're gonna attack Iran, seemingly. Or Israel is. Iran produces about 5% of the world's oil. If that gets knocked off the market for any period of time, prices will skyrocket, and the economy(s) will crash. So if we attack next month, which according to Seymour Hersh and Scott Ritter, among others, is the plan, we can look forward to a deep worldwide recession by the end of this year. You might want to add a few things to that shopping list. I'll be getting my heating oil tank filled soon, that's for sure......

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Southern California building giant truck transport hubs

Unread postby Dvanharn » Sun 08 May 2005, 11:40:54

I just ran across this item at the Los Angeles times news website:

The San Joaquin Valley grasslands, miles from the ocean or any navigable river, might seem an odd place to put a port. But there, along Interstate 5 just north of the Grapevine, sits the Tejon Industrial Complex. Resembling a gargantuan freeway rest stop, the sprawling warehouse park calls itself an "inland port" and is one of several ambitious efforts throughout Southern California to relieve chronic congestion at the Los Angeles and Long Beach harbors.

The high desert towns of Victorville, Palmdale and Lancaster are among those similarly trying to position themselves to grab some of the region's growing cargo business and bring in steady jobs. Right now, inland ports are little more than a regional planning concept in which cargo-processing complexes would hug freeways, rail lines and airports instead of waterways. Such operations would differ from warehouse complexes or industrial parks because of the transportation and shipping services offered to tenants, such as a dedicated rail line or luxe trucker amenities.

Although most of the freight would still flow through the Southern California seaports, recurring logjams would be eased by swiftly moving cargo containers from crowded harbor terminals where the boxes commonly sit for days, proponents say.


The idea is to have container-hauling big rigs scurrying about the greater Los Angeles like a nest of ants, because the port of Los Angeles is too congested and busy. Ikea, which like Walmart, depends on fast and cheap transport of their goods, was one of the first tenants at the new truck hub at the southern end of the Central Valley of California just over the mountains north of Los Angeles. There is no mention of fuel costs with respect to this scheme. However, the article does say that there are skeptics:

But shipping lines and retailers, among others, are skeptical about the concept, wondering whether it would ease congestion or merely add another step. "We understand the urgent need to find ways to accommodate the anticipated growth of cargo, and inland ports could well be part of that solution," said Tupper Hull, spokesman for the Pacific Merchant Shipping Assn., which represents the ocean carriers and terminal operators that move more than 90% of the containerized cargo in the U.S. "But the concern is simply that every time you touch a container, the cost and the price of the goods inside goes up. The goal is to touch them as few times as possible."


I definitely believe that transportation will be the first sector seriously damaged by peakoil-related problems, with the airlines leading the way, and truck transport next.

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Unread postby jaws » Sun 08 May 2005, 13:56:47

As income falls, the proportion of luxury goods consumed falls much faster than that of necessities. The first thing people are going to cut back on are expensive vacations, gourmet coffee and other staples of the service economy. Big new houses, big SUVs and pretty much everything unreasonably big is going to be replaced by their smaller equivalent.

I wouldn't put the transportation industry at the top of the list. Transportation is just one of the inputs of the finished products that people purchase. It's the importance of the finished products in consumers' preference that will decide what happens to the transportation involved in delivering them. Food transportation will continue for many years since food is the last thing consumers are going to cut back on.
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Unread postby Owl » Sun 08 May 2005, 15:52:24

I expect railroad transportation will benefit from the shift from trucking at least for a few years. I expect tourism to get killed, imagine these Caribbean island countries which rely so much on tourist dollars.
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Unread postby cube » Mon 09 May 2005, 02:42:17

jaws wrote:As income falls, the proportion of luxury goods consumed falls much faster than that of necessities. The first thing people are going to cut back on are expensive vacations, gourmet coffee and other staples of the service economy.....
I'm glad you mentioned that. Perhaps the hardest hit will be for companies that have very little to do with oil.

Let's use my favorite example Starbucks. :-D I've mentioned in an earlier thread that the cost of oil makes up a very small percentage of Starbuck's expenses. The cost of fossil fuels necessary to spray the coffee fields with fertilizer and pesticides is negliable compared to a $3 cup of coffee. Sure you can argue there are more expenses like transportation and electricity to run the espresso machine...but even if you nickle and dime everything out the cost of oil is still a drop in the bucket.

However once PO hits the first thing people are going to cut back on are the "unnecessary" things in life and with that said Satrbucks is probably on the top of the "marked for death" hit list. It should be noted that there are always going to be rich people who will maintain a certain lifestyle no matter how bad the economy gets because they have more money then they know what to do with it. But going to Starbucks is a "middleclass luxury". I think the middle class will be the hardest hit when PO looms around the corner.
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Unread postby ohanian » Mon 09 May 2005, 07:15:26

cube wrote:
jaws wrote:As income falls, the proportion of luxury goods consumed falls much faster than that of necessities. The first thing people are going to cut back on are expensive vacations, gourmet coffee and other staples of the service economy.....
I'm glad you mentioned that. Perhaps the hardest hit will be for companies that have very little to do with oil.

Let's use my favorite example Starbucks. :-D I've mentioned in an earlier thread that the cost of oil makes up a very small percentage of Starbuck's expenses. The cost of fossil fuels necessary to spray the coffee fields with fertilizer and pesticides is negliable compared to a $3 cup of coffee. Sure you can argue there are more expenses like transportation and electricity to run the espresso machine...but even if you nickle and dime everything out the cost of oil is still a drop in the bucket.

However once PO hits the first thing people are going to cut back on are the "unnecessary" things in life and with that said Satrbucks is probably on the top of the "marked for death" hit list. It should be noted that there are always going to be rich people who will maintain a certain lifestyle no matter how bad the economy gets because they have more money then they know what to do with it. But going to Starbucks is a "middleclass luxury". I think the middle class will be the hardest hit when PO looms around the corner.



What you meant to say is that in the post Peak Oil world, the way to pick up girls is to drink coffee in Starbucks and to buy the girls plastic mugs of coffee in Starbucks.

Because only people who drives red porche can afford to drink coffee in Starbucks in the future.
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Unread postby Leanan » Mon 09 May 2005, 12:20:09

Agree on transportation, especially airlines. Airlines are a luxury for most people, so they will suffer earlier and harder than the trucking or shipping industry.

Disagree about the public sector. I think they will be the last to fall. It was the Great Depression that spawned the New Deal - the big government social programs that conservatives love to rail against today. The government will keep the military and the civil servants paid, even if they have to print more money to do it. They will probably offer jobs and handouts to the poor as well.
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Unread postby cube » Mon 09 May 2005, 12:47:04

ohanian wrote:.....

What you meant to say is that in the post Peak Oil world, the way to pick up girls is to drink coffee in Starbucks and to buy the girls plastic mugs of coffee in Starbucks.

Because only people who drives red porche can afford to drink coffee in Starbucks in the future.
I remember back in the late 80's to early 90's when going to nite clubs was the "popular" thing to do. "Clubbing" was the term used. That was were you were suppose to "pick up" girls and usually that meant paying for some overpriced drink at the bar.

Maybe in the post PO world the hot new "hang out" spot will be gas stations were you offer to buy a gallon of gas for some girl? :P
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Unread postby JoeW » Mon 09 May 2005, 13:06:30

eastbay wrote:In this order:

1. Air travel
2. Auto manufacturing
3. Tourism
4. Everything else will start crumbling together soon afterwards.

Why? No more cheap oil.

EastBay


I understand the logic, but disagree with #2. I think that big increases in gasoline expenses for commuters will result in windfall profits to automakers who can take SUVs as trade-ins for small cars. The gap between large car prices and small car prices will decrease.
And guess what? The large cars ain't gettin' any cheaper.
If you have ever read Dr. Seuss's "The Sneetches," you will get the idea. Just because carmakers get big profits out of SUV's right now doesn't mean that they can't get big profits out of small cars in the future.

Real life example:
Bob currently pays $450/mo for his Ford Extortion (15mpg, he drives 1500 miles/month). Gasoline suddenly spikes to $3/gallon and he is now paying $300/mo for gasoline, making his total monthly auto expenses $750/mo. Because of the crazy fuel expense, it makes sense to trade in the Extortion for the new Ford Sensible, which gets 30mpg (thereby saving him $150/mo in gas!) even if the transaction results in a monthly payment of $550. He would still be saving $50/mo.
There could even be a scenario where someone's monthly gasoline savings equal the payment on the trade-in. The money you save in gas could pay for the car.
As oil becomes a more valuable commodity, so too will efficient transportation.
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Unread postby arretium » Mon 09 May 2005, 14:05:25

JoeW wrote:
eastbay wrote:In this order:

1. Air travel
2. Auto manufacturing
3. Tourism
4. Everything else will start crumbling together soon afterwards.

Why? No more cheap oil.

EastBay


I understand the logic, but disagree with #2. I think that big increases in gasoline expenses for commuters will result in windfall profits to automakers who can take SUVs as trade-ins for small cars. The gap between large car prices and small car prices will decrease.
And guess what? The large cars ain't gettin' any cheaper.
If you have ever read Dr. Seuss's "The Sneetches," you will get the idea. Just because carmakers get big profits out of SUV's right now doesn't mean that they can't get big profits out of small cars in the future.

Real life example:
Bob currently pays $450/mo for his Ford Extortion (15mpg, he drives 1500 miles/month). Gasoline suddenly spikes to $3/gallon and he is now paying $300/mo for gasoline, making his total monthly auto expenses $750/mo. Because of the crazy fuel expense, it makes sense to trade in the Extortion for the new Ford Sensible, which gets 30mpg (thereby saving him $150/mo in gas!) even if the transaction results in a monthly payment of $550. He would still be saving $50/mo.
There could even be a scenario where someone's monthly gasoline savings equal the payment on the trade-in. The money you save in gas could pay for the car.
As oil becomes a more valuable commodity, so too will efficient transportation.


I agree. I can't wait until we finally get some diesel cars and minivans in the U.S. 50 mpg sounds really good to me. I just did some computing based on how far I current drive and moving to a diesel vehicle would cut my fuel expenses in half. When it comes time to get a vehicle, fuel efficiency will be at the top of my list.
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Unread postby cube » Mon 09 May 2005, 21:04:22

JoeW wrote:.......

I understand the logic, but disagree with #2. I think that big increases in gasoline expenses for commuters will result in windfall profits to automakers who can take SUVs as trade-ins for small cars. The gap between large car prices and small car prices will decrease.
And guess what? The large cars ain't gettin' any cheaper.
If you have ever read Dr. Seuss's "The Sneetches," you will get the idea. Just because carmakers get big profits out of SUV's right now doesn't mean that they can't get big profits out of small cars in the future.

......
I see your logic but I'd have to dissagree. Once PO hits the first thing people are going to do is try to minimize their expenses. I see 3 options for the average person:

1) Buy a hybrid. The car will cost more but hopefully you'll save on the gas in the long run.

2) Buy a used gas guzzler. Sure you'll feel the pain everytime you fill up, but these cars will be rock bottom cheap to buy.

3) Buy a used compact car. You save on the car and on the gas.

I think option 3 will be the most popular. If PO were to hit tomorrow anybody who has a 1994 honda civic hatchback for sale will have something to smile about.

I don't see a bright future for auto makers. The profit margins on a smaller car like a hybrid is just not as sweet as an SUV even though the two cars may be priced the same.
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Unread postby Russian_Cowboy » Mon 09 May 2005, 21:25:48

cube wrote:3) Buy a used compact car. You save on the car and on the gas.

I think option 3 will be the most popular. If PO were to hit tomorrow anybody who has a 1994 honda civic hatchback for sale will have something to smile about.

I don't see a bright future for auto makers. The profit margins on a smaller car like a hybrid is just not as sweet as an SUV even though the two cars may be priced the same.


The supply of USED compact cars is FIXED. If everybody opts for buying a used compact car, there are not going to be enough used compacts for everybody. Somebody will have to buy new compact cars. The price of used small cars has already increased significantly from one year ago.
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Unread postby tmazanec1 » Tue 10 May 2005, 12:45:46

My friend has recently sold his little Toyota and bought a truck. He is unhappy now about gas prices. I still have ny little Toyota :)
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Unread postby FatherOfTwo » Tue 10 May 2005, 13:55:19

Sunspot wrote:We're gonna attack Iran, seemingly. Or Israel is. Iran produces about 5% of the world's oil. If that gets knocked off the market for any period of time, prices will skyrocket, and the economy(s) will crash.


I disagree. The US doesn't have the forces to do the job in Iraq and Afghanistan let alone go to Iran too. Israel isn't going to do anything without US approval. And why wouldn't the US want Israel to attack? Because you're right, it would be a huge blow to economy, so why would the administration pursue it? There is no imminent threat (contrary to all of pronouncements, which is just a lot of posturing). It's a lose lose scenario for the US.
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