Winds of change

THINK ABOUT the future of the industry, the state of the aftermarket, the next five years in trucking. Are you an Innovationist? Or a Peak Oil Doomsayer?

That's the question posed by Derek Kaufman, president of C3 Network Inc in Grand Rapids, Michigan, during his luncheon keynote address, “It's Time to Decide.” He made the presentation during the Heavy Duty Aftermarket Week January 23-26 in Las Vegas, Nevada.

He said an Innovationist is someone who says, “Yeah, I know we're using lots of oil and the demands of China and India are now growing exponentially, but we're not running out of oil. There is plenty in the ground. We just need to find new ways to get at it. And besides, hydrogen will come up alongside oil as our prime energy source and we'll be able to tell the boys in OPEC to go pound sand.”

The Doomsayers say, “Now, wait a minute. The amount of oil produced per capita in the world peaked in 1979. Since that time, we have produced less oil for each person on earth than in the past. China's demand has doubled in the last five years alone. No amount of innovation can work fast enough to head off all the boneheaded decisions our government has made in the last 20 years that now basically position us to have to fight for control of the Middle Eastern oil supply.”

Kaufman — a former executive for Freightliner, Penske, and Hino Trucks who now takes equity positions in startup companies and manages new product launches — said he always has been an Innovationist, but the Peak Oil Doomsayers are starting to sway his beliefs.

“It's not so much that we're running out of oil or that China and India are combining forces to skew world demand,” he said, “but rather that financial speculation, world politics, and an increasingly difficult innovation learning curve will combine to drive fuel prices well beyond what we may be thinking today.

“Ask an Innovationist for some trends for the next five years and you'll hear: Prices will remain in the $55-to-$70 range in 2006. Higher oil prices are actually good for the US because they put extra cash into oil-producing countries' hands, which is then invested in US-based hedge funds that buy US assets such as mortgage-backed securities. The result is we gain more access to attractive loans, and those loans fuel the middle-market consumer on whom the whole economy is based. And we'll actually see a decrease in the oil price back to $35 to $45 a barrel.

This will happen over a 12- to 18-month period because oil production will actually increase to produce a six to seven million barrel a day surplus in that time frame.”

He said the Peak Oil Doomsayers point out that we always have assumed the basic law of supply and demand applies in all markets, but it does not apply to oil.

What to look for

The Doomsayers' trends:

  • The US dollar will decline in value as it is manipulated by the Chinese. Foreign oil suppliers will increase prices to offset the declining value of the dollar in which oil is currently priced.

  • The Saudi royal family will be attacked from within the country, leading to further unrest in the area and resulting interruptions in oil supply.

  • The use of hydrogen as an oil alternative will be exposed for what it is — a 15- to 20-year technological mountain that substitutes one oil use (burning it for fuel and lubrication) for another (the production of hydrogen).

  • Thomas Friedman's Flat World will be challenged mightily by the cost of fuel.

  • We're headed for a derivatives crisis, triggering global bankruptcies and soaring bond rates.

He said International Energy Agency figures put the total spare capacity of all 11 countries in OPEC at just 330,000 barrels per day (down from six million in 2002). Conventional Saudi spare capacity is zero. An IEA report from August 2004 indicates Saudi Arabia needs up to 800,000 barrels per day of newly discovered oil each year just to offset declining fields and maintain its current production level. This can't happen, so watch for the ensuing energy crisis.

Kaufman said China is already buying and hoarding 60% of the world's commodities: oil, cement, aluminum, copper, zinc, manganese, steel, coal, gold, silver, etc. Why? Because soon there won't be enough fuel for the globalized transport of such heavy things, nor, presumably, for their industrial exploitation. The world may also be at war shortly, further endangering international trade and transport.

“While I'm still an Innovationist, I also believe that the combination of global-warming environmentalists, world-trade bashers, terrorists, and a fumbling US Congress brings some of the doomsayer arguments forward,” he said. “Not all, just some. But some is enough. And I believe the result will be a higher price for fuel than we have been planning on. And it's not about passing on a fuel surcharge any longer, because surcharges always assume a return to lower prices. There will be no permanent move downward. So call me a pessimistic Innovationist, but I really believe that this industry should be planning not for a decline in fuel prices but rather for $4-, $5-, $6- or $7-a-gallon diesel prices in the next five years.

“Put another way, whether you believe it will happen or you don't, we ought to get a whole lot more serious about conserving every drop of oil we possibly can in the years ahead. The worse thing that can happen is that we are totally wrong and prices come way down because demand flattens and then reduces.

“So, on the wonderful thought of $6-a-gallon fuel prices, what are some trends for the next five years in trucking? We'll be burning propane and natural gas more. Bio diesel will take a hold. Hybrids might get closer to a decent ROI. Hydrogen will eventually show up.”

Kaufman's predictions

The trends:

  • Tactical Tribology.

    “This industry is built on trucking companies staying within engine warranty guidelines, but that's going to change. Just as lean manufacturing took us from analyzing monthly reports to weekly schedules to daily reviews to hourly charts to scrutinized minutes to analyzed seconds, Tactical Tribology is going to take us from the lab to the dashboard, from quarterly snapshots of oil quality to real-time trends of fuel-economy conditions. Those friction-reducing additives that have long resided in the margins of our industry because they either simply didn't work or were just reformulations of carbon based chains are going to be replaced with higher-tech solution — Boron oxides which introduce the whole science of boundary platelets to the game.

    “Tactical Tribology means that not only will we provide time-release additives to reestablish proper acid levels in EGR engines, we'll also measure soot content not as just an indicator of possible abrasive wear but more as an index in increasing viscosity, which increases drag, which decreases fuel economy. Tactical Tribology will happen in engines, but it will also apply to transmissions, drive axles, and wheel hubs — anything that involves rotating friction.”

  • Inventory Inclusivity.

    “Moving from restricted-access distributed warehousing to open-access wired inventory pools. $6 fuel makes you rethink what has always been. Our approach to inventories has been focused on company turns. And we've done a great job moving from two turns a year to 50 or 75 turns a year or even more.

    “We've pushed our inventory problems upstream with vendor-managed inventory. For most of our lives, we produced service repair parts, shipped them to central distribution centers, then either shipped them to jobbers or straight to dealers. The result: Dealer A needs part XYZ from your company right now. He's got a truck down. Now, Dealer B sitting right next door has PART XYZ and Dealer C, two miles away, has Part XYZ, but Dealer A places an emergency order with your plant and you FedEx the part overnight. Not at $6 a gallon you don't. You might, but the price to do it is now more than the part itself.

    “This trend embeds RFID chips in every part shipped, and then goes further to connect the RF signal to a Wi-Max grid, which can be accessed by anyone in town over the Internet. It then opens up this inventory database to anyone who wants to buy the parts. How do they access the inventory records? They Google them just like anything else you want to find. Any OEM who goes open source with their information plays on the system for free. Ad revenue foots the bill to maintain the system. You can put your inventory on the system and encrypt it for private use for your dealers only, but that comes at a cost.

    “Think inventory inclusivity can't work? I've had the experience of one retailer going to another competitive retailer to get me a product they didn't have in stock. Know what? I'll shop at the retailer forever because they went out of their way for me. So get way out of the box. Look at total industry turns instead of company turns of inventory. Kill the unnecessary shipments and the emergency runs. Struggle with the pricing issues to make sure people can make money in this process.”

  • Dock-O-Rama.

    “No time to have trucks sit and idle waiting for their spot at the dock any more. We've leaned out manufacturing, and coordinated our suppliers through pull systems. Now it's time to run the dock like a NASCAR pit stop. Packaging specialists will map out the flow of material to the dock and the sequencing of the dance. Computer algorithms maximize pre-packed containers very much the way FedEx and UPS load a cargo plane today. A 53-foot trailer is loaded in three minutes without the need of a fork truck driver.

    “A lot of companies will finally adopt drive-through side loading to eliminate the inefficiency of dock spotting a trailer. Counting total dock time as part of your allowable driving hours will provide the final push to attend to this fuel waster.”

  • Nanotechnology is brought to trucking.

    “We've figured out we can use nanotubes to make plastic feel like suede. But now we're getting a little more serious. Nano tube paint mixtures will actually provide more laminar flow across the surface of the tractor and trailer and a more slippery surface that sheds wind-catching dirt. Of course, it can also be digitally charged or lumen-activated to provide more visibility at night. Similar technology has recently been introduced for polarized aircraft windows. They tint at the push of a button and save space and weight in new aircraft designs. Truck windshields might use that approach to provide sun protection. We'll see nano tubes on turbo veins and air inlets to optimize air flow.”

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