Due to the poor economy, the oil industry is having a rough time enduring transportation costs from country to country. For decades, oil tankers have been the main source of transportation, carrying up to two million barrels of oil between the Middle East, Asia, and the United States. Unfortunately for the oil tanking business, operation costs over the past few years have been much more expensive than they have been in the past. This increase in price makes the shipping of the popular and much demanded natural resource nearly impossible and not worth it. Unlike what is usually the case, globalization in this situation for example is more costly to this particular industry than it would be to drill into our own soil. The only problem is that we find a larger supply of oil in foreign countries than we do our own.
To get an idea of how much this is costing the oil firms, analysts look at the forecasts from previous years. This collection of data has shown that the industry has lost more than $26 billion dollars in the past four years, and operation costs are higher than ever. To operate one of these extremely large vessels, it costs anywhere from ten to twelve thousand dollars per day. In 2007, operation costs peaked at $309,601 per day. That is unbelievable! Because these carriers are only making roughly $7,000 a day, there is a huge deficit. While such oil companies continue to lose so much money daily, they cannot possibly stay in business. The supply chain is not working in favor of firms; therefore, sustainability of the business comes into question. So what should these oil tanking firms do? How can they cut costs? Is it possible to adjust the supply chain or is it a lost cause?
I think that at such a loss like this, the amount of ships in operation should decrease drastically, causing less expenses to be paid. That is the only way they can keep their heads above water, although they are already sinking in debt. New York’s Overseas Shipholding Group filed for bankruptcy last year, and I am sure they will not be the last to do so. I feel for these dying companies because many of them entered into contracts before the economic crisis occurred, and now they are stuck in a failing industry, losing more than they gained from the contracts to begin with.
Other possible options for consumers that effect the oil firms is innovation. It is not uncommon to see on TV or read in the newspaper alternatives to oil resources. At the Chicago Auto Show every year, concept cars are on display that use battery powered systems to replace oil. These are more cost efficient and do not require the use of oil tankers. What do you think will be the result of the oil industry failing? How do you think consumers should react to this? How do you think the government should react to this?
4 thoughts on “Is the Oil-Tanking Industry Sustainable?”
I understand how the oil industry is tanking because of the outrageous costs of transporting all of the goods into markets where the demand is higher, and I think that one option for some of these companies is to declare bankruptcy. Another option with all of the new technology and the Panama Canal increasing its size is to liquidate all outdated transportation equipment and reinvest in larger boats once the Panama Canal. This would free up some assets for the company’s management to spend in newer assets such as larger super takers which in the process of doing so will increase their profit margins. Management could also choose to reinvest their assets in alternative green energy such as natural gas, solar or wind. I know that these other options may bring up ethical issues regarding management decisions such as layoffs and re location, but it would be in the best interest of the shareholders to do this and stop the bleeding of capital on old outdated technology.
The oil industry has been a huge target for criticism in recent years. Obviously, we have very clear evidence that gas powered technology is causing serious pollution. Although it is tragic to think of the repercussions those employed by the oil industry will face, the product demand is being phased out. The sad truth is bankruptcy is almost a guarantee for oil companies.
You make a lot of very good points. Also, I had no idea they oil company creates such a large deficit on a daily basis. In addition, from my own research I have found out that oil spills have become increasingly more common from oil rig explosions and such. It does not seem likely that fifty years from now oil will be a sustainable resource or cheap enough to continue to produce. Some day a new energy source must be used.
I believe that the failing of the oil-tanking industry will force oil companies to find other ways to transport their oil. The main reason that oil-tanking companies are going to go bankrupt is because they won’t increase the prices they charge oil companies to transport their oil to cover all of their expenses. Oil companies may take it upon themselves to transport oil. Since they will directly be paying for all transportation costs, they will use the most cost-effective and cheapest method. This, of course, will give oil companies an excuse to increase oil prices even higher, even though they are making record profits. Consumers will be upset about increased prices but they will still pay those higher prices. The government should not do anything and let the market determine what will happen to oil-tanking companies.