Regular unleaded gasoline prices dropped below $1.50 a gallon in the Chicago suburbs this week. That hardly seemed possible when prices peaked well north of $4 and high gas costs were viewed as a failure of government policy and the likely cause of more economic pain. It turns out to be a classic example of “be careful what you wish for.”
All indications are that the oil glut will be with us for a while too. Record domestic production, flattening demand in Asia, political turmoil in South America, and renewed production from Iran and Iraq have combined to send energy markets steeply downward. New legislation makes it legal to export US oil again just at a time when there is no demand for it.
With prices down oil producers are closely examining their costs; hard to get oil will no longer pay for itself and will remain in the ground for another day. Experiments in turning tar sands into liquid will slow down or stop. Fewer holes will be drilled; pipe lines will be delayed or cancelled. Even fracking will slow down. This means fewer orders for oil field equipment and probably fewer orders for alternate energy equipment too. Many gear industry operations are already hurting from the downturn and more are likely to be effected as it continues.
It is tempting to think we can cut costs and hold tight until this crisis passes. Manufacturing is a high fixed cost business though and you can only cut so far. You cannot, for example, lay off a building or take a few months off from property taxes or insurance. Economic recoveries being somewhat unpredictable it is only logical to hold onto capacity as long as you can.
Remember all those great ideas you had to transform your operation into a more efficient better organized place? Why not use the down turn as an opportunity to put those plans into action? Think about parting company with seldom used machines. Clean, paint, and reorganize those areas you never had the time to get to when things were busy. Your associates will appreciate the loyalty shown them and the improvements will make you more competitive when the orders return.