Feb. 22 2015 07:45 PM

Transportation has five key modes to move materials: Air, Rail, Road, Water and Pipeline.

Pipeline has become increasingly more visible as the Keystone Project from Canada to Texas has become controversial. Fracking shale has moved into a real ongoing supply of oil and reminds us what gushers were all about.

Pipelines require both an expensive investment and a length time to pay back the investment and become profitable. As oil recovery has grown in areas like the South Texas Eagle Ford Shale and North Dakota Shale it has created a boom in both economies, disrupted OPEC’s demand and distribution, and is being transported by rail, truck and pipeline.

As the market shifts here are some of the impacts:
1. The USA considers allowing exports of oil (that were outlawed in the early 1970s)
2. The customer and vendor of major volumes of oil is changing rapidly. Alignments that were unheard of are being created and sometimes business leads to other strategic alignments.
3. The book value of major energy companies has fallen
4. Railroads volume, pricing and value are all rising
5. Trucking companies are moving into move oil quickly too
6. Railroads' revenue is rapidly accelerating
7. Exports from Nigeria have dropped from one million barrels a day to the USA to zero while the price of oil has fallen almost in half as of mid-December
8. The biggest beneficiaries are the carriers in four modes: air, road, rail and pipeline. Ocean transport is at the other end of this spectrum with 100+ oil tankers in dock. 
9. Impacts to the carriers of the small package industry are lower cost of gasoline, diesel and aviation fuel on an immediate and for long contracts basis. 
10. Consumers are personally seeing a reduction at the gasoline pump too

Carriers who have surcharged for fuel for years are suddenly trying to figure out how to make money on a fuel decrease and keep customers happy at the same time. I think we will see some significant benefits by carriers during the fourth quarter because of the massive holiday shipping based on one set of fuel pricing vs. the cost dropping significantly. Meanwhile another wave of rate increases is already in motion the first business day of January. The combination is powerful for carriers.

The saving will take a while to improve the bottom-line for shippers, but it will certainly be buoyant to anyone providing free or practically free delivery like Amazon, Google, workshare partners with USPS and beneficial to independent contractors who work for package carriers.

A few interesting twists about pipelines:
1. In 1867, Alfred Ely Beach had elaborate designs to build a subway system in New York City. Boss Tweed was in power and was totally against it. Beach “positioned” the system by saying it was a diagram of an underground map designed to ship mail for the USPS through pneumatic tubes. Tweed bought the tale, the bill was passed and the rest is history, with a thriving subway that still serves the five boroughs in NYC.
2. The first real pneumatic tube system for mail was actually built in 1883 in Philadelphia. NYC built one in 1897 that started as only 3,750 feet; it grew and lasted for over a half century until 1953. It was extensive and could transport mail from midtown to Harlem in 20 minutes. It also had a tube over the Brooklyn Bridge to Brooklyn.
3. Elon Musk, the founder of PayPal, Tesla and SpaceX recently suggested a pneumatic tube from San Francisco to Los Angeles to move people 500 miles. He called it Hyperloop and suggested that aluminum pods would hold people in a large double barreled shotgun style, exceed 800 miles an hour, make the trip from Silicon Valley to Los Angeles in 30 minutes and be solar powered.
4. There was some serious analysis on the creation of a water pipeline that would lie on the Pacific floor from AK to Los Angeles proposed by the Governor of Alaska in 1991. It was proposed to be 35 feet wide, require four underwater aqueducts and was widely discussed the last time there was a heavy drought in CA with a target to deliver a trillion gallons of water a year. There is much more fresh water in AK than can possibly be utilized in Southern California. The Copper River seems like the best source and the price of the product at the origin is low and in LA is high.
We will all enjoy the freebie of an energy cost reduction. My instinct tells me it will swing the other way and we should continue to reduce use of energy that harms our environment. 

Rob Shirley is CEO of ExpresShip, a strategic consultancy in the global supply chain. Contact him at rob@xpship.com or visit www.xpship.com.