Weekly Industry Crib Sheet: President Calls for Offshore Drilling and China Hikes Up Fuel Prices…

…State of Logistics, FedEx Fails to Deliver, Boeing Gets Second Chance at Air Force Contract and MORE.



GAO Backs Boeing’s Protest Over Tanker Contract
Last week, the Government Accountability Office (GAO) backed Boeing Co.’s protest against the United States Air Force and its award of a contract to Northrop Grumman to begin replacing its aerial refueling tankers. The GAO ruled that the Air Force “made a number of significant errors” when it awarded the $35-40 billion tanker contract to a Northrop Grumman/ European Aeronautic Defence & Space Co. consortium.

As a result of the GAO’s findings, the agency called on the Air Force to reopen the bidding process and, therefore, Boeing has won another chance to compete for a contract to build the next generation of aerial refueling tanker aircraft. The GAO said that the Air Force should also reimburse Boeing for the costs of filing and pursuing the protest.

In February, a Northrop Grumman Corp.-led team, which included EADS, beat out Boeing to provide 179 new tanker jets. Boeing protested soon after its 767-based design lost to Northrop’s bigger A330 tanker. The tankers are to replace hundreds of aging KC-135 Stratotanker aircraft that were introduced in the late 1950s. Earlier: Weekly Industry Crib Sheet (3/3/08)

Bush Calls for Offshore Drilling and More
On Wednesday, President George W. Bush called for Congress to make policy changes that could open up offshore U.S. coastal areas for oil exploration. The plan touts offshore oil drilling as a way to boost U.S. oil production as Americans suffer from high gasoline prices.

Bush also called for tapping into oil shale, allowing exploration and production in Alaska’s Arctic National Wildlife Refuge and expanding refining capacity by speeding up the permitting process, The New York Times reports.

The National Association of Manufacturers (NAM) praised President Bush for pressing Congress to lift the legislative ban on offshore drilling on the Outer Continental Shelf (OCS). In a statement, NAM said the president’s call to utilize oil shale and open ANWR to exploration and expand refinery capacity is “right on target.” Earlier: Drill or No Drill?

CEOs Predict Employment Drop But Steady Sales and Investments
The Business Roundtable CEO Economic Outlook Index, which reflects sales, capital expenditures and employment figures for the next six months, declined to 74.5 in the second quarter of 2008, down from 79.5 in Q1, according to the latest results, released last week.

“Most leaders of America’s top companies [160 surveyed] still expect sales and capital expenditures to either increase or remain unchanged over the next six months, but more now anticipate a drop in future employment,” according to the survey.

Average expected GDP growth in 2008: 1.3 percent.

U.S. Leading Index Increased in May
Although the economy is very weak, better times may be ahead, The Conference Board indicated on Thursday. The business research group reports that the index of leading economic indicators rose slightly in May for a second straight month. The index, which attempts to forecast turning points in the economy, rose 0.1 percent in May, matching April’s gain.

“The interest rate spread and stock prices continued to make large positive contributions to the index, more than offsetting May’s declines in real money supply, consumer expectations and building permits,” according to the latest Conference Board findings.

Weekly Unemployment Claims
In the week ending June 14, the advance figure for seasonally adjusted initial claims was 381,000, a decrease of 5,000 from the previous week’s revised figure of 386,000, according to the U.S. Dept. of Labor on Thursday.

The four-week moving average was 375,250, an increase of 3,250 from the previous week’s revised 372,000 average.

State of Logistics
Driven by relentless fuel costs, American businesses spent a record $1.4 trillion on logistics last year — or 10.1 percent of the nation’s GDP, a percentage not equaled since 2000 — according to the 19th annual State of Logistics Report released by the Council of Supply Chain Management Professionals on Wednesday.

Inventory carrying costs outpaced transportation costs, rising 9 percent last year. Transportation costs rose 5.9 percent last year and now account for 6.2 percent of nominal GDP.

This year’s report also reveals some of the bright spots in the industry, like “the surge in U.S. exports which has led to increased traffic through East Coast ports.” According to an announcement of the report, “responsiveness and agility have been the key factors bolstering the supply chain industry.”

FedEx Fails to Weather the Storm
On Wednesday, FedEx disappointed Wall Street when it was announced that the package shipping company, “sometimes viewed as a bellwether for the broader economy,” swung to a fourth-quarter loss from a year-earlier profit, reflecting a $696 million after-tax asset-impairment charge tied to the acquisition of Kinko’s as well as other factors,” MarketWatch reports.

Record energy prices and a sluggish U.S. economy led to a fiscal fourth-quarter loss of $241 million, well off the $610 million reported in last year’s corresponding quarter. The company’s sales grew 8.8 percent, to $9.9 billion from $9.2 billion in the year-earlier period.

N. American Steel and Aluminum Shipments Drop Again
“Steel and aluminum shipments from metals service centers, which rose from year-ago levels in April, were lower again in May in the U.S and Canada,” the Metal Service Center Institute‘s May 2008 survey of members’ business activity shows.

The latest monthly survey, based on shipping and inventory data collected from North American metals service centers, indicates that service centers are operating with caution, “with no discernible momentum building in either direction.”

China Hikes Up Fuel Prices Overnight
China, the world’s second-largest oil consumer, last week announced it would increase retail energy prices, responding to the soaring cost of oil and joining other Asian countries in reducing energy subsidies.

China’s National Development and Reform Commission (NDRC), the country’s top economic planning body, said on its Web site on Thursday that it would raise gasoline, diesel and jet-fuel prices. Taking effect the day after the announcement, the prices of gasoline were raised by 17 percent, diesel by 18 percent and jet fuel by 25 percent on Friday, according to MarketWatch.

The commission said the fuel price hike was aimed to ensure domestic supplies, by closing the gap between continually rising world crude prices, which stand above $130 a barrel, and state-set gas and diesel prices.

Many economists worry that China’s overnight move to lift fuel and electricity prices will feed into the country’s inflation, which showed signs of easing last month.

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Comments:
  • Coop
    June 23, 2008

    So given China’s price increase for oil, with each tank-full you get eggroll?


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