It is only prudent to prepare for a post-peak Oil world, and part of that planning is financial planning. Specifically, I've been wondering whether there will be a pronounced use of online commerce when automobile fuel cost becomes scarce or prohibitive. If people flock to the web to make their purchases, then it follows that home delivery of those online purchases will also increase. OK, so does that mean that UPS or FEDEX could be stocks to buy as part of a personal hedge against the difficulties of peak oil?
I contacted Jim Hansen, a financial consultant at KMS Financial Services based in Seattle, Washington. He posted on The Oil Drum and writes an investment newsletter titled the “Master Resource Report.” I asked Hansen specifically about whether he thought FEDEX or UPS might be good Peak Oil investment plays. My paraphrase of his reply follows.
First, he's not giving any advice on the companies specifically but suggested instead some guidelines for evaluating them or other delivery services.
First, consider the GDP issue raised by Roger Bezdek and Robert Hirsch. With a flat to declining GDP, consumer spending will decline. That decline could be significant and last for a long time. This could hurt online sales and economic activity in general.
Many times the shipping cost is a large percentage of the cost of the item being shipped. At what point do consumers flinch and say “I'll pass”?
In every case, localization is important (and among other things, reduces the use of shipping long distances).
High value items will probably benefit from the use of delivery services, but probably not low-value items such as CDs, books, etc.
The primary advantage of FEDEX or UPS is speed versus shipping by rail or ship. Cheap energy is an important factor to make the FEDEX or UPS model work.
And the business model is critical. Jet fuel cost less than .41/gallon recently, and is now about $3/gallon. Airline fuel expenses are now 30-40% of total costs, more than labor for the first time ever. What happens when fuel costs approach 50% of costs? If they try hedging forward that won't help since markets will realize that future fuel supplies will be constrained, essentially forever.
So if online commerce goes down with the economy in a post-peak world, what are some other investment alternatives beyond the obvious (oil services for example). Other companies with an online presence such as Disney?
I'd love to hear your thoughts.
