Rising prices of--well, everything--are causing food processors and distributors to take a long, hard look at their operations:
Since 2007, Papa John's has been able to reduce inventory levels by 17% and decrease the amount of outside warehouse space it needs to rent by 33%. "The more the costs go up, the more important it becomes," Ms. Larner says.This isn't the first time that businesses have had to take a closer look at their supply chains. In the late 1990s and early 2000s, many companies in the food industry bought large software systems from the likes of Oracle Corp., SAP AG, i2 Technologies Inc, and Ariba Inc., as well as more-targeted systems from smaller vendors, to give them better insight into inventory levels and demand.
But during the last few years, "many businesses said, 'We've squeezed the supply chain as hard as we can,' " says Bill Bishop, chairman of Willard Bishop, a consulting firm that advises food companies. Instead of investing in new supply-chain systems, businesses are using the technologies they bought earlier in the decade to look for further improvements.
Industry analysts expect that this will soon change. They predict that rising commodity costs will make it easier to justify buying new software that can help plan manufacturing cycles and optimize delivery routes.
AMR Research forecasts that spending on supply-chain software will rise to $3.9 billion by 2011 from $2.7 billion in 2007. Technology-research firm Gartner Inc. predicts that the subset of this software focused on transportation management will expand from around $500 million in 2007 to nearly $800 million by 2011.
Few businesses have managed to get new technology in place in order to deal with the current commodity-price crisis. So they are taking the same systems they have bought and enhanced since the late 1990s and early 2000s, and rethinking how they operate with them.
That is the case at Hannaford Bros. Co., the supermarket chain that is a subsidiary of Belgium-based Delhaize Group. Hannaford stores used to receive two shipments a day, a load of fresh groceries such as dairy products and meat first thing in the morning, and a load of nonperishable items like canned soup and boxed cereal at night. The split delivery made it easier for store managers to process fresh items before the store opened and let them restock the rest of the store after closing.
Rising fuel prices has made the grocer "reconsider all the rules," says Gerry Greenleaf, the company's vice president of distribution.
Hannaford used its transportation-management system and other planning software to analyze how much the split-delivery schedule cost the company and to see if there was a more cost-effective way to make deliveries. Earlier this year, Hannaford began combining the two deliveries for some of its 160 stores. It is less efficient for the store managers, but the added expense at the stores is offset by the savings on fuel, which the company says will be between $500,000 and $1.5 million chainwide this year.
Hannaford has also made other changes with the aid of supply-chain technology, such as a system that helps drivers maximize fuel efficiency that is says should save the company $500,000 this year.
Nestlé USA Inc., a subsidiary of Nestlé SA, is also changing established practices. Previously, it was cheaper for the food company to purposely overfill some bottled beverages than to spend money on the machinery, computer systems and staffing necessary to ensure that a 16-ounce bottle was filled precisely. Rising sugar, cocoa, dairy, and other food prices have convinced the company to "wage a war on waste" and make many of those investments, says Jeff Kurtenbach, Nestlé USA's vice president of supply chain.
This is what OPEC has to fear--these kinds of improvements last. If there's a dip in the global demand for oil, prices won't just recede; they'll crash.
This is why Saudi is trying to ease things off a bit by adding an extra 200,000 barrels per day to the mix. But in a world that's pumping about 85 million barrels per day (bpd), this is not super-helpful--and it's not clear Saudi can pump much more.
The good news is that we have information technology that people in the 1975 couldn't even have dreamt of, which is grinding away at the problem of making our economy incrementally more efficient. If the price of oil does come down, we'll emerge from this substantially more productive--good for us, good for our descendants, good for the planet.
Thank you Megan for saying what I have been saying all along. Oil is going to crash and crash hard, just wait. Serious changes in the demand for oil take a long time to occur. You don't change your lifestyle or your distribution plan over night. Once you do, you don't change it back over night if prices fall. You better believe that OPEC is worried about prices staying too high for too long. If the prices stay this high, people will get creative and figure out ways to use less oil. Everything that is being said today about the "end of the age of cheap oil" was being said in the late 1970s. A drop in demand combined with a rise in the dollar will clobber oil prices. You just wait.
I suspect that we're in a time of permanently tight supplies. Even if the US stopped importing oil completely, the rest of the world would be able to make up the demand difference in fairly short order.
If we had real president and not an empty suit in office, he/she would make conservation and fuel efficiency an issue of patriotic significance. Every day, as I walk to work, I'm passed by single occupancy drivers. Thats a luxury that can't last forever. The same goes for business travelers. Changes in habits with regards to oil consumption could bring this "energy crisis" to an abrupt end and send oil crashing back down below - perhaps way below - $40 a barrel in a few years time. Drilling for new oil off the coasts or in ANWAR is part of the problem and not part of the solution. Its what a failed president comes up with when he's too much of a coward to tell the American people that for the good of the country they need drive less.
Gee, Nathan, would your "real president" wear a cardigan and talk about our "national malaise"? Would he exhort us to the "moral equivalent of war" (aka MEOW)? Maybe a windfall profits tax and some price controls? I can't wait.
Mind you, Ms. McArdle has pronounced herself an admirer of the Carter Administration's domestic policies, so she may want the old MEOW policy herself.
If we had real president and not an empty suit in office, he/she would make conservation and fuel efficiency an issue of patriotic significance.
I think I hear Jonah Goldberg laughing.
Those kinds of changes do last and they also spread. But I think we are in a time of permanently high costs of oil (barring the sudden explosion of shale oil). The idea that drilling offshore will help is the new fad. But at only an estimated 28 billion barrels (that is an extremely liberal number. Even if we kept it all to ourselves we consume 7.6 billion barrels in a year. Thats only an extra 3 years and a few months worth of oil. Nor will its infusion into the market cause a precipitous drop in oil prices. It would be extremely slow and ultimately a very negligible difference given the explosion of China and India.
I don't know about you guys but I intend to use as much energy as possible until the President tells me to stop.
There is a "problem" with any efficiencies that rise here and in Europe because of these high oil prices. Efficient technologies will disperse to China and India. Their demand for oil may explode, but they can take full advantage of any technologies that arise.
At least, they can cherry-pick cost-saving/oil-saving technologies. They may not go whole hog for the clean-air/cost-raising technologies. For example, the Tata Motors Nano:
http://tatanano.inservices.tatamotors.com/tatamotors/
Nathan,
Assuming PHEV and EV's start rolling out in 2009 - 2010 in the form of the Chevy Volt, Prius Plug-In, Saturn View Plug-In, EV Smart, PHEV Mercedes, PHEV Hondas as well as the current Phoenix vehicles and any of the other Progressive Automotive X-Prize entrants that are slated to begin production soon, Single Occupancy Driving will be a luxury that can most likely last forever. Your desire to bend the world's behavior to fist your personal likes is not uncommon, but you really should take a look at how such authoritarian impulses take hold.
Ben,
Drilling off the coasts or in ANWR (which Alaskan's want), while not a great idea for fueling vehicles, would still provide domestic supplies of oil for a long time (the 3 years is a red herring, as it is not like we will switch to only using that) and even longer as we become more efficient in its use. Oil is used in literally thousands of products and in agriculture, those uses are not nearly as easily replaced by non-petroleum products like drive trains are. Also, extracting this oil can be halted if there is no need, or it can be added to the Strategic Reserves in case Nigeria falls off the map or some other tragedy occurs. Simply as risk management it makes sense to avail ourselves of as much excess capacity as possible.
Also, as these PHEV/EV vehicles begin their rol out, they won't need to replace cars in places liek China, as they will be the first cars people drive. This will tamp down some of the oil demand from their growth, while accelerating our own decline in fuel needs.
i2 technologies is the leader of new generation supply chain planning, its SCM 2.0 allows companies get results very quickly.
If i2 is good enough for Costo, it's good enough for most companies.
i2 is a one stop shop for companies looking for supply chain results, it even runs the supply chain planning for companies that don't have the expertise on supply chain planning.
"convinced the company to "wage a war on waste" and make many of those investments, says Jeff Kurtenbach, Nestlé USA's vice president of supply chain."
"we'll emerge from this substantially more productive--good for us, good for our descendants, good for the planet."--MM
These are Textbook examples of good Economics making good Finance.
This: "Since 2007, Papa John's has been able to reduce inventory levels by 17% and decrease the amount of outside warehouse space it needs to rent by 33%. "The more the costs go up, the more important it becomes," Ms. Larner says."
Bears the Risk of good Finance becoming lousy Economics..
They friggin had to use Papa John's as an example in that article. I was already hungry; no way in hell I'm not going to be thinking about pizza from now until I can get out of here and get some lunch circa 1:30.
What everything's coming up roses for companies like Home Depot and Target? Up yours, WSJ!
"Earlier this year, Hannaford began combining the two deliveries for some of its 160 stores. It is less efficient for the store managers, but the added expense at the stores is offset by the savings on fuel, which the company says will be between $500,000 and $1.5 million chainwide this year."
Does this mean that they will start restocking throughout the day? I shop at night quite often and see this restocking, but I wonder if we'll start seeing it during the day as well.
Red Skull-
Your correct in that I was using the oil off the coasts as a stand-alone product. Also I'm assuming that all states would grant use of their coastlines. That will not happen on the west coast or anywhere north of Virginia on the East. With Florida, Georgia, and the Carolinas a good bet as well. ANWR that brings the total projected barrels to what? Just under 50 billion? Figuring the time it will take from approval to market, with the corresponding increase in demand. It will mean extremely little. Iraq has more promise for bringing the cost of oil down than all the drilling offshore in the US ever will.
Ultimately oil is a very finite resource given its consumption. And it doesn't seem to run like water. So guess what we need a new way, and Friedman was right a couple weeks ago when he pointed out that nothing will enhance efficiency or spur alternatives like expensive gasoline. I'm for coal if you make it cleaner, ethanol if you can keep it from raising commodity prices too far, and moonshine if I get the first swig.
Wiredog, China and India have cut their gasoline subsidies due to the high price of oil.
Nathan, problem is people are idiots. Even the smart ones.
People just don't have the time or ability to actually understand what is efficient.
People are acting on bad and outdated information and doing things that are causing fuel efficiency to go down. Most people still think that accelerating slowly is more fuel efficient, it's not. The pressure is also probably putting more people on the road during traffic and taking them off during off hours (needing to work more during the day).
I assume I am "Red Skull" but I should make this clear: I think that high fuel prices forcing inefficiencies out of the market are a long term good. I think that current trends in vehicle propulsion are on a positive course to reduce total US vehicle fuel demands in the 5-10 year timeframe as 10-30 MPG cars are replaced with PHEVs like the Volt, and cheaper solar will relax some of the grid demand. We also could see 100-150MPG gas / diesel cars by 2011-2012.
I also want Nuke powere plants brought online as fast as possible, ideally something like an advanced pebble bed reactor.
There are a number of hotspots in the world whose 10 year future could include instability (Nigeria, Iraq, Iran (with their declining oil prodction), Venezuela, Cuba, Suadi Arabia) and we should be doing whatever we can to a) reduce our need for their exports and b) find domestic sources to augment supply disruptions.
I'm more than happy to get these spots online and get them producing at say 10% of their capacity directly into the Strategic Reserves. This will show that we can produce oil as necessary which will place more pressure on OPEC and Russia, as well as dissuade speculators. In the event of a catastrophe, those supplies could stabilize the market (and provide additional government revenue.)
Every day, as I walk to work, I'm passed by single occupancy drivers. Thats a luxury that can't last forever. The same goes for business travelers.
And that cuts to the core of it.
Most of these activists aren't bothered by oil shortages.
What they hate is individualism - individuals, in their individually-owned vehicles, going to jobs of their individual choosing, and living in individual residences.
What they want is communalism, and that's why they hate technological solutions to energy shortages - because that derails their communalist agenda.
Ben: "...that brings the total projected barrels to what? Just under 50 billion? Figuring the time it will take from approval to market, with the corresponding increase in demand. It will mean extremely little."
This may be true, or not. Oil has such a high utility that only a slight shortage will push the cost away from where it should be--at the marginal cost of production.
Even if it does nothing to the price, it will still do a lot for the US economy: 50 billion barrels is worth 6.5 Trillion Dollars (at $130/barrel). That is enough to offset 500 Billion of trade deficits for 13 years. A weak Dollar is part of the reason for the higher cost of oil, so strengthening it would tend to bring the price down for us even if there was no relative change in supply and demand over that time.
I suspect that we're in a time of permanently tight supplies.
Do BP and Exxon agree?
Because I know whose opinion I would bet money on.
Where’s Joseph Schumpeter when you really need him? This article only scratches the surface of the problem – management that only improves when it has to – rather than continuously. Unfortunately for the shareholders of these companies, it apparently takes an oil crisis for their executives to make changes that increase the performance of their organizations.
Depending on where you have spent your career in corporate America, you will see waste in every shape and form. In treasury activities for example, unnecessary bank fees and interest costs have inflated bank profits since the first capitalist speculated on supply and demand. Fortunately for all of us, competition has a lasting effect on free markets that repeats itself if given the opportunity.
There are many ways to fix these problems. In the short run, you could hope for a greenmailer like Carl Icahn to devour the deadwood in the board room. In the long run, you could develop a quality management strategy (think Edwards Deming) and depend on the theory of variation and continuous improvement. Most importantly, you have to embrace change as the status quo and not the opposite.
I am just guessing, but I suspect bang for the buck supply chain improvements were better the first time around. There are two ways to look at this. We might just be squeezing the last bits of an already efficient model.
"It is less efficient for the store managers, but the added expense at the stores is offset by the savings on fuel, which the company says will be between $500,000 and $1.5 million chainwide this year."
This is almost scary. It sounds like the exact opposite of the way our civilization is supposed to go--human labor because more efficient over time because we have machines to do the work.
This is almost scary. It sounds like the exact opposite of the way our civilization is supposed to go--human labor because more efficient over time because we have machines to do the work.
Posted by themightypuck | June 24, 2008 4:20 PM
tmp,
get used to it, alot of our Economy is Backwards..
First off I'm referencing red skull as the comic book character only becuase I like it better than Skullberg. If you were a communist and reading this blog, I suspect you'd have some real issues with the voices in your head.
David, Red Skull:
It sounds like you both would like to drill for more oil on the coast. However, I cannot stress the fact that there is no chance of getting all of it off the continental shelf. On the west coast California is adamant about no drilling, and they have had significantly higher gas prices since the early 90's. Oregon and Washington, well go there, we upped our emission standards recently. Do I need to go on with the East Coast? The gulf already has rigs in it so I'm guessing that would be the one part of all the coastal waters that would willingly acquiesce. I'm leaving ANWR alone, because there is another piece of the puzzle that I just don't want to get into.
David you especially think that the extra oil would be good for the economy. While I don't think that profits naturally come at someone elses expense. With Oil I'd argue it will reduce the disposable income we have come to rely on. Its a commodity, a basic need. One cannot underscore the effect high Gas prices will have. I agree it is possible for their to be financial benefits. But I think at this point its squeezing the last drops for homemade Orange Juice. Is it worth the effort? Or should I just grab another Orange?
I am a fan of nuclear but you run into storage problems and its a highly regulated market which dissuades many investors. Wind other than being unsightly is not as good as it needs to be. Solar, as a piece of the puzzle yes. However, the moneymaker will probably be fuel cells. Reacting Hydrogen and Chlorine produces a lot of power, and the disposal process can is relatively simple (for those of you who wonder wikipedia is not bad, however, you're better off with a general book on the topic of fuel cells) process. There is a distinct possibility of a future where local neighborhoods have their own collective power supply and they pay a company for maintenance and repair of it. But I don't want to go down the flying cars road.
secretAsianMan-
""Every day, as I walk to work, I'm passed by single occupancy drivers. Thats a luxury that can't last forever. The same goes for business travelers." And that cuts to the core of it.
Most of these activists aren't bothered by oil shortages.What they hate is individualism - individuals, in their individually-owned vehicles, going to jobs of their individual choosing, and living in individual residences."
C'mon man, your not Francis Fukuyama are you? If you want to see a true collective mentality try the US military. Individuality isn't what aggravates people about conspicious consumption. Its waste. I wager that everyone had a mother who made them turn the water off when brushing their teeth, or "turn off the lights when you leave the room." And then you watch people do exactly what you learned not to, and in your head is your mom going "no don't do that its so wasteful." Like the clean your plate rule, when you realize that it may be a bad idea you've already spent 20 years doing it. Why because just "throwing food away is wrong." Thanks mom, years of drinking and brooding lie ahead.
ben,
I disagree, for some this may be the case, but who's to say the single-occupancy drivers don't need the flexibility of a single-occupancy vehicle during the day, aren't doing other things to mitigate the costs of their driving or simply aren't being wasteful.
People who sound like Nathan above are generally aggravated by a mix of self-righteousness, arrogance and a rich authoritarian streak. They have decided that doing X is unnecessary and bad and thus anyone who does X is ignorant or malicious, and if only they had the power to stop them the world would be a better place. That is the attitude that leads directly to 'Serfdom' if you get my drift.
I bike to work most days, take the train others and put less than 2k miles on my compact car a year, but I don't presume to know the circumstances of all the commuters I pass. If it is in their interest to drive, go ahead. If fuel costs make them carpool or join me on the trail, welcome aboard. If you can afford it and you want to live with an hour plus commute by yourself, not for me, but by all means go on, brother.
Fast forward 15 years, Nathan is still walking to work, and still annoyed at all of the single-occupancy drivers now using almost no gas as they are mainly EV's. It's not the waste, it's the fact that Nathan ahs decided it is bad and the world just won't bend to his will/
Skullberg,
w/this: "That is the attitude that leads directly to 'Serfdom' if you get my drift."
You're more correct than many will care to Imagine.
'Serfdom', for the great many, is, exactly, the Goal of most of the Eco-Freaks that are about Today. There is ample, good, Reason why these Cats are termed: 'Watermelons', they, Truly, are 'Green' on the outside, and Red at their Core.
We leave them unchecked, contrary to Hayek's prescient warning, to spew their fraudulent 'Science' and their spurious 'Economics', at the peril of our, remaining, Freedoms.
You have a point, the reversal is true too. "All those people who smugly sit in their hybrids carpooling. Clothed in righteous garments in their less carbon existence, as if the extra MPG empowers them with a more moral existence." I could go on, but its not my style. My point is that not everyone, and definitely not most resent individuality. To prove your thought your looking for someone who is mad at a guy who buys a Kindle, or swaps his cell phone and PDA for an Ipod. Thats the "sell-out" argument you get a lot of. Then it is just as you say.
excuse me Iphone.
Megan - This is what OPEC has to fear--these kinds of improvements last. If there's a dip in the global demand for oil, prices won't just recede; they'll crash.
Duplicitous liberal Jewish guy Nathan - If we had real president and not an empty suit in office, he/she would make conservation and fuel efficiency an issue of patriotic significance..... Changes in habits with regards to oil consumption could bring this "energy crisis" to an abrupt end and send oil crashing back down below - perhaps way below - $40 a barrel in a few years time. Drilling for new oil off the coasts or in ANWAR is part of the problem and not part of the solution.
Posted by Nathan
Both neglect that conservation and efficiencies are "working the edges of the problem", and both are totally trumped by mass immigration and native population growth completely wiping out gains from those strategies.
After the 1st oil crisis, we and the rest of the industrialized world made major gains in efficiency and conservation of oil - use of oil for electric power generation was largely ended and oil requirements for industry and transportation went way down.
Demography wiped that out. Though we use considerably less per capita in the industrialized world, Our NET use is 30% more because of global population growth, parts of the old 3rd and 2bd World modernizing, and fecund legal and illegal mass immigrants pouring into Europe and N America.
In 1973 there were 225 million Americans. Now 300 million and immigrants now pouring in and having large families will drive it to 363 million by 2030 by US Census projections, 420 million by 2050.
Globally, we have gone from 3.54 billion energy users in 1973 to 6.7 billion in 2007.
Worsening matters, we passed well-intentioned environmental laws that activists have found enabled them to effectively block new nukes, refineries, coal plants, and oil exploration the last 35 years. Instead of being more independent with all the conservation and efficiencies gained, population growth and restrictions on getting domestic energy means that we were 30% dependent on foreign oil in 1973, we are 64% dependent now.
**************
Not as duplicitous Nathan suggests, is more American control of it's energy fate derailed by getting more native enegy supply.
Getting past the popular mass delusion that it is futile to go after proven oil, nuclear, nat gas, and coal solutions because they take too long..10 years..The deluded suggest that even though 35 years of global R&D into "exciting alternative energy sources like solar, wind, used grease!!" failed to come true -somehow the next 10 years R&D will bring us affordable, reliable alternative energy solutions in adequate quantity. Then we can magically switch over to those sources.
Truth is that is far higher risk than expanding scientifically proven, tested energy sources we have 70 years of modern infrastructure investment to support. Counting on "miracle" R&D to get "quicker cheap alternative energy source science" in the next 10 years is dangerously delusional, as is the insistance that we will need no switchover time once the miracle has been achieved - when economists and experts say that it will take 30 years to partially transition away from oil IF a substitute is found- and likely all the oil produced will still be bought cheaper than the "alternative energy" substitutes.
****************
The other pieces of this mass delusion foisted on a naive US public by schools, media, and clueless liberal environmentalists include "No Nukes Ever!", "No Coal use!", "Going for Oil Shale would be as much an environmental horror as drilling in Alaskan mosquito bogs or offshore!!"
At the same time, the same guillable people know as much of economics as they do engineering, demography, and science.
Megan predicts a crash in oil when China and India have 11-16% per annum industrial growth rates and are becoming along with KSA and Japan the world creditor nations while the US has become the global wastrel-debtor nation de-industrializing and losing its export technology.
The reason why getting domestic energy supply by drilling everywhere, building nukes galore, and oil shale despite some heavy environmental damage - though temporary is important is that resources may go away with collapse of open markets - due to overpopulation, military action, bilateral deals to get natural resources direct in return for non-monetary considerations like weapons trade.
We can't count on getting foreign energy in the naive beliefs that (1)we will ALWAYs be able to buy on the open market, (2)as consumers Americans have a mystical control over price and if only we use less that the Saudis will be crippled,(3) That if ordinary Americans can't afford it then the limitless wealth of our government or at least it's credit with China will ensure that none of us "suffers" in an energy shortage where we let domestic sources go under 30% of use.
Failing to get past such delusions and Lefty lies makes America increasingly vulnerable to economic collapse or a significant drop in US standard of living. And even if the status quo persists and the global market survives, trillion dollar trade deficits not only make our enemies and rivals more prosperous while impoverishing Americans in the long-haul - they guarantee a weak dollar and rapidly escalating food, manufactured goods, services, heating, electricity, and all transport cost prices.
This brings to mind some thoughts I've had on the possibility of an oil bubble. Basically, conserving reserves in the hope that prices will rise is a fools game.
It is impossible to borrow on the expected future price. That means that the hoarders (like the US) are going to lose out. They are giving up not only the current value of use, but the growth that would be generated from the wealth created.
Eventually, competing economies will emerge. The price of oil will decline as it is used much less for energy and slightly more for argriculture and physical products.
Actually we did a better job of responding to high prices in the 1970's. Oil consumption *fell* substantially and we did not surpass 1973 consumption levels for nearly 25 years.
And this happenned in the face of real prices much lower than those today. The fact is, today's oil consumers are much less able to reduce consumption no matter what the price. The 1970's reductions were the low-hanging fruit and they mostly came out of the *non*-transportation sector. Today reductions are going to have to come out of *transportation*, which is a much toughter nut. For example, flying is going to have to become a thing of the past for most people. Moving rapidly takes much more energy than moving slowly. It doesn't make sense *energetically* to move from airport to airport at 600 mph and then spend hours not moving at the airports. It makes more sense *energetically* to travel more slowly for the entire trip. Similarly it doesn't make sense to bring 2000 lbs of metal and plastic along with you to work every day, when all you are trying to do is transport your own body weight and perhaps a briefcase.
So I see gas going ever higher to $10, $15 even $20 over the next 10-15 years. Consumers will eventually reduce consumption by making radical changes in the way they use energy, but the rising price of energy will outstrip any reduction in consumption. So total outlay for energy is going to rise no matter what we do.
This was always the case. The question has been do we want these ever-increasing cash flows for energy to go to Middle Eastern oil suppliers or to American alternate energy suppliers?
One would think think this a no brainer, but government polcy to date has been heavily skewed in favor of the foreigners.
The previous posters have had some interesting thoughts about the future of mass transportation. I believe that we'll see a dichotomy between single-occupancy motor vehicles (electric or fuel-cell minicars) and the cars/trucks we're used to driving (legally restricted to 2+ occupants). The American obsession with driving big cars for "safety" - a crock - will fall by the wayside.
Mike Alexander makes some wise remarks about air travel; I don't see it disappearing to the extent he envisions, but I can see flights becoming much dearer for middle-class Americans. It would mark a return to the flying-as-luxury paradigm of the '50s and '60s.
I didn't mean that flying will go away. What I meant to say was that flying will become a premium priced option for those who need speed and are willing to pay for it. Airlines will fly more direct flights, and drop the hub and spoke model, which made sense in a world of cheap energy. As a result people who need to be able to travel across the country and back in the space of a day will be able to do so, although they will pay a steep price.
Those who are going on vacation and can take a couple of days each way will take the train.
Commuters might take 2-seater commute cars to work that weigh a few houndred bounds and get 100-150 miles per gallon of biofuel.
In the world of cheap energy, capital costs more than energy (i.e. your car payments are more than your gas bill). In the world of pricey energy your gas bill will be larger than your car payment and so it will make sense for suburban and rural households to have a variety of vehicle including some big cars or trucks for hauling big loads and nothing else. The big vehicles will be very expensive to drive, but one might only put 100 miles a year on them and even if gas is $20/gallon that's not much on an annual basis.
With a fleet average of 100 mpg, $20 gas is only 25% more per mile than it is now, and current gas prices have yet to significantly impact consumption rates. So I see $20 gas as eminently liveable and no we aren't going to have to abandon the suburbs or go back to horses or any such nonsense.
Many Americans don't want to here about higher gas prices being "good". But, in the long run we may indeed be better off.