Post Number: 547
|Posted on Thursday, May 29, 2008 - 11:57 am: || |
This is an interesting article, and would have long-term good news for the region. I guess there is something positive about the $4 a gallon gas signs I drive by. Transport cost will eventually cancel out cheap labor from Asia. The days of making a part, then shipping 6000 miles to be added to another product will come to an end. Suppliers will eventually need to be right next to their end-manufacturer, as well as locally manufacturing goods. The one big thing, that people forget, and this article mentions, is that the advantage of globalization, has been one of cheap transportation cost. (How else are apples grown in China, and Grapes from Chile competitive with those grown here?) With that factor being modified, it changes the whole economic picture.
It will take a little time- but we are sitting around a lot of fresh water, have few natural disasters, and have a well-educated workforce. Not to mention real-estate prices will be very competitive for those willing to locate here in a few years.
This is an excerpt/analysis from about the article article below:
The cost of shipping a standard 40-foot container from East Asia to the North American east coast has already tripled since 2000 and will double again as oil prices head towards US$200 per barrel.
Mr. Rubin recently predicted oil would gravitate towards US$200 a barrel, driving by soaring consumption in China and the Middle East and constrained supplies. It currently costs US$8,000 to ship a standard 40-foot container from Shanghai to the North American east coast, including in-land transportation, the report said. That's up from just US$3,000 in 2000 when oil was US$20 per barrel. At US$200 per barrel of oil, the cost to ship the same container is likely to reach US $15,000."Unless that container is chock full of diamonds, its shipping costs have suddenly inflated the cost of whatever is inside," adds Mr. Rubin. "And those inflated costs get passed onto the consumer price index when you buy that good at your local retailer. As oil prices keep rising, pretty soon those transport costs start canceling out the East Asian wage advantage."
Already the impact of rising oil and transport costs are having an impact on manufacturing that is expensive to transport.
"Soaring transport costs, first on importing coal and iron to China and then exporting finished steel overseas, have more than eroded the wage advantage and suddenly rendered Chinese-made steel uncompetitive in the U.S. Market," Mr. Rubin said. He noted China's steel exports to the United States are falling by more than 20% year-over-year while U.S. domestic steel production has risen by almost 10%. Mr. Rubin says rising oil and transportation costs acts like a tariff, dampening trade and forcing markets to seek shorter, and cheaper supply lines. Global exports "went absolutely nowhere" during the oil and energy crises of the 1970s, and for several years after despite reductions in global tariffs and healthy recoveries from recessionary periods, Mr. Rubin said.
The report argues a mild U.S. recession will be no cure-all for rising inflation which it sees staying around 4% next year and forcing the U.S. Federal Reserve to raise interest rates into a recovery."
Shipping costs soar
Oil-fired transportation cost may put brakes on long-distance trade
May 28, 2008 04:30 AM
THE CANADIAN PRESS
OTTAWA–The high price of energy is undercutting the advantages of globalization by raising transportation costs so much that they could force businesses to look closer to home, says a CIBC World Markets report.
"Globalization is reversible," Jeff Rubin, the bank's chief economist, wrote in the study released yesterday.
"In a world of triple-digit oil prices, distance costs money. And while trade liberalization and technology may have flattened the world, rising transportation prices will once again make it rounder."
Rubin and co-author Benjamin Tal say the cost of moving goods – particularly heavy materials such as steel – not the burden of tariffs, is the largest barrier to global trade today.
They calculate that every $1 (U.S.) increase in the price of a barrel of oil has translated into a 1 per cent increase in transportation costs.
In fact, the report says, the explosion in transport costs caused by the record price of oil has effectively offset all the trade liberalization efforts of the past three decades.
In 2000, when oil was $20 a barrel, the cost of transportation was the equivalent of a 3 per cent U.S. tariff rate, the report states.
Now, transportation costs are equivalent to a 9 per cent tariff, and at $150 a barrel for oil they would amount to an 11 per cent tariff – about the average of tariff rates in the 1970s.
Given the costs of moving raw materials and finished goods, distance to market is becoming an increasingly important factor in business decisions, the report says.
The cost of shipping a standard 40-foot container from Shanghai to North America's east coast has jumped to $8,000 from $3,000 in 2000 when oil was $20 a barrel, the report says.
Nobody is predicting any sudden breakdown of Asia's exporting machine. After all, labour costs remain far lower in Asia, while shipping costs spread out over a container full of consumer electronics, clothing, sporting goods or the like may result in only a modest increase in per-unit costs.
But the higher shipping costs are already affecting products with a high ratio of freight costs to final sale price, such as steel, the report says. It says China's steel shipments to the United States are down by 20 per cent from a year ago, the worst performance in a decade, while U.S. domestic steel production has risen 10 per cent. Eventually, some production could return to North America.
"Are we seeing a major inflow of jobs back to the manufacturing sector? Not yet," he said. "But if oil prices continue to rise and transport prices even double from the current rate, you will see more and more jobs coming back."
United Steelworkers economist Erin Weir said the CIBC paper makes sense in theory, since globalization is partially made possible by cheap transportation costs.
Weir said he cannot point to any sudden increase in steel production in Canada, but noted that the country's steel industry has been acquired by foreign interests in the past few years, "so they must believe they are good investments."
High energy prices will have a minimum impact on Canadian exports, Tal said, since the vast majority are bound for the nearby U.S. market, and many are in commodities, for which markets have few alternative sources.
CIBC's Rubin last month gained attention for predicting oil would surge to $225 a barrel by 2012. Some of his past calls, on real estate and currency, for example, have hit the mark, while other calls have been off base, such as saying in 2000 the Canadian dollar was "on a path to extinction."
Post Number: 3451
|Posted on Thursday, May 29, 2008 - 12:02 pm: || |
Gosh, that sounds terrible...
Post Number: 186
|Posted on Thursday, May 29, 2008 - 12:03 pm: || |
Very interesting. Have seen a similar phenomenon occurring in high tech. Indian companies are now coming to the US to set up shop to be closer to customers. There is one Indian company setting up a call center here in Atlanta and will be hiring around 1,000 people. The twist to this is that 90% of the employees will reportedly be Indian.
Post Number: 1519
|Posted on Thursday, May 29, 2008 - 12:13 pm: || |
Sounds like a slick homogenized immigration scheme.
Post Number: 3453
|Posted on Thursday, May 29, 2008 - 12:22 pm: || |
Cap the HB-1 visas to be sure.
I've also heard that part of the reason for the call centers coming back to the US is that customers are fed up with dealing with service reps whom they cannot communicate with.
Even using stupid tricks like giving themselves (for lack of a better term) American-sounding names to interact with customers hasn't worked.
Post Number: 266
|Posted on Thursday, May 29, 2008 - 12:25 pm: || |
If I get a call (usually a phone solicitor) who speaks bad English, I ask them where they are calling from. Either they hang up on me, or they ask me "what does it matter?" Then, I hang up on THEM, after telling them I prefer to speak to American workers.
This is a interesting article. We'll see how it plays out.
Post Number: 1025
|Posted on Thursday, May 29, 2008 - 1:09 pm: || |
Funny how some important ideas gain ground and following from convergence that seems coincidental. For example, eating "locally." Lot's of people started to think this way and commit to it before gas went sky-high. It was about safety and keeping the small farmers going (as an American life-style). But now it makes even more sense to eat local and grow local. I love raspberries from anywhere and buy them from Chile in the winter. But soon that may be hugely expensive. I'll have to rely more on apples and rhubarb -also fine choices.
The WSJ had an article yesterday about truckers taking their rigs off the road and selling them. Bad for them, I guess, but, in the long run probably better for all of us, for the air we breathe and for the safety and long-life of our highways. Let the railroads grow again.
Post Number: 548
|Posted on Thursday, May 29, 2008 - 1:28 pm: || |
- I don't want to get off track about companies that us Customer Service in India, and am greatly interested in seeing resurgence in manufacturing in the Great Lakes region. I suspect the change in energy prices will change our lives in ways we have not imagined yet. Local may again be as important as global.
Bravo Southwestmap: "Let the railroads grow again." Indeed they already are doing better than they have been in decades. Railroad stocks on Wall Street have been amazing this year- again fuel prices, help, rather than hurt them.
Post Number: 3454
|Posted on Thursday, May 29, 2008 - 1:46 pm: || |
Railroads can't deliver door-to-door.
Post Number: 695
|Posted on Thursday, May 29, 2008 - 1:54 pm: || |
You are right. LOCAL delivery trucks will still have a place in the "post cheap energy" economy. They will deliver goods from centralized warehousing areas to various points within a region/metropolitan area. However, long haul trucking will become a thing of the past as fuel costs will make "Just in time delivery" through the use of trucks less cost effective than utilizing rail and warehousing.
Post Number: 246
|Posted on Thursday, May 29, 2008 - 2:00 pm: || |
Yeah, Nice turn of events.
Post Number: 5456
|Posted on Thursday, May 29, 2008 - 3:21 pm: || |
Cinderpath, thank you so much for posting that article. Just the other day I was asking what effect higher fuel prices were having on container ships.
Of course the foreign high tech outsourcing issue isn't related to fuel costs in the same way. I thought H1-B visas were already capped?
I found a link to a copy of this story: Shipping costs soar.
Post Number: 3457
|Posted on Thursday, May 29, 2008 - 3:48 pm: || |
For the time being, they are.
Unfortunately, there are groups that want to lift the cap.