Good news about high gas prices

Oil-fired transportation cost may put brakes on long-distance trade

May 28, 2008
Julian Beltrame
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.

Not so great over here, everywhere's a long way for us, and no economies of scale given the size of our local market either. 😕

Originally posted by uzless
Oil-fired transportation cost may put brakes on long-distance trade

May 28, 2008
Julian Beltrame
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 reve ...[text shortened]... heory, since globalization is partially made possible by cheap transportation costs.

lets hope for a return to the days of sailing ships, you can't get much greener than sailing, even horse-drawn transport isnt as good unless you get the methane emissions under control.

Originally posted by eamon o
lets hope for a return to the days of sailing ships, you can't get much greener than sailing, even horse-drawn transport isnt as good unless you get the methane emissions under control.