The World Is No Longer Flat

Tom Friedman wrote "The World is Flat", suggesting that globalization had leveled the playing field between industrial and emerging countries. Jeff Rubin of CIBC World Markets suggests that this is perhaps changing because of the cost of fuel.

The cost of shipping a 40 foot container from Shanghai to the east coast of North America has gone from $3,000 in 2000 to $8,000 because of the cost of fuel, and for many products, the Asian cost advantage has virtually disappeared.

"In a world of triple-digit oil prices, distance costs money," write Jeff Rubin of CIBC World Markets. "And while trade liberalization and technology may have flattened the world, rising transport prices will once again make it rounder."
Commodities will be hit hardest

Heavy commodity items like steel that are not particularly labour intensive are the first to be hit; Chinese steel exports have fallen by 20% in the last year. The Chinese were bringing iron or from faraway places like Brazil and shipping it back to the USA; now American mills actually have a price advantage.

Marcus Gee quotes Rubin and Benjamin Tal in the Globe and Mail:

Shipping costs to and from Asia have risen so much that they have eclipsed tariffs as a barrier to global trade, Mr. Rubin and Mr. Tal say, calling the cost of moving goods "the largest barrier to global trade today."

"In fact," they say, "in tariff-equivalent terms, the explosion in global transport costs has effectively offset all the trade liberalization efforts of the last three decades."

When oil was $20 a barrel, transport costs were equivalent to a 3-per-cent tariff rate; now it's above 9 per cent.

Aggravating the problem is the fact that modern new container ships travel faster than old bulk carriers and so use up more fuel, doubling fuel consumption per unit of freight over the past 15 years.

"This is an environment in which shipping from the Pacific Rim may not make sense any more," Mr. Tal said in an interview.

"If you're thinking, 'maybe we should bring in a container from China,' you should think again." ::Globe and Mail

Jeff Rubin has a way with words; other quotes in TreeHugger:
On the tar sands: "You know you are at the bottom of the ninth when you are schlepping a tonne of sand to get a barrel of oil"Canadian Tar Sands: a Hydrocarbon Hurricane

On the price of oil: "Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period," Rubin said. "It is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity." Gas $7 Per Gallon in Four Years

Tags: China | Transportation