The World Is No Longer Flat
by Lloyd Alter, Toronto on 05.28.08
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
This could go two ways. Asian countries could just cut their costs elsewhere, ie on the backs of their workers. Hopefully they have discovered what Henry Ford did 100 years ago, that a well-paid worker is a freer-spending consumer. Of course, this leads to other asymmetries, but in the long run, its the only fair way.
You are giving too much credit to oil prices as the cause for elevated shipping costs and consequent price increases. More salient was the overall shortage of cargo capacity over the past few years, which is about to turn into a glut as a lot of new ships have recently been built at a time when demand is waning due to an overall economic slow-down.
"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."
This is dead wrong, and not even close to actual numbers. It currently with all water service cost about $3000 USD from Shanghai to the east coast. Nowhere in America would it cost $8,000 and frankly speaking the cost of shipping has not risen that much in years. In fact by far the most expensive part of the transport is the inland trucking of the container to your factory.
@Spike:
You are correct. Fuel prices are only not to blame for the rise in shipment prices. The concept of "space" is highly effecting market rates for ocean shipments. Space is limited and the shipping companies are making plenty of money because demand is exceeding supply at exponential rates. This is not only effected by fuel costs, however the cost of transport has increased because of this, but it is not the most significant effect.
In addition, the service industry regarding globalization hasn't been completely hurt by the rising fuel costs in the short run. In the long run, it could happen because the cost of electricity is rising because cost of fuel, however, service industries can still survive through telecommunications through fiber optic cable mentioned in "The World is Flat."
"The world isn't flat."
Speak for yourself. My programming job just got sent to Bangalore!
"Speak for yourself. My programming job just got sent to Bangalore!"
First we kept all the brain work here in the US, and made the third world countries do all the manual work. Now they have caught up and can do the brain work as well as we can, but we can't afford to ship products in from third world countries.
Guess we are going back to the idea that the physical stuff is produced locally, and the mental stuff is made world wide.
Soon you will be competing with a woman in Brazil, a man in India, and someone in Germany for the chance to right that program. And each of you will buy mostly products that were made within 100 miles of where you live.
The horror! What will people do without all those salad shooter from China!?!?!
Its the collapse of civilization as we know it!
Here's hoping the end of globalism is near!
Car makers are already shifting production to the US, in part to the declining dollar, but also due to shipping costs.
What's next? Refrigerators? Furniture?
I also imagine, if prices go high enough, lots of things we used to think we needed will be sacrificed, and many probably won't be missed.
Some Chinese companies are moving to the U.S. for lower costs; and yes, one of those companies is Haier, a refrigerator company.
The price of oil continues to increase however technological advances in alternative fuels and energy sources is also progressing at a rapid rate. Peak oil may well be in the near future but I believe that sustainable and renewable energy is also not to far away. Kite powered cargo ships have already been successfully trialled and more innovative ideas will be fueled by the rising price of oil.
High oil prices won't bring back jobs to the US or Europe. All they will do is move production from China to Mexico and Eastern Europe.
Anyone remember Tom's big NYT story last year about the greening economy? The first thing he said was the price of oil needed to go down. Why? Not, as he claimed, to reduce terrorism, but because he's a smart man, and he knows free-market globalization can't work in a resource vacuum, especially when demand is already outstripping supply. He's trying to save face as the poster child of a system that can't work on this planet.
When it comes to fuel costs, many people don't realize that the Panama canal can no longer handle ships as large as these huge new container ships, making the trip much longer,..Waaaay longer, thus higher fuel costs !
To think that ships will remain with oil based propulsion systems is short sighted. NOw that oil seems to have finally shown it is not about to come down in cost, new technologies will avail themselves as investors see risk/reward. What about the jumbo sailing tankers? Sail power works and even if used as auxillary power it could have substantial impact. Then there is nuclear!
Sorry but I do not see this as a long term issue, just another blip in the growth bubble.
When 15th C Europeans arrived in China, they discovered Chinese Junks with over 10x the cargo capacity of any western ship.
If shipping becomes a serious impediment, expect the Chinese to build a solution. Actually, just open up the shipping news and see it being implemented.
Samsung Heavy Industries just launched the World’s largest container ship, breaking its own world record of 9200 teu (a teu is a 20 ft container) which it set less than 12 months ago. The Xin Los Angeles is the new heavyweight champ and carries 9600 teu. This ship is owned by China Shipping Container Lines (CSCL) and is operated by China International Ship management Company. The ship Xin Los Angeles has been assigned Lloyd's Register's Environmental Protection Notation, which recognizes vessels which exceed current statutory environmental requirements. The ship has a certified ballast water management system and has detailed procedures and systems in place for dealing with refrigerants, garbage and sewage and will also run on low-sulfur fuel.
SHI has developed a 12,000 teu container ship design and is working on a container ship capable of carrying 14,000 teu.
This world’s largest container ship is more than three times larger than the Titanic and thanks to incredibly sophisticated automation, has a crew of only 19 men.
…staggering.
I've been talking about this for years... it didnt take a prophet to see this coming. I am not too happy about the hole America has dug for itself.
Lets say you can squeeze 1000 toaster ovens onto one of those giant shipping crates. If it costs $2000 to ship it to america, that is $2 per toaster. Not too shabby, eh? This is, in a nutshell, the business model of the 90's. Yes, thousands of people sat in thousands of boardrooms, crunching the numbers and seeing $$$$$$ and $$$$$$$$$.
Let me see if I got this straight...
A thousand CEOs got rich because it made financial sense to close down factories here and open factories in China. Because it is SOOO BLEEPIN SMART to trade American jobs for Chinese slave labor PLUS the foreign oil required to import the fruits of that labor. And all these really smart CEOs just assumed that the price of oil was going to stay low, even though their own country had little control over the price of oil. So unbelievably brilliant!
But with the shipping cost at $8 a pop, does it still make sense to import? Can we not build a toaster oven here in America for less? If not now, then when? When it costs $20 a pop to import?
By the way, this isnt just capitalism gone mad. This was all done by design, to destroy America and deplete the world's fossil fuels so that the global elites could have more control. (You know I just had to throw this comment in.)
Most of the people responsible for sending jobs overseas probably couldnt give a damn about the longterm survival of this country. But I seriously doubt they would destroy our production base if they knew the profits were only going to be short to medium term (less than ten years). But that is exactly what they did. And they did it because the military industrial complex controlled media censors the petroleum industry data and analyses required to make informed decisions. This is yet another example of the cancerous nature of the military industrial complex. Their attempts to control information resulted in many poor financial decisions across the board. This is why I say they are sucking the wealth right out of this country, and the world at large. Because they are. Through taxation, currency devaluation, and control of information.