Fuel Spikes Make The World Less Flat  

Posted by Big Gav

Some notes on oil prices and globalisation, from TreeHugger (via Bruce Sterling).

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.”

2 comments

Anonymous   says 10:14 AM

We've had this discussion before and you dismissed shipping costs as insignificant even in a post-peak world. Do you take the issue more seriously now?

I suppose it depends largely on how heavy and bulky the item being shipped is, relative to its value. As Rubin says, it might make sense to start re-localising steel production, but not computers, MP3 players, cameras, phones ... and other lightweight, high value items.

Shipping is the most cost effective form of transporting goods, and with that in mind I don't change my view that shipping will continue to enable international trade at high levels post peak.

It is true, however, that shipping bulk materials will increasingly make less economic sense - especially when they are used to manufacture items and ship them areas that have local supplies of the bulk materials used.

In essence, we'll see manufacturing of stuff that uses large quantities of bulk materials move closer to the places the materials come from. High value items will continue to move via ship throughout the world.

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