05 June 2008

High Transportation Costs Shift Trade Locally

Transporting commodities over long distances is becoming much more expensive. Both air freight and maritime freight costs are rising high enough to affect industrial sourcing calculations. For the US, it is making more sense to trade with Canada and Mexico--in terms of skyrocketing transportation costs--than China.
Soaring transport costs suggest trade should be both "dampened" and "diverted" as markets seek shorter, and therefore less-costly, supply lines.

"Instead of finding cheap labour halfway around the world, the key will be to find the cheapest labour force within reasonable shipping distance to your market," according to Rubin.

In that type of world, Mexico's proximity to the rest of North America, combined with its labor costs, will give it a second chance to compete with Pacific Rim production, according to Rubin, who predicts that when oil prices reach US$200 a barrel, it will cost three times as much to ship the same container from China than from Mexico. __Source_via_seekingalpha
Higher energy costs generate cascading effects throughout the global economy.

An interesting side effect of higher shipping costs will be a shift to more local food production. Another interesting effect is the "ramping up" effect that higher shipping costs for oil have on oil prices, which further ramps up the costs of shipping the oil. Such a positive feedback effect can play havoc on the futures markets of oil and other commodities.

More: High transportation costs are causing large air carriers to scale back flight schedules, and to retire older fuel-hungry planes early. Cisco's new holographic video-conferencing technology appears custom made to step into the gap.

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Blogger Hell_Is_Like_Newark said...

Curious if this will also cause more manufacturers and large commercial operations to move back closer to population centers. Since post WWII, the trend has been new plants moving into rural areas taking advantage of cheap land and cheap labor. Right now the cost of the insulation I use for my business is being driven up more by the shipping cost than any increase in the cost of the material itself. The plants that make it are located out in the boonies, far from my customer base.

Thursday, 05 June, 2008  
Blogger IConrad said...

This one really makes me look at that parasail for cargo ships concept a little more... admirably. It's too bad the only group using it right now is passing the difference in costs to the crew.

A more assertive version could possibly reduce maritime transit costs by up to 30%. Which, of course, would be //great// news for the Chinese economy.

Thursday, 05 June, 2008  
Blogger Snake Oil Baron said...

The high transport costs will probably both provoke investment into more diverse forms of transportation (non-perishables might go by slow but very efficient transport while alternative fuels for other goods will receive attention) and into more distributed and flexible manufacturing and recycling. You might find many of the goods and parts one gets being manufactured on demand at hardware stores/factories.

Thursday, 05 June, 2008  
Blogger SwampWoman said...

I agree, Snake Oil Baron. Technology has progressed to the point that an ordinary person can afford the means to manufacture things in a home workshop that 20 years ago would have taken a substantial financial investment in equipment and machinery such that only a large business could afford.

Local manufacturing has a great advantage in turn around time, too.

Thursday, 05 June, 2008  
Blogger al fin said...

Good comments, thanks.

HILN: I suspect more products bound for the US will be made in NAFTA countries soon. Small to medium scale manufacturing and industries will hopefully enjoy a resurgence. They are the health of communities.

Conrad: Yes, the sail assist for freighters is a good first step. Expect a lot more energy-saving innovations.

Baron: Yep. The equipment for rapid manufacture/ rep-rap etc. will be too expensive for every hardware store or auto parts store, but you may see co-ops of stores going together to buy these new factories in a machine.

SW: Maybe in ten years or a bit more, people will be able to afford such machines in a home workshop. In the meantime, it would be nice for a community co-op to own such machinery--like a community garden. People could reserve time, or transmit their CAD/CAM files to the machine for a nominal fee.

Friday, 06 June, 2008  

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