CIBC World Markets - Will Soaring Transport Costs Reverse Globalization?

CIBC World Markets recently published an article in their May 27th, 2008 StrategEcon Newsletter about the cost of transportation and its effect on the shipping industry.

Globalization is reversible. Higher energy prices are impacting transport costs at an unprecedented rate. So much so, that the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today. In fact, in tariff-equivalent terms, the explosion in global transport cots has effectively offset all the trade liberalization efforts of the last three decades. Not only does this suggest a major slowdown in the growth of word trade, but also a fundamental realignment in trade patterns.

It is a very interesting read and if the trend of increasingly higher oil price continue, it will surely have an effect on port jobs and may even translate into a stagnation or reduction in container traffic which may have an effect on our economy and call into question things like the South Fraser Perimeter Road, or maybe port expansion all together.

At today’s oil prices, every 10% increase in trip distance translaters into a 4.5% increase in transportation costs.

Though we may be in luck with our new Prince Rupert container facility that is a full day’s sailing closer to Asian markets. Though it might not even matter...

The duration of a typical sea voyage from China to North America is four weeks.

To what extent will astronomical increases in transport costs alter the huge (but shrinking) wage differential between Chinese labor and North American labor remains to be seen. But we are already starting to see some change in capital-intensive manufacturing whose products carry a high ratio of freight costs to final selling prices.

Who knows, maybe we’ll turn back into regional markets…

I was alerted to this article from the LRC listserv.