Oil prices raise transport costs, eroding advantages of globalization: CIBC
A short, pithy piece which once again points out the folly of our port managers, who have been pursuing a strategy based on cheap oil.
In fact it is so short I will let it speak for itself
The high price of energy is eroding the advantages of globalization by raising the costs of shipping materials around the world, says CIBC World Markets.
The bank says the cost of moving goods, not the burden of tariffs, is the largest barrier to global trade Tuesday.
In fact, the report says, the explosion in transportation costs caused by the record levels in the price of oil has effectively offset all the trade liberalization efforts of the past three decades.
In 2000, when oil was US$20 a barrel, the cost of transportation was the equivalent of a three per cent U.S. tariff rate, the bank says.
Now, transportation costs are equivalent to a nine per cent tariff, and at US$150 a barrel for oil they would amount to 11 per cent tariff, about the average of tariff rates in the 1970s.
China has been among the most adversely impacted, with steel exports to the U.S. falling by 20 per cent from a year ago, and other exports that carry a high freight cost component also showing declines.
Trade is based on the economic doctrine of “comparative advantage”, and the cost of transportation has always been a significant part of the calculation – trade figures are quoted as either CIF (including carriage, insurance and freight) or FOB (free on board, usually at the port of origin). And of course the huge size of modern freighters and the massive investment in containerization all helped to keep those costs down. But they have probably achieved all the economies possible and now fuel costs are rising and it will take some time for fuel saving technologies – such as the return of sailing ships – to get going. And before you imagine I mean tea clippers, there have been some very successful experiments in sail assisted ships in recent years.
But it stll seems to me more likely that in our current planning horizon (the next twenty to thirty years) port expansion should not be a high priority.
UPDATE May 28
There is a very similar opinion piece in the Sun today
Ultimately a reduction of globalized trade may be of benefit to North Americans. This may result in the return of some manufacturing to our soil with jobs to go along with it.
Unfortunately we have been too busy in the Lower Mainland of gutting our industrial and agricultural zones in favour of more and more condos that all to often sit empty because they are just an investment property. All too often talk about sustainability in Vancouver focusses on boosting residential density and completely forgets the industrial and agricultural side of the equation.
This is not to say that global shipping will ever die out completely….a similar ridiculous statement as that we will completely run out of oil. Prices will rise however so that for a good deal of goods it just won’t be economically feasible to ship something across the world. Modern sailing freighters like the one in the photo will probably help reduce fuel usage somewhat, but like a hybrid car, petrol will still be a big part of the equation.
Again, if we took energy we spent trying to justify the status quo and protect ideas that are no longer valid and instead adapt to new conditions, then we would be much further ahead. As Charles Darwin once allegedly said “It is not the strongest of the species that survives, not the most intelligent, but rather the one most responsive to change.”
John
May 27, 2008 at 5:15 pm
There is a transportation parallel to BC and Gordo’s so-called emissions reduction goals.
There are billions of dead pine trees currently standing in the interior that have not been reached by the current program to log as many as possible in the shortest amount of time. It is a truly mind-boggling area, bigger than some entire European countries. Moreover, the silvicultural studies and on-the-ground efforts to replant the dead forests with beetle-resistant native tree species has been so flaccid as to be invisible to date.
The greatest fear now being voiced from several quarters is that these vast forests — which have now stopped absorbing carbon — will release their carbon in massive conflagrations over in the next few years during our increasingly drought-prone summers instead of more slowly from natural decay, or from the lack of replanting. They’re even talking about promoting rangeland for cattle to replace our once huge pine forests.
The dead wood could fairly easily be used to make celulosic ethanol in several regional plants, perhaps supported by portable chipping facilities located in the field. This non-fossil, renewable fuel could be used for the ferries and other government fleets, including transit buses. There may be enough for a portion of the commercial transport and agricultural sector as well.
No additional land will be cleared for this task (one of the greatest flaws in other biofuel projects), and a massive tree replantation program by necessity would be implementated not just to supply more fuel, but to get the carbon cycle running forward again in BC (it’s currently reversed).
New forests with faster-growing young trees absorb tremendous amounts of carbon compared to mature forests that level off in carbon absorption. Even if it takes a generation or two to determine what the most beetle-resistant mix of species will be, vast tracts of young trees will still act as one of the best carbon sinks imaginable. And the research conducted here will help the rest of Canada where the entire boreal forest is now under threat by the pine beetle and drought.
Meredith
May 28, 2008 at 12:24 pm
Here’s a link to the paper itself (four pages long with some nice graphs):
http://research.cibcwm.com /economic_public/download /feature1.pdf
One quote may be relevant to Prince Rupert’s ability to compete for container ship traffic: “At today’s oil prices, every 10% increase in trip distance translates into a 4.5% increase in transport costs” (I say may because I don’t know the cost of the additional travel by rail).
Via a P2P Foundation blog post that discusses the paper.
Geof
June 1, 2008 at 10:05 pm
Oops, that URL had a couple of spaces in it. Here it is again:
http://research.cibcwm.com/economic_public/download/feature1.pdf
Geof
June 1, 2008 at 10:42 pm