Shipping Costs Start to Crimp Globalization
A slightly overdrawn article on how the increased costs of shipping are starting to affect siting of production facilities.
The world economy has become so integrated that shoppers find relatively few T-shirts and sneakers in Wal-Mart and Target carrying a “Made in the U.S.A.” label. But globalization may be losing some of the inexorable economic power it had for much of the past quarter-century, even as it faces fresh challenges as a political ideology.
Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages. Rising concern about global warming, the reaction against lost jobs in rich countries, worries about food safety and security, and the collapse of world trade talks in Geneva last week also signal that political and environmental concerns may make the calculus of globalization far more complex.
It is true that some of the most ridiculous practices will probably end (like shipping Scottish Salmon to Asia to be cleaned and then shipping it back to the UK for consumption), but the opening of one IKEA factory in the US doesn’t really indicate a huge shift.
Ocean shipping is still the cheapest way to move goods and it is so much cheaper than any form of land transport that it won’t decline much in the near term. That’s why Walmart is expanding its East Coast docking facilities, it is better to move freight through the Panama Canal then unload in California and ship overland.
There may be some shift in assembly of bulky items like appliances as the article mentions, but many bulky things can be assembled close to markets which then makes the shipping costs less important. The story also ignores possible improvements in sea vessel technology. There has been, for example, talk of putting sails on oil tankers.
I think the real impact will come with bulk grain shipments to developing countries. This trade depends upon huge subsidies to US farmers in the first place. This is why the trade talks collapsed, the importing countries just refused to allow the US subsidies to continue. So add the rising cost of shipping to the loss of subsidies and the push for local food self-reliance and we could see big changes in US grain exports.