414. THE DECLINE OF TRANSOCEANIC TRADE?
Recently Jeff Rubin has been talking up the end of globalization due to peak oil:
Jeff Rubin, a former chief economist with CIBC World Markets, told the Georgia Straight that in the coming years, “triple-digit” oil prices will make it far more expensive to ship goods here from Asia.The following quick calculation shows a serious problem with this viewpoint.
“Trade is going to become more and more regional than transoceanic,” he predicted.
First, some fuel-efficiency statistics:
A tractor-trailer truck averages 90.5 net ton-miles per gallon.
A 100,000 dwt ship averages 1034.4 net ton-miles per gallon.
From Shanghai to Vancouver is about 6000 miles, so it takes about 6 gallons of fuel to move a ton that distance. By truck on land, that same 6 gallons will only move a ton about 543 miles. In addition, the labor costs of trucking are huge compared to shipping, because each truck needs a driver, while a gigantic ship only needs a skeleton crew.
Conclusion: High oil prices will destroy trade between Alberta and Vancouver before it destroys trade between Shanghai and Vancouver.
The relevant metric is not the percentage of fuel costs relative to total transport costs mentioned by Rubin. That ratio is high for shipping precisely because shipping has such low labor costs per ton.
The relevant metric is the comparative values of net ton-miles/gallon of different transport modes.
The reality is that it costs less to ship a container between China and Felixstowe, England than it costs to send it by road from Felixstowe to Scotland. Source
If it will be uneconomic to manufacture goods with low margins, like clothing and consumer products, across the oceans, it will be even more uneconomic to manufacture them within Canada, for exactly the same reason. Moving the products from, say, Vancouver to Alberta or Saskatchewan will take as much fuel (or far more) than moving the same products from China. In addition, you have the problem of high labor costs of trucking and manufacturing in Canada.
It's interesting to note that agitation against globalization and calls for relocalization are more than 300 years old, and arose long before the era of oil, or even coal. For example, English clothing interests were calling for protectionist legislation against cheap fabric imports and loss of jobs to India in the year 1681:
"into India throwsters, weavers, and dyers, and actually set up there a manufacture of silk... importing them ready made and dyed in England is an unspeakable impoverishment of the working people of this kingdom who would otherwise be employed therein and to the ruin of many thousands of families here." (Alfred C. Wood, A History of the Levant Company, p. 104)Port cities along the pacific rim will continue to thrive, as port cities always have, due to the ease of trade.
If anyone is going to get clobbered by price inflation, it's the people in deeply landlocked rural areas like Saskatchewan. This will be due to: a) the high expense of moving goods to them, and b) the highly dispersed layout of rural communities, where you have to drive 20 miles to the supermarket etc. If you're driving more than 3 miles to the supermarket, that drive itself consumes as much fuel per item as transporting the same items halfway around the world.