Globalization unwinding
June 5th, 2008 by Jim JustA new CIBC World Markets report concludes that higher energy prices are affecting transport costs at such an unprecedented rate that “the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today.”
“The cost of shipping a standard 40-foot container from East Asia to the US eastern seaboard has already tripled since 2000 and will double again as oil prices head towards $200 per barrel[.]“
Higher shipping costs mean the costs of whatever is inside that container are higher as well – and the cheaper the goods, the greater the impact of higher shipping costs. Those higher shipping costs get passed on.
The business models of companies such as Wal-Mart that rely on cheap foreign goods may be beginning to be squeezed between higher shipping costs and higher production costs in China and the rest of Asia. Raging inflation may force Asian countries to raise interest rates which would further erode the dollar’s purchasing power against those currencies and raise the dollar cost of manufactured goods.
Of course air freight costs are rising, too – for two reasons: higher oil prices and a weaker dollar.