Transportation Costs Hit the ‘New World Order’
The Sunday New York Times offered an in-depth analysis on August 3 by Larry Rohter entitled, Shipping Costs Start to Crimp Globalization.
A decade ago oil was going for $10 a barrel and “outsourcing” manufacturing facilities and jobs to low-wage regions of the Third World began to hit American labor hard. We were all told we must simply adjust to a whole new, world-wide way of doing things, and damn the torpedoes that were decimating labor unions and sending millions of skilled Americans into the minimum wage ranks of burger-flippers and WalMart greeters just to (not quite) get by.
Oil is trading today [Aug. 4] for just over $121 a barrel, down quite a bit from just a month ago when speculators bid it up to $138. The drop is attributed to falling demand as conservation kicks in on the user front. $4 a gallon gasoline and $5 a gallon diesel has cut into fuel consumption big time this summer as regular people choose not to drive if they don’t have to, and transportation fleets pool schedules to ensure their trucks, trains and ships aren’t wasting a drop. According to Rohter the big ocean-going container fleets have slowed down 20% to save on fuel costs, which translates into substantially slower turnaround on the goods.
We all recognize that greatly increased shipping costs as reflected in the upside-down cost of diesel fuel (remember when diesel was always a dollar LESS than gasoline?) must translate into an increase in the price of everything that moves by means of diesel fuel. This means inflation in every sector, at a time of stagnant wages, joblessness and increasing costs of basic transportation, heating and cooling for the average citizen.
A study in May by Canada’s CIBC World Markets investment bank showed that the recent increases in shipping costs amounts to a 9% tariff on all trade. All without governments having to do a thing. Their report concluded that…
The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today. [This situation] has effectively offset all the trade liberalization efforts of the last three decades.
Many things contributed to the decline in demand, including Americans choosing to stay close to home this summer, and/or trading in their gas-guzzling SUVs for more fuel efficient vehicles. GM is in trouble for betting on the wrong market, and other American automakers who could have beat the Japanese at the MPG game but didn’t bother to do so are also taking a hit. Union busting plays a role as well, as corporate job losses rose 33% over last year.
Some corporate jobs, however, are doing just fine. Seems that corporate number-crunchers have figured out a way to convert the pension plans of their workers into retirement benefits and ‘golden parachutes’ for executives. The Wall Street Journal offers Companies Tap Pension Plans to Fund Executive Benefits. If you’re still counting on that pension, you’d better start doing something about this before you find yourself at age 65 having to try and live on $1,000 a month in raw Social Security.
Also in the news, the FDIC took over yet another bank on Friday, as Florida’s First Priority becomes 8th bank failure this year. Once again, the good and the not-so good advice of financial pundits should be taken seriously by all who can put away some cash just in case their bank shuts its doors.
Links:
Shipping Costs Start to Crimp Globalization
The End of Globalization?
Globalization begins the great unwind
Companies Tap Pension Plans to Fund Executive Benefits
Florida’s First Priority becomes 8th bank failure this year