Sunday, August 03, 2008

Oil price puts the brakes on globalization

By Libby

Outsourcing isn't as attractive as it used to be now that the cost of fuel has cut into profits. Companies are finding out that shipping heavy freight has become so prohibitive that it's more cost effective to locate their durable goods factories closer to the consumers.
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
On the bright side, this is adding fuel to the localvore movement. In the long term we might start seeing the made in America label again. In the short term, Walmart shoppers will be finding all that cheap junk from China won't be so cheap anymore. Breaking the WallyWorld business model wouldn't be such a bad thing either. [via]

Labels: , ,

Bookmark and Share


Blogger Capt. Fogg said...

The "cheap junk from China" meme brings a lot of "cheap junk from Japan" memories back. Japan was very adept at making the switch from some of the worst vehicles ever to roll to making what are now perceived as the most luxurious. The Chinese have learned a great deal from them. They already have a foothold here with many products. Lenovo computers aren't any worse and are probably better than when IBM used to make them.

If they can create products that can be seen as superior (just give them a few years) we may well be willing to pay a premium for them; more so if American industries go belly up or get bought out as GM seems poised to do. It's possible that the first Chinese car you'll buy is a Chevrolet because those transportation costs become less important when Toyotas, VWs, Hondas and Mercedes' are made here.

8:52:00 AM  
Blogger Renideo said...

It's true that china has a lot of money in the US right now that it is hesitant to withdraw, and with significant commercial real estate declines and corporate failures, until such time as the dollar itself winds down it'll be interesting to see what happens.

It's also important to wait and see how temporary current oil prices are. With a worldwide collapse in demand oil prices, buoyed by speculation, may decline quite significantly, despite the long term uptrend. Imagine if the US actually started using fuel efficient cars in a big way given the US's use of oil per capita.

1:34:00 PM  
Blogger realist said...

"Breaking the WallyWorld business model wouldn't be such a bad thing either."

It's a great model: the company refuses to be ripped off by suppliers that overcharge for products, so it gets the best deal. As a result, the customers get the best deal too, and on a large scale this actually reduced inflation.
Capt. Fogg said "Japan was very adept at making the switch from some of the worst vehicles ever to roll to making what are now perceived as the most luxurious."

Japan has actually been pretty good at the "industry" game for many decades. Long before WW2, actually. They did crank out some impressive military hardware during WW2.

China is also still a socialist country, and socialism means that the ruling class decides instead of the people, and this really hampers entrepreneurial spirit. There has been decade of socialist oppression and the instilling of the "we pretend to work, and they pretent to pay us" ethnic.

This isn't to say that China might not outclass Japan some day, but they have a long tradition against this sort of thing.

7:17:00 PM  
Blogger Libby Spencer said...

Good point Fogg. I was thinking in terms of Wallyworld, that gets the cheapest crap it can to peddle, but I do remember when made in Japan was the cheap crap and they certainly outclassed made in America in the end.

Ren, the upside of high oil prices has definitely been the sudden realization that us enviro-nuts were right all along and that fuel efficiency matters.

Realist, I think you're dreaming. Wallyworld in a way is a responsible for the whole globalization mess we're in. Sam Walton was a good man and built a good model of using bulk purchasing to give the consumer a good deal. His heirs screwed it up with greed.

7:27:00 PM  
Blogger danps said...

Hi Libby. Off topic but I gave you a shout out over here.

8:10:00 PM  
Blogger realist said...

@libby: "Wallyworld in a way is a responsible for the whole globalization mess we're in"

Walmart is just one company involved. But globalization is not a "mess", and Wally and other companies deserve thanks for their "Responsibility".

About greed, Walmart would not be successful if they were greedy. Overcharging would result in Target gaining, a resurgent K-Mart, etc. If they did get greedy, they would become "the new K-Mart" as customers went elsewhere.

9:13:00 PM  
Blogger Capt. Fogg said...

I almost spit all over my keyboard at the idea that socialism was dampening entrepreneurial spirit in China.

What an amazing statement!

10:20:00 PM  
Blogger realist said...

It is true. The place is still a dictatorship. It has more economic freedom than it did under Mao, especially in the "special areas", but it is not a place for innovation.

5:24:00 AM  
Anonymous Anonymous said...

Well, on that last point, Chinese companies dominate the IPO's entering the robust Singapore stock market. Many investors only invest in Chinese companies because their performance has been so much better than the mean. This is capitalism my friend, no matter what label you put on it. The chinese government may be strict but they are not stupid. Like Vietnam, they are following the money, and the money comes from open, available markets.

8:21:00 AM  

Post a Comment

<< Home