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Shipping costs start to crimp globalization August 2, 2008

Posted by tkcollier in Economy & Business.
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Shipping costs start to crimp globalization – International Herald Tribune
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.

The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”

What may be coming to an end are price-driven oddities like chicken and fish crossing the ocean from the Western Hemisphere to be filleted and packaged in Asia not to be consumed there, but to be shipped back across the Pacific again. “Because of low costs, people were profligate,” said Nayan Chanda, author of “Bound Together,” a history of globalization.

The industries most likely to be affected by the sharp rise in transportation costs are those producing heavy or bulky goods that are particularly expensive to ship relative to their sale price. Steel is an example. China’s steel exports to the United States are now tumbling by more than 20 percent on a year-over-year basis, their worst performance in a decade, while American steel production has been rising after years of decline. Motors and machinery of all types, car parts, industrial presses, refrigerators, television sets and other home appliances could also be affected.

Plants in industries that require relatively less investment in infrastructure, like furniture, footwear and toys, are already showing signs of mobility as shipping costs rise.

Until recently, standard practice in the furniture industry was to ship American timber from ports like Norfolk, Baltimore and Charleston to China, where oak and cherry would be milled into sofas, beds, tables, cabinets and chairs, which were then shipped back to the United States.

But with transport costs rising, more wood is now going to traditional domestic furniture-making centers in North Carolina and Virginia, where the industry had all but been wiped out. While the opening of the American Ikea plant, in Danville, Virginia, a traditional furniture-producing center hit hard by the outsourcing of production to Asia, is perhaps most emblematic of such changes, other manufacturers are also shifting some production back to the United States.

Among them is Craftmaster Furniture, a company founded in North Carolina but now Chinese-owned. And at an industry fair in April, La-Z-Boy announced a new line that will begin production in North Carolina this month.

“There’s just a handful of us left, but it has become easier for us domestic folks to compete,” said Steven Kincaid of Kincaid Furniture in Hudson, North Carolina, a division of La-Z-Boy.

Avocado Salad in January

Soaring transportation costs also have an impact on food, from bananas to salmon. Higher shipping rates could eventually transform some items now found in the typical middle-class pantry into luxuries and further promote the so-called local food movement popular in many American and European cities.

“This is not just about steel, but also maple syrup and avocados and blueberries at the grocery store,” shipped from places like Chile and South Africa, said Jeff Rubin, chief economist at CIBC World Markets and co-author of its recent study on transport costs and globalization. “Avocado salad in Minneapolis in January is just not going to work in this new world, because flying it in is going to make it cost as much as a rib eye.”

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