Globalization was built on cheap oil. As that era draws to a close, so will the current phase of global integration, whether Thomas Friedman, Wal-Mart, and all those involved in intercontinental trade like it or not.
The current transportation infrastructure is based on cars, trucks, airplanes, and cargo ships, which together consume about 70 percent of the gasoline used in the United States. While the greatest focus has been on cars, trucking and airline companies are facing collapse.
The International Air Transport Association just published a new report in which they call the situation of many airlines "desperate." According to The N.Y. Times:
If price of oil, which is now just below $130 a barrel, averages $107 over 2008, the aviation industry would lose $2.3 billion for the year, the chief executive of the group, Giovanni Bisignani, said. Should it hold at $135 a barrel for the rest of the year, the industry will lose $6.1 billion.
Back in March 2008, USA Today ran an article detailing the woes of the various big carriers. Airlines have been using their cash reserves to stave off large fare increases, and there is not too much fat that they can cut from their operations -- and they've pretty much cut salaries and wages as much as they can as well.
The way I see it, most of the airline industry is doomed, in the long run, because oil prices will only get worse. This means it is absolutely imperative that the United States start to build an extensive rail network among all of our large cities.
As if airline decline were not bad enough for the sirens of globalization, word comes that cross-oceanic cargo shipping is escalating rapidly in price. According to TreeHugger (h/t Erik Hoffner),
The cost of shipping a 40 foot container from Shanghai to the east coast of North America has gone from $3,000 in 2000 to $8,000 because of the cost of fuel, and for many products, the Asian cost advantage has virtually disappeared.
The consequences for Wal-Mart, Dell, and all of the other businesses that are dependent on Chinese manufacturing may be quite large, although according to the Globe and Mail, this trend may push low-wage manufacturing back to Mexico. In fact, quoting economists, "in tariff-equivalent terms, the explosion in global transport costs has effectively offset all the trade liberalization efforts of the last three decades."
The British will no longer be able to ship apples to South Africa and back to have them polished, and we will no longer be able to bring in goods via jet and cargo ship from all around the world. It is time to reconstruct the manufacturing base of the United States -- and for all of the other regions of the world to do so as well.
Not all green jobs are created equal
Comments View as Flat
bigTom Posted 8:14 am
02 Jun 2008
I think you are overestimating the impact.
With the exception of air transport there is a lot of potential to reduce fuel consumption, mainly by slowing down. Drag, and hence fuel cost per mile tends to scale as velocity to the second power. Thus reducing speed to say .7 of the old speed saves half of the fuel. Airplanes cannot do this because they must obtain enough lift (which necessitates some drag to produce) to stay aloft. Also we are starting to see traction kites added to container ships. Ground and water transport, is thus amenable to considerable reduction in its energy intensity. I would expect the cost of such transport to increase at a lower rate than fuel prices. But you are right that transport costs, and delays will be greater than had been assumed when many current business decisions were made. Globalization will not be undone, although its rate of increase will be reduced (possibly to or below zero).
By the way truck, planes, and ships do not use gasoline, but rather diesel fuel, and kerosene in the case of planes. These are distilled from the same oil that gasoline comes from, and the amounts of the different types are largely determined by the type of oil refined. Air travel will not go to zero, because kerosene would become cheap if there were no planes to consume it. That doesn't mean that the current airlines, and airplane manufacturers are viable in the high priced oil end game, they may will go bankrupt. But someone will buy up the assets cheap enough to make a go at using them in some reduced capacity.
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Wolverine Posted 8:58 am
02 Jun 2008
If Only
Unfortunately, I share bigTom's pessimism, but even more so. Airlines will be further subsidized by governments (I believe that most already are except in the U.S.), as will shipping and other industries that depend on petroleum. The only alternative is to let those industries die. Because the people who own those industries make these decisions through their lackeys in government, the scenario presented by this column is not viable.
Or, humans could choose the more sane option of simplifying lifestyles and reducing consumption and breeding. But I don't hear or see anyone in power saying that, nor is there a groundswell of support for it. People want to have their cake and eat it too, and it looks like we'll be well into the sixth great extinction and global warming before things get bad enough to change their attitudes.
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Craig Allen Posted 11:38 am
02 Jun 2008
Agriculture is in the firing line
I note that European fishing fleets are being grounded because of the high fuel prices.
Fuel prices are going to devastate Australian farmers:
I come from a farming community in South Australia. When I was a lad we expected one in three years on average to be a drought (although often they came back-to-back). Now it is closer one in two. But the fuel prices are the nail in the coffin for many farmers. On an average farm (about 4,000 acres) in my home district of Kimba (it's dry country) it costs something like $30,000 to put in a crop. This is always a gamble, because a farmer never knows whether he will get to reap a crop or watch it all blow away in dust storms. Most of Australia's wheat belt works like this. As fuel prices continue to rise and the frequency of good years decreases - this become less and less viable. One of the reason's World food prices are up is the drop in Australia's production. The fuel prices are going to make the situation much worse.
(The ongoing collapse of the Murray-Darling irrigation districts is an independent issue due to continued and worsening water shortages).
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Jon Rynn Posted 12:17 pm
02 Jun 2008
Cargo ships are in even worse shape...
...at the moment, according to one of the articles I referenced, because they have been recently designed to go faster, which means that they are designed to use more of the constantly escalating diesel -- and thanks, yes, we are talking about gasoline, diesel, and kerosene.
It's possible subsidies could keep airlines aloft a bit longer -- and much of the gasoline in Asian countries has been heavily subsidized, for ordinary drivers, so I wouldn't be surprised at all to hear calls for subsidies, also for trucking. I predicted (or worried) that calls for subsidies would come soon.
As for agriculture, that should be the subject of another Death of Globalization post, simply because food has been traveling such absurd distances, and so much of the global agricultural system is composed of soil-destroying monoculture -- although I would point out that Australia is also the home of one of the most positive innovations of the post-WWII period, permaculture.
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Tasermons Partner Posted 5:55 pm
02 Jun 2008
While it's true that oil is up...
...oil is also generally traded in American dollars, and as teh dollar falls (as it has been) in relation to other currencies, that means that oil is cheaper to buy for foreign companies, so it softens the blow somewhat.
Also keep in mind that many countries have subsidized and nationalized oil programs.
Still, every bit helps, and America id by far the largest consumer, so even if the impacts are worst here, that is where they should be.
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hapa Posted 4:19 am
03 Jun 2008
the speed is the thing
because traction kites generate a certain amount of energy per unit of time, at higher travel speeds kites contribute less energy to the whole trip. even with larger kites, their contribution to JIT-speed shipping would be much less than advertised.
slowing down the ships would improve fuel use and maximize kite performance, but 70% of speed would require a 43% increase in the number of ships to maintain the same cargo throughput. let's say, roughly, as best-case using that 50% number and skysails's 30% savings number, and without including the shift of freight from air to sea, we were talking about using 35% of the fuel.
or about 50% of the fuel, if we add 10,000+ ships for throughput. har har har.
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dberg99 Posted 4:45 am
03 Jun 2008
Overestimating?
You are full of what the bull left at the fair, Big Tom. Oil prices have gone from 25 to 130 dollars a barrel and you think reducing our driving speed to 70% of cuurent speed will fix it? New Math? Or old apologist for Big Oil? By the way, driving 42 mph rather than 65 improves my gas consumption by about 10%, not accounting for traffic jams caused by lower throughput. Ghandi was the first anti-globalist, thinking it inefficient to manufacture clothing in England and ship it to India when it could be manufactured locally. Even truer today.
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amarkliiv Posted 5:48 pm
05 Jun 2008
slower transport vs labor costs
as someone who works in transport, i don't think the argument that products will be simply shipped more slowly will work to offset much of the increase in fuel.
longer times means more hours/days of paying workers as well as potential penalty rates, so it's not like the capitalist economy can simply chill out and enjoy the ride.
also, the whole system has been reconfiguring itself around 'just in time' deliveries, so that stockpiles and warehousing of unsold products is minimized. this has been going on for a couple decades, it's not going to change overnight. this is a phenomenal and critical increase in the cost of fuel, which will surely mean the cost of just about everything... as inflation goes up, interest rates/credit costs go up to keep it in check and to keep some kind of return to capital above inflation, and to keep the dollar from collapsing much further... consumers and governments in the USA are highly indebted so there's little to cushion all this...
a perfect storm?
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Jon Rynn Posted 11:42 pm
05 Jun 2008
Good point about just-in-time...
...which was designed in Japan -- a relatively small country with an excellent transportation system -- and extended to cover the whole planet. Thus Walmart, Dell, and many other companies depend on east Asia in particular to get them their components "just-in-time". They'll have to start moving back to the North American continent, if not to the United States
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splashy Posted 5:31 pm
07 Aug 2008
so, will it bring the jobs back?
The manufacturing jobs that have been taken away, therefore killing the middle class?
If so, I'm pleased that oil has gone up. We can find other ways to power our vehicles right here in the US. Perhaps really push toward electric ones, that can be charged at restaurants or other places where you spend some time. Perhaps every restaurant and shopping center will have a charging stations in their parking lots, where you park, charge your vehicle while doing what you came there to do, and pay for how much you used when you get out.
I'm looking forward to something like that.
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MAD MAC Posted 6:39 pm
07 Aug 2008
Future of air industry
I think without a doubt the airline industry is going to have the hardest time here. There is simply not going to be an easy replacement for Kerosene. This means that commercial jetliner travel is going to become prohibitively expensive for all but the wealthy. This sucks for me personally, since I live in Thailand with my family and my mother lives in Boston. I am trying to get her to relocate out here for that reason.
As for future airline travel, I do believe that airships hold great potential for the future. Yes, they are much slower, traveling at 1/6th the speed of commercial airliners. However, it is very possible to construct them with small passenger sleeping births such as I enjoyed on the train from Nairobi to Mombassa.
Equipped with electric engines and solar panels on the vast surface space, using diesel fueled engines only for emergencies, such airships hold great potential for people still wanting to travel long distances in a reasonable amount of time (and in some relative comfort). With modern communications, business travelers or tourist travelers can still maintain communications back home (or anywhere else in the world) via internet and sattelite phone services. With helium and hot air to generate lift, you can massively decrease your energy costs. This would move most of the overhead costs to airline crew and food.
For short distances of 500 miles or less, this makes an excellent method of travel - like a high speed bus. And it would be very environmentally friendly. A win - win all the way around, except for the time factor.
There are airspace issues (crossing mountain ranges can be a problem for airships) and obviously much time is lost. For tourists, though, given the much more comfortable travel arrangements possible for long haul flights, the journey would be part of the pleasure. Right now, the journey is the hell that is paid in getting to the destination.
A perfect replacement solution it is not, but it is a reasonable one. And personally I think the market will force just such a transition.
Victory in Pattani
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