Globalization: The Ever Evolving Beast Begins Moving Manufacturing Home

The Cost of Shipping Goods is Rising

"The cost of shipping a standard, 40-foot container from Asia to the East Coast has already tripled since 2000 and will double again as oil prices head toward $200 a barrel, says Jeff Rubin, chief economist at CIBC World Markets in Toronto."

A company moved its manufacturing center to Kentucky from China after seeing the cost of shipping increase and keep increasing. This bodes well for globalization, and in the long term for you and I. Why?

To truly have fair & equal trade between countries you need to have fair & equal rules. The key point in this are taxes and government regulations in the various regions of the world. Most countries don't have the same environmental regulation (make note that for all of the past we have ravaged our country and only now are we pushing hard environmentally) or the same legal framework that increases costs of American firms.

When the costs associated with damaging the environment (more expensive food due to lost land and damaged water supplies, destruction of pristine lands that lessen revenue from tourism, unsustainable mining practices that increase the long term costs of retrieval of goods) are added back into the equation, when the costs of the ailing population (lower individual productivity due to more missed work days because of sickness, lower general production because of mental well being associated with the stresses of lack of nature and open spaces) are added back into the equation the costs begin to rise for these producers. It took America a long time to recognize, or stop ignoring these things and we are now paying our own price for our unsustainable long term development.

Now a days some of the more common economic issues are showing up - the American currency has fallen about 15% against the Chinese Yuan since 2006. That means that Chinese goods have increased in cost by 22% since 2006. Chinese inflation is roaring ahead well into the double digits due to wage increases, competition from firms eating valuable resources and - very importantly - the Chinese government is removing some of the subsidies it places on fuel.

With the cost of fuel increasing 40% alone in 2008 the containers that ship goods across the country are turning out to be much dearer in price to producers of goods. The above article mentions per container prices increasing 15% already in 2008 and another 5% hike is expected shortly. This will wear away at the financial benefit of shipping goods long distance.

This is the beauty of global trade. The imbalances that exist in the world - lower labor costs, incorrectly valued currency, undervalued fuel and unaccounted for costs - are slowly evened out. It will take a long time because it took 75 years for the United States to become dominant and over valued, but as long as we are patient we will all benefit.