Trend: High transportation costs could force manufacturing to move closer to consumers.
A report (PDF document, http://research.cibcwm.com/economic_public/download/smay08.pdf) by CIBC World Markets argues that transport costs will reduce the labor cost advantage of Asian countries.
The rising price of oil is making international trade of heavy cargo prohibitively expensive, and acting as an incentive for importers to find products such as steel closer to home, new research by CIBC World Markets shows.
For heavy products, rising shipping costs are eroding the low-wage advantage of China over North America, say chief economist Jeff Rubin and senior economist Benjamin Tal.
If oil prices continue to rise, the soaring cost of global transport will act like a major tariff barrier and lead to a substantial slow down in international trade, they argue.
...the soaring oil price will prompt a major rethinking of how production is organized, ... and could even lead to a revival of North American manufacturing.
Already, U.S. imports of Chinese steel are declining dramatically, while domestic production is rising at rates not seen for years, they say.
China's steel exports to the United States are falling at a 20-per-cent annual pace, while U.S. domestic production has risen by 10 per cent in the past year. That makes sense, the economists say, because Chinese steel producers need to import iron ore from the likes of Australia and Brazil, then turn it into steel and then pay huge and rising freight costs to send the hot-rolled steel to the United States.
Regional trade looks much cheaper in comparison, they say.
As oil prices continue to climb, shipments of furniture, footwear and machinery and equipment are likely to meet the same fate, the economists say.