|
Fuel prices may slow Asian trade
Toronto--Soaring fuel prices are eroding the low cost advantage of China and making domestic suppliers look more attractive, according to a new report from CIBC World Markets Inc.
According to economists Benjamin Tal and Jeffrey Rubin, total landed costs for shipping a standard 40-foot container from Shanghai to the east coast of North America now costs US$8,000, up from $3,000 when oil was $20 a barrel back in 2000. At $200 a barrel, those costs will increase to $15,000 per container.
"There is already evidence that Chinese exports of freight-intensive goods are already beginning to slow under the pressure of rapidly rising transport costs," the economists write.
"Freight sensitive Chinese exports to the US now account for 42 per cent of total exports, down from 52 per cent in 2004."
Another factor driving up transport costs is speed, the economists write. Over the past two decades, container ships were built to go faster than bulk ships, since container ships were steadily gaining market share. But in global shipping, the increase in ship speed over the last 15 years has doubled fuel consumption per unit of freight.
"The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today. In fact, in tariff-equivalent terms, the explosion in global transport costs has effectively offset all the trade liberalization efforts of the last three decades. Not only does this suggest a major slowdown in the growth of world trade, but also a fundamental realignment in trade patterns."
These shifting patterns may find Mexico playing a bigger role. Supply chain managers will also be looking for new sources of supply in Canada and in the US. The authors note the US already has a cost advantage over China in steel production. Chinese steel exports to the US are falling about 20 per cent year over year, the worst performance in a decade.
The drop can't be attributed to a weaker US economy, since US steel production has increased 10 per cent during the same period. China's costs have risen because producers there must bring their iron ore in from faraway places such as Australia and Brazil, then ship the finished steel to the US, according to the report. Marine shipping costs are already acting as a deterrent to bringing goods in from China, especially for freight sensitive products such as steel.
|
