Peter Galuszka raises a fascinating issue that has received little play yet in the popular media, or even in the business press that I have seen: the impact of rising fuel prices on international trade. Insofar as Virginia’s economy is intertwined with the global economy, and insofar as various advocacy groups are pressing for multi-billion dollar transportation investments to Hampton Roads predicated on the assumption that past trade patterns will continue into the future, we need to pay attention.
In “The Corner Office,” the business blog he writes for B/Net, Peter asks if shipping fuel price hikes will “scuttle globalization.” He presents some fascinating data:
The workhorse of the World Economic Globalization Fleet is the typical 800 or 1,000-foot container ship usually launched in South Korea or Japan. One ship can carry about 2,000 tons of bunker fuel and burns from 20 to 30 tons every day at sea.
According to Financial Express, bunker can run about $700 a ton, up by $200 a ton from this spring. Let’s do the math. A Norfolk-bound ship from Asia that may take 14 days for a one-way trip has a fuel bill of $294,000 instead of $210,000 a few months ago.
Already, shippers are cutting back. One example: half a world away, some 14 ships running the busy route between Bangladesh and Singapore have suspended their trips because of high fuel costs, Financial Express reports.
I explored the same angle from a different perspective in a May blog post: the impact of a lower-valued dollar and shrinking trade deficit on trade flows. A weaker dollar makes foreign products more expensive in the United States, hence less competitive. Cargo landing in Hampton Roads and heading west on Interstate 64 and U.S. 460 boomed during the decade-long reign of the strong dollar. Infrastructure projects were planned based on the assumption that past trends would continue. To what extent, I asked in May, would a weak dollar halt the largely one-way trade flows?
Now, on top of a weaker dollar, we must consider the fact that the higher price for bunker fuel can add $80,000 to $85,000 to the cost of container ship traveling halfway around the world.
I’m not sure what $80,000 translates into on a per-container cost. Wikipedia says that typical container ships have a capacity of 3,000 TEUs or 1,500 containers. (Some ships are twice that large.) That implies an added cost of roughly $55 per container. Compared to the value of the merchandise, that’s hardly crippling. But, as Peter points out, the evidence suggests that it’s sufficient to dent overseas shipping.
To answer the rhetorical question atop Peter’s blog post, no, rising fuel costs don’t spell the end to “globalization,” which includes the flow of capital and the exchange of services as well as products that can be packed into shipping containers. But higher bunker fuel prices may alter global trading patterns in physical products.
(And we’re not just talking about Nikes and big-screen TVs. In another vein, Ed Risse has written how the impact of rising fuel costs on the import of fruits and vegetables from other countries could reinforce the growing consumer preference for locally grown produce.)
We Virginians need to pay attention. This is not an arcane matter of interest only to business school professors or big companies with global supply chains. Global trading patterns affect the long-range, multibillion-dollar transportation investments that Virginia taxpayers are being called upon to help finance. We can either anticipate the impact of rising fuel prices, or we can be blindsided by them.
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