As oil prices soar higher, the higher cost of transportation is obliterating the East Asian wage advantage. Cheaper transportation has played its part in globalization as businesses could transport raw materials to newly created manufacturing plants in the developing world, and then once again to market in the industrial nations. Globalization is thus dependent on cheap energy and cheap transportation.
Media in the US, recently reported that DESA , a company that makes heaters to keep football players warm, is moving all its production back to Kentucky after years of having them made in China. While it once cost $3,000 to ship a container from a city like Shanghai to New York, it now costs $8,000, prompting some businesses to look closer for manufacturing needs.
What happens if energy rates rise so high that the cost of shipping raw materials and processed goods in a global market exceeds savings from cheap labor abroad? Will it stop the march of Globalization?
1 comment:
Here comes the need to take a re-look at some trends that made the world flat.
Probably we should examine the products/services offshoring/outsourcing, weighing them against various factors such as costs of labor, transportation, taxes, real estate to name a few.
Post a Comment