• Home

Tuesday, June 2, 2009

Fuel prices and Globalization

Interesting post last week from Cleanbreak about how upward pressures on fuel prices could affect global trade patterns.

The post focuses around the book Why Your World is about to get a Whole Lot Smaller by Jeff Rubin and his thesis that conventional forms of energy will have peaked before non-conventional forms can meet the supply, leading to a rapid rise in energy prices.

I’m not an economist, but this seems to make a whole lot of sense — and it’s been supported by the “inexplicable” rise of the price of oil over the last several weeks. But even if the exact dates that he predicts (somewhere around 2012) aren’t completely accurate, it seems logical that economy transferring from one set of energy sources to another is going to experience some growing pains, which will be felt in terms of higher costs.

According to Rubin’s logic, dramatically higher fuel prices will lead to a sort of reverse globalization and a return to the trade patters of 25 years ago — patterns which will greatly chance the face of the global economy.

In some ways, he suggests, we’re already feeling those effects.

According to Rubin the high fuel prices of last summer and the inflation caused by them ultimately triggered the economic meltdown. As interest rates rose due to inflation, people began to default on their mortgages.

Rubin goes on to posit that over the course of the next 18 months, as the economy rebounds, we’ll begin to see these “reverse globalization patterns” emerge — an emphasis on local agriculture, the return of domestic manufacturing and an increased reliance on public transportation.

Last year I heard Thomas Friedman speak at Duke about his book Hot, Flat and Crowded and the message he gave was that the Energy Revolution won’t occur until there are both winners and losers. At the time, I was thinking primarily in terms of nations (the US versus China) or industries (oil versus solar). But as it becomes clear that conventional forms of energy are going to become increasingly expensive, the first round of winners and losers may be companies that aren’t able to maintain their current supply chain without cheap transportation and don’t have a must-have product.

Or it could be the geographies that rely on cheap transportation to deliver their good or service to the market at a reasonable price. More likely than not, it will be both.

In this case, the winners will be the companies and geographies that can most easily adapt to a world with higher energy costs, either because of alternatives or through investment in unconventional energy.

For the United States, this presents a daunting challenge — after all, a lot of our quality of life is built upon products that we import. But for the developing world, this is potentially devastating, especially for poor countries without a lot of money to invest in fuel-efficient transportation systems or local markets to target. Even for China, all the cheap labor in the world is no good if it’s too expensive to deliver them. The manufacturing jobs they’ve gained over the last 30 years can be moved again just as quickly.

In the end, it’s tough to imagine a world without globalization. Now that we’ve tasted the richness of it (and thanks to the web, we can see it), entrepreneurs will find a way to bring it to the market at a prize the market can bear. But between now and then, disruption in fuel prices will provide opportunities to those with the capital and foresight to invest.

Update: An example of a company poised to exploit these trends: Hara helps companies track and manage the energy and environmental impact of their business processes.


Hua said...

Hi James,

Very interesting and informative post.

I'm Hua, the director of Wellsphere's HealthBlogger Network, a network of over 2,000 of the best health writers on the web (including doctors, nurses, healthy living professionals, and expert patients). I think your blog would be a great addition to the Network, and I'd like to invite you to learn more about it and apply to join at http://www.wellsphere.com/health-blogger. Once approved by our Chief Medical Officer, your posts will be republished on Wellsphere where they will be available to over 5 million monthly visitors who come to the site looking for health information and support. There’s no cost and no extra work for you! The HealthBlogger page (http://www.wellsphere.com/health-blogger) provides details about participation, but if you have any questions please feel free to email me at hua@wellsphere.com.


David hogard said...

If the fuel price is high, the manufacturing cost will also be expensive. The same goes for the price of imported and exported goods. Aside from that, many third-world countries that can no longer afford the high gas price will owe more debts to the countries who are distributing petroleum products. These expenses will be then passed on to the end consumers. Unfortunately, if the fuel price increases rapidly, the workers are having a hard time to ask for a salary raise. As a result, it will be difficult for them to budget their money especially for those who travel to their work and back home using their own vehicle on a daily basis. According to the different surveys conducted only this year, at least 1/4 of the employees' salaries are used for the traveling expenses alone.