Globalization was built on cheap oil. As that era draws to a close, so will the current phase of global integration, whether Thomas Friedman, Wal-Mart, and all those involved in intercontinental trade like it or not.
The current transportation infrastructure is based on cars, trucks, airplanes, and cargo ships, which together consume about 70 percent of the gasoline used in the United States. While the greatest focus has been on cars, trucking and airline companies are facing collapse.
The International Air Transport Association just published a new report in which they call the situation of many airlines “desperate.” According to The N.Y. Times:
If price of oil, which is now just below $130 a barrel, averages $107 over 2008, the aviation industry would lose $2.3 billion for the year, the chief executive of the group, Giovanni Bisignani, said. Should it hold at $135 a barrel for the rest of the year, the industry will lose $6.1 billion.
Back in March 2008, USA Today ran an article detailing the woes of the various big carriers. Airlines have been using their cash reserves to stave off large fare increases, and there is not too much fat that they can cut from their operations — and they’ve pretty much cut salaries and wages as much as they can as well.
The way I see it, most of the airline industry is doomed, in the long run, because oil prices will only get worse. This means it is absolutely imperative that the United States start to build an extensive rail network among all of our large cities.
As if airline decline were not bad enough for the sirens of globalization, word comes that cross-oceanic cargo shipping is escalating rapidly in price. According to TreeHugger (h/t Erik Hoffner),
The cost of shipping a 40 foot container from Shanghai to the east coast of North America has gone from $3,000 in 2000 to $8,000 because of the cost of fuel, and for many products, the Asian cost advantage has virtually disappeared.
The consequences for Wal-Mart, Dell, and all of the other businesses that are dependent on Chinese manufacturing may be quite large, although according to the Globe and Mail, this trend may push low-wage manufacturing back to Mexico. In fact, quoting economists, “in tariff-equivalent terms, the explosion in global transport costs has effectively offset all the trade liberalization efforts of the last three decades.”
The British will no longer be able to ship apples to South Africa and back to have them polished, and we will no longer be able to bring in goods via jet and cargo ship from all around the world. It is time to reconstruct the manufacturing base of the United States — and for all of the other regions of the world to do so as well.