High Oil Prices on the High Seas

Bryan RJune 11th, 2008
By: Bryan R

"In a world of triple-digit oil prices, distance costs money. And while trade liberalization and technology may have flattened the world, rising transport prices will once again make it rounder."

-Jeff Rubin, Cheif Economist, CIBC World Markets

Gas is expensive. Of course, you don't need me to tell you that. One glance at any Seattle gas station price sign is convincing enough. And its impact has rippled through our community in more ways than one.

For one, car companies have certainly seen a shift in purchase patterns away from large cars towards medium and small vehicles. Even our King County Metro has strained under the unexpected price jumps -- analysts foresee a $13 million budget shortfall due to diesel expenses.

But it's not only road-bound machines that feel the heat when gas prices rise. Lately, international shipping companies have been feeling the pinch as well. Tacoma and Seattle are the fourth and fifth largest ports (in terms of tonnage) on the West Coast. That translates to a considerable fuel bill at the end of the month.

A recent report from the Chief Economist at the Canadian Imperial Bank of Commerce (CIBC) states that the cost of shipping a standard 40-foot container from Asia to the eastern seaboard has tripled since 2000. Specifically, goods with a low value-to-freight ratio are the most sensitive to rising costs. These goods include furniture, apparel, footwear, metals, and some types of machinery.

And for better or worse (depending on your own views of globalization), these soaring costs are starting to impact trade liberalization and may force some overseas manufacturing and outsourcing to return closer to home. From a consumer's standpoint, this means higher prices for consumers at the store. But it might also mean a resurgence of local jobs.

In response to the pressure, shipping companies have taken a couple of proactive steps. Historically, most container ships tended to opt for speed over fuel efficiency, but now many ships have started to hit the breaks a bit in order to save hundreds of gallons per day. Also, as the new wave of container ship designs emerges from shipyards all over the world, fuel efficiency improvements are in high demand.

These are fairly obvious, low-hanging fruit styled solutions. A few innovative companies such as SkySails are using "old-tech with a high tech-spin." As the company name suggests, SkySails produces sails -- very fancy sails. Made from lightweight, high-strength materials, these 160 to 5,000 square meter sails look much like kites that are flown in front of a large cargo ship. Whenever the wind is blowing in the right direction, these sails can pull the ships along, which allows the ship to run it's engine at a lower intensity. It's an impressive concept with equally impressive results.

SkySails Equips Ships with Large, Kite Like Sails
SkySails Equips Ships with Large, Kite Like Sails

On its first test run from Germany to Venezuela, a somewhat small container ship using a fairly small-scale sail consumed about 20% less fuel. When equipping larger ships with larger sails, it's possible to lower fuel costs by 10-35% or even by 50% during optimal conditions. It's a great win-win scenario since it saves both money and carbon emissions. And hopefully, SkySails and others will continue to produce innovative solutions in light of the oil crunch.

At the gas pump, at the grocery store, or even when shopping for iPods, high oil prices are impacting prices across the board. Without a doubt, it will affect international shipping, trade, and global commerce. New technologies and design will certainly help, but like analysts have suggested repeatedly, it's going to be a different world now. Perhaps Mr. Rubin said it best when he suggested, "[that] in a world of triple-digit oil prices, distance costs money. And while trade liberalization and technology may have flattened the world, rising transport prices will once again make it rounder."

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