Shipping Costs and Offshore Outsourcing

Recently an individual emailed me believing increased fuel costs would magically bring back his service job (engineering). Not so, I pointed out, for unlike manufacturing which requires raw materials, components, shipped around the globe per their ill advised and little analyzed global supply chain fuel and transportation costs, service jobs can be offshore outsourced with almost no supply chain costs whatsoever. And no, putting a toll booth on the Internet super highway is not the answer.

That said, for manufacturing there might be a silver lining to rising energy costs. According to the Wall Street Journal, High cost of shipping goods brings some jobs back to U.S., global supply chain costs are taking their toll:

The cost of shipping a standard, 40-foot container from Asia to the East Coast has already tripled since 2000 and will double again as oil prices head toward $200 a barrel, said Jeff Rubin, chief economist at CIBC World Markets in Toronto. He estimates that transportation costs are now the equivalent of a 9 percent tariff on goods coming into U.S. ports, compared with the equivalent of only 3 percent when oil was selling for $20 a barrel in 2000.

In a world of triple-digit oil prices, distance costs money," Rubin wrote in a recent report. He figures that for every 10 percent increase in the distance of a trip, energy costs rise 4.5 percent.

I was wondering when some lone COO or CFO would actually run a spreadsheet or two on this, maybe they are too busy playing golf!

But, guess what?

While many manufacturers are re-evaluating production strategies, there are limits to how many jobs will flow back to the U.S. One problem is that much of the basic infrastructure needed to support many industries — such as suppliers who specialize in producing parts or repairing machines — has dwindled or disappeared.

Ya got that? Manufacturers jumped on the offshore outsourcing bandwagon so much that those workers with the high skills and all of the support infrastructure are now gone. Duh. I swear to God, many corporations must think workers, when thrown away, are simply stored in a warehouse shelf somewhere to be available later. No, it doesn't work that way. Those workers' skills atrophy, they might be working at Wal-Mart, maybe they are in foreclosure, went bankrupt or become seriously ill because they lacked health care. Point is leaving people hanging out to dry means they are gone. People are not commodities. At least economists might consider looking at people as commodities with an expiration date. I think the United States has one of those expiration dates tattooed on itself at this point as well.

Economist Alan Tonelson notes a major false talking point by offshore outsourcing peddlers has now been exposed. It seems some public relations corporate people tried to claim the reason manufacturing was moved offshore was to get closer to emerging markets. Ha ha, it was about pure global labor arbitrage. It's called displacing US workers and replacing them with cheaper foreign labor to increase profit margins. The reality is most corporations main customer base is still the United States. Gee wiz, now after the fact a few corporations say they might consider analyzing their global supply chain costs. (Where can I get a job like that?)

Open border, globalists and environmentalists take note, wanting the world to be a big global village where we all hold hands and sing songs together, costs a hell of a lot in energy and money. The phrase act local was lost in the sound byte think global.

Oh, think Barack Obama is going to do something to ensure US workers and the United States will be the winners in trade? Sorry, think again, from a recent speech:

A few years ago, I saw a picture of this new reality during a visit to Google’s headquarters in California. Toward the end of my tour, I was brought into a room where a three-dimensional image of the earth rotated on a large flat-panel monitor. Across this image, there were countless lights in different colors. A young engineer explained that the lights represented all of the Internet searches taking place across the world, and each color represented a different language. The image was mesmerizing – a picture of a world where old boundaries are disappearing; a world where communication, connection, and competition can come from anywhere.

There are some who believe that we must try to turn back the clock on this new world; that the only chance to maintain our living standards is to build a fortress around America; to stop trading with other countries, shut down immigration, and rely on old industries. I disagree. Not only is it impossible to turn back the tide of globalization, but efforts to do so can make us worse off

Note his mention of young engineers at Google as well as a world without borders. Special interests anyone?

It's a damn shame that we cannot obtain pure renegotiation of trade agreements to get a better deal. Ya know, anyone remember a Pig in a Poke? That's what these trade deals are, simply very bad deals. Will we ever get a politician running for the Presidency who is not so beholden to come out and say it? How hard is it to say that? If these very special interests bothered to analyze anything past a few quarters, they might realize they will win anyway and stop demanding their ill-conceived short term profit agendas.

Can we have consideration of the national interest in particular industries, use of VAT, GDP/trade deficit ceilings, immediately tariff reductions set by emerging nations (China)? How about true single payer universal health care like HR 676? How about considering anything, anything at all that countries like Japan or maybe the EU have done to serve their citizenry? Oh no, special interests do not like that and we might actually reduce our trade deficit with such policy! Nope, what is really needed instead of real, statistically based, policy change is more speech writers. That's right, it's all presentation, Americans will be sold as long as the public relations spin is modified.

I'll end with this Teamster video from 2006. Jimmy Hoffa mentions how our jobs are so often traded away for some ill conceived foreign policy agenda where the US of course gets the short end of the stick.

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Comments

Here's my idea

The US should abandon the WTO, and should adopt a *customs* tax of $1/shipping container/mile between addresses on the shipping label for any finished goods.

If we do that, enough manufacturing will return to the US that the service industry jobs that go with strong manufacturing will *also* return.

But we shouldn't block any shipments of raw materials at all. Only finished goods- and only for those containers that need to cross a US Customs yard and have an obvious claim of containing finished goods. And they should be taxed by how far they travel and volume of goods shipped, not by specifically what they are.

In addition, we could use that tax money to suck up some of America's unemployed into the great video game of running cranes and various sensor devices at the customs yards themselves.

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Maximum jobs, not maximum profits.

VAT

I think it's going to be very tough to just plain withdraw from the WTO at this point, although challenging it at every turn at least to start would be useful. Note no one said that beyond Kucinich as a Pres. candidate. Hillary implied it though starting about the middle, but alas, the Obama campaign just slapped her in the face by appointing a "Chief of Staff" of VP who she fired for screwing up her campaign. Who the hell appoints a VP chief of staff before VP selection and on top of it, who would want to be VP when a campaign dictates who their chief of staff is?

Over on tradereform.org, middle column, is the blog of a group pushing for a VAT, which with modifications is somewhat what you're talking about. I've looked it over and since that is legal under the WTO rules plus the rest of the 1st world nations already have them, I think it's a good proposal.

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Well, according to the current treaty

Actually, by every trade treaty we've signed so far, any signing country can break the treaty *unilaterally*- with the resultant problems of course that country no longer belongs to the World Trade Organization, and gets cut off from the "protections" of the treaty.

I'm to the point that I find the WTO to be a worthless attempt at one world government at best- and a dangerous precedent for one world government and slavery at worst. In other words, I don't see any reason for the United States, a country with vast natural resources in every element and compound known to man, to be in the club.

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Maximum jobs, not maximum profits.

I agree frankly

yet I think to legitimately break it they have to be "justified". Now certainly losing every case is pretty justified, how bias it is, how non-representative of a nation-state it is is justified. I'm not against plain bailing on it, just thinking in terms of getting Americans to understand it, plus to also not start a trade war, which would be disastrous.

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And of course

Local security to me is a just reason for breaking the trade treaties. We've now proven that breaking the fragile link of patriotism between the factory and the marketplace yields dangerous and poisonous products that affect people's lives.

I'm not at the point where Carlos Mencia was a few weeks ago- claiming that China has waged a physical war against us on purpose AND HAS WON in that we haven't counter attacked for the lives damaged and lost.

But I am at the point where I think that a low-wage worker in a low-wage country cares far more about where his next meal is coming from than he does about the safety of the relatively rich American who will buy the product he's making. Simple negligence accounts for the rest of the equation to fit the facts we know.

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Maximum jobs, not maximum profits.

well

I reread the mood of this post and frankly I am poed at the so called "Progressives" who focused on personality in the Presidential campaign and didn't stick to a very specific economic agenda demand. I realized it after I wrote it. I think there are so many consensus points between conservatives and Progressives that some real policy for the US middle class, national interest, working America could assuredly be endorsed, all political flavor spectrum, simply because it's based on the data and what makes sense.

Trade is one of those consensus points. I see some very officially "conservatives" writing on trade and they pretty much are saying the same talking points as EPI or Public citizen and I think that is needed to overcome these corporate/special interests running this nation.

I truly am disappointed in this election cycle for those who just did not pay attention to real policy positions and promote/vote accordingly.

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Me too

And it's why if Barak Obama appears to be beating John McCain, this Oregonian will be voting for Chuck Baldwin as the ONLY person running for President in any party, major or minor, who "gets it" from my point of view.

Until we reverse our demographic problems and our reliance on other countries for our security and basic products to live, this country will slowly become a third world slave state to debt service.

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Maximum jobs, not maximum profits.