An article published on December
3, 2008 in Wall Street Journal reported that conventional wisdom holds that
supply chains prioritize labor-cost arbitrage over mere distance in the age of
globalization but that geography could make a comeback.
Triple-digit oil provided the
first intimation of this. Jeff Rubin, chief economist for CIBC World Markets,
estimates $150 crude oil boosted the cost of shipping imports to the U.S. by
11%, costing roughly as much as trade tariffs in the 1970s.
Marc Levinson, author of
container-shipping history "The Box," suggests the world also is
hitting the limits of economies of scale in logistics, citing bottlenecks at
ports and congested road and rail networks. These impose costs and delays and,
as supply chains have become more complex, more potential points of failure.
Initiatives forcing ships to reduce harmful emissions also will weigh on
economics.
Innovation could change the
equation again. But the ultimate facts of mass and distance are inescapable
when it comes to rethinking logistics.
One answer will be shorter,
regional supply chains — a phenomenon observed in changing sources of U.S.
imports during the 1970s oil shocks. That ought to have positive implications
for exporting economies such as Mexico, while China could suffer.
U.S. workers cheered by the prospect of jobs returning home, however,
shouldn't be too jubilant: Globalization and labor arbitrage aren't going away.
And rising supply-chain costs mean U.S. workers will pay higher prices for the
goods they buy.
Source: Denning, Liam , “Ship Ahoy: New World’s Supply Chain” Wall Street Journal, December 3, 2008.