296. MORE DATA REFUTING RELOCALIZATION

As we've discussed in two previous articles (55. WILL PEAK OIL MAKE LONG DISTANCE SHIPPING TOO EXPENSIVE TO CONTINUE? and 129. WHERE'S THE RELOCALIZATION?), Kunstler and other peak oil "experts" frequently claim that expensive oil will make long-distance transport too expensive to continue. This, in turn, will cause a process called "relocalization" where people will have to produce all their food and consumer products from their own local area. Because they buy into this argument, many peak oil chicken littles are running for the hills, and frenetically trying to get up to speed on Amish topics like how to sew, raise chickens, can vegetables, make their own shoes etc. etc.

Not that there's anything wrong with that. If you like the 1850 lifestyle, knock yourself out. But please don't deceive yourself that peak oil will force relocalization to occur. It won't.

Here's yet another data point to help you see the light:

"Containerisation is why a person in Northern Europe who wants to eat strawberries on Christmas day can find them in their supermarket," says John Fossey, a director at industry publication Containerisation International.

"It has been a key enabler of the rapid industrialisation and globalisation we are seeing in the world today."

Indeed, container shipping lines now run so efficiently that it doesn't really matter where you are sourcing products from.

If you look at the transport cost per individual item, it costs about $10 to send a tv set from China to the UK, or 10 cents to deliver a bottle of wine from Australia to America.

"It costs less to ship a container between China and Felixstowe than it does to then send it on the road to Scotland," says Philip Damas, research director at shipping consultancy Drewry.Source

Note that last sentence. If relocalization works the way peak oilers say it does, trade between the coast and interior of England is likely to come to a halt before trade between England and China.

A while back, a fellow named Vexed on peakoil.com brought up an educational example:

My father just bought a 100 lb weight set made in China for my step brother at Wal-Mart. It cost $29.95. What does it cost to ship 100 lbs from China to the US?

Let's follow through on this, and develop some cost estimates.

Working from stats I took from news articles (unfortunately no longer available), we find:

Price to move 2 million barrels of crude from Kuwait to Louisiana by Suez (approx. date Oct. 19, 2004): $6.95 million.

Doing the calculation, this turns out to be $.01/pound.

For container freight, North American, trans-Pacific service: average rate is US$1,547 per 20ft container.

Doing the calculations, and assuming a conservative rating of 17,500kg per container, I come up with $.04/pound.

So, the trans-Pacific shipment costs for Vexed's weight set should be in the neighborhood of $4, which is certainly doable.

But Vexed's example raises an important point. If peak oil is going to erode world trade, it will first begin to exert its effects on products which have a low price/weight ratio.

At $55, I calculate the p/w ratio for crude oil to be $0.18/pound.
Similarly, the p/w for the weight set is $0.30/pound.

The weight set is actually more cost effective to transport than crude oil. After all crude is really heavy, bulky, cheap stuff.

Here's a running table I've been keeping of p/w ratios:

p/w ratio for crude oil ($55/bbl crude): $0.18/lb.
p/w ratio for 100-pound weight set from China at Walmart: $0.30/lb.
p/w ratio for tomato: $1/lb.
p/w ratio for jeans: $25/lb.
p/w ratio for gold: $6500/lb.
p/w ratio for heroin: $250,000/lb.

If we assume that products with low p/w ratios will be relocalized first, we get the paradoxical result that crude oil (of all things) is the most likely product to be relocalized! Welcome to the wacky world of "relocalization".

-- by JD