August 03, 2008

Global supply chains – longer isn’t always better

“Globe-spanning supply chains — Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago — make less sense today than they did a few years ago” says this New York Times article. So do “price-driven oddities like chicken and fish crossing the ocean from the Western Hemisphere to be filleted and packaged in Asia not to be consumed there, but to be shipped back across the Pacific again.”

Rising fuel prices cause rising shipping costs and make the flat world a little bumpier. In recent years the cost to ship an ocean-going container from Shanghai to the US has almost tripled in the past few years. To the extent fuel price increases are driven by increased demand from China’s fast-growing economy, they might eventually also drive the delivered price of China’s goods high enough to reduce it’s export growth.

It’s in the nature of all rapidly-growing systems to eventually self-correct. Mortgage-bubbles tend, after a time-lag, to beget credit-crises.


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