free html hit counter Peak Oil Debunked: 296. MORE DATA REFUTING RELOCALIZATION

Thursday, April 27, 2006

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

16 Comments:

At Thursday, April 27, 2006 at 7:15:00 AM PDT, Blogger John O'Neill said...

I think we're headed towards some kind of relocalization but not because of peak oil. Rather, I think we'll relocalize manufacturing because it's annoying to carry our stuff around with us wherever we go.

We'll relocalize production of cheap things like clothes because it will be really nice to carry no luggage, then print out a set of clothes when we get to our destination. When we leave, we'll toss the clothes back into the "composter," where it's turned back into raw material.

 
At Thursday, April 27, 2006 at 11:13:00 AM PDT, Blogger russ said...

Interesting. I think this says more about the future of China's interior and the future of coastal areas like Vietnam and Bangladesh.

 
At Thursday, April 27, 2006 at 11:14:00 AM PDT, Blogger Jim Robb said...

And what PeakOilers like myself worry about are the lowrungers who will come breaking into my urban home looking for all of the stuff I have been hoarding.

Really, what does happen to lowrungers? Will crime get worse?

http://pedaleconomics.blogspot.com

 
At Thursday, April 27, 2006 at 11:50:00 AM PDT, Blogger Mel. Hauser said...

That's a tough question. The cure-all answer is that it's up to local bureaucracy and the government to enforce against major crime upswings in the case of economic implosion; however, given the fucking absurdity of Hurricane Katrina, it's obvious that said solution is a joke. Until the National Guard shows up, cities are going to burn, and it will be the "low-rung" contingency that backslides into desperation first.

Is it fair to blame them? Fuck no. It's not far to fall when you're living hand to mouth. The only real way to combat that sort of situation is to roll out work initiatives that would put infrastructure reconstruction jobs in the hands of the underclass (A page--notably antiquated--out of FDR's playbook), as well as aggressive moves to keep food moving into the ghettos. Riots happen, looting is an inevitability when social order breaks down, but the key between total anarchy and that kind of flare-up is the ability to keep people fed. Priorities change fast when you're starving to death.

This is one of the few areas where I share the doomer concern, but I do also believe--ironically--that "low-rung" communities will polarize more effectively in the case of PO crisis. Time after time, it's the poor communities that come together to revitalize areas that are social wastelands. When the cops refuse to patrol your block or do anything about the drug dealers trying to sell to your kids, the only way to create a show of force is to link up with your neighbors.

Chalk it up to stupid optimism, but it could fall either way.

 
At Thursday, April 27, 2006 at 2:26:00 PM PDT, Blogger bc said...

Funny, I was just about to post to the group about containers, there is a report on the BBC Thinking inside the box

It's a good example of how small technical innovations make a big difference - events and impacts which are quite impossible to predict.

The reason for long distance transport is not because it's a fun thing to waste oil on, but becuase it is economically efficient. Relocalisation appears to be totally brain damaged. Enforcing lower efficiency will damage our civilisation as surely as skyrocketing oil prices. Indeed, if fuel price is high, it is even more important to do things efficiently.

Relocalisation is a fancy way of saying "let's go back to the past". It won't work.

 
At Thursday, April 27, 2006 at 2:37:00 PM PDT, Blogger bc said...

My bad, I see you are already writing about the article I mentioned - must remember to read first then comment!

 
At Friday, April 28, 2006 at 1:53:00 AM PDT, Blogger bc said...

Even in Roman times it was far cheaper to transport goods by sea than by road. This had a significant effect on their empire.

People keep saying cheap oil makes long distance transport cheap. Actually it makes LOCAL and OVERLAND transport cheap. The idea that things can be made locally is ludicrous. I guess you all have metal ores in you back yard and will be able smelt them and turn them into useful products - NOT.

Specialisation of production and transport is what characterises modern civilisation. Without mass production, there is no modern civilisation.

Localisation = going back to the Bronze Age.

 
At Friday, April 28, 2006 at 8:35:00 AM PDT, Blogger Mel. Hauser said...

The lowrunger question can only be answered satisfactorily if we answer another question first:
Is society just a group of people looking after their personal material interest, or is society something more than that?


Very well put, Spin. The further complication is that said question will recieve a hundred different answers from a hundred different people. While I might consider my low-rent, bike-powered, one-tank-of-gas-a-month lifestyle to be the apex of democratic society, there's at least a few thousand people who would sooner burn down their neighborhood and nuke Iran than give up an ounce of their so-called constitutional "freedoms" allowed them by our social order.

It's bullshit, but also fertilizer from which urban atrophy and doomer-style chaos can possibly bloom.

 
At Friday, April 28, 2006 at 11:25:00 AM PDT, Blogger Mel. Hauser said...

Admittedly, I'm not getting what this "bolting" phenomenon is that you're referring to.

Bolting where? Antelope are clearly fleeing the jaws of predators or migrating based on environmental opportunity; the middle class, as you noted here, has nowhere to bolt TO. An excessive rise in gas prices isn't going to cause a fire sale effect on consumer idiots rushing to buy devalued Humvees and starter mansions; a few might, but an assertion like that doesn't make sense otherwise. You don't blindly up-buy in the midst of a potential recession.

And frankly, those of us living check to check also gain no advantage indulging some blase' fight-or-flight response. We're already well-versed in the art of cutting corners, space heaters, mass transit to save gas. Barring total economic clusterfuck, this mentality is going to facilitate a much easier acceptance of PO reality.

I get your point, but am having a hard time grasping where it's stemming from. Aside from general concern about suburbia imploding as the impractical fucking carriage of overconsumption that it is.

DOOMERIZED!

 
At Friday, April 28, 2006 at 11:49:00 AM PDT, Blogger Mel. Hauser said...

(2) Who will buy all these McMansions & Hummers if there is a mass sell-off? Expensive energy will require the secondary market price for these inefficient items to be quite low. Thus, those who engaged in this *excessive* behavior will be punished accordingly. What goes around does tend to come around. (Hence, a motivation for living according to the Golden Rule.)

Whoops, I didn't even note this. Couldn't have summed it up better myself.

 
At Friday, April 28, 2006 at 9:48:00 PM PDT, Blogger Mel. Hauser said...

I think simple market logic supports your assertions, om. If there's a demand for it, then supply will take advantage of that.

Expensive oil will begat a corporate push for popular alternatives. If you can't sell gas-guzzling shitboat cars, then you will jump on the hybrid bandwagon, or you'll go out of business.

The POD blueprint seems to perpetually underestimate the greedy survival instincts of big business.

 
At Saturday, April 29, 2006 at 12:32:00 AM PDT, Blogger Oil CEO said...

Great Post, JD.

I'll be thinking aboout this one. It certainly brings up several topics that need to be examined and debated. Your insistence at scrutinizing the numbers is much needed and appreciated.

 
At Saturday, April 29, 2006 at 1:58:00 PM PDT, Blogger GermanDom said...

I know I'm WAY at the bottom of the comments and if anyone is still around to read what I have to say:

"Even in Roman times it was far cheaper to transport goods by sea than by road."
There really are a few people who understand!

Shipping is called that because ships and harbors were always (after developing the technologies) the cheapest. Beginning about 1750 the British began transforming their tiny island nation by BUILDING CANALS, so that the whole island was close to water. This was, btw, the actual beginning of the Industrial Revolution. The South Sea bubble (shipping HALF way around the world!!!!) had burst a generation before that BTW.

The Railroad(!) made overland shipping just as cheap while being a bit faster. The mule named Sal (on the Erie Canal) gave way to the coal mule, which eradicated (!!!) all famines in The West (save the Irish one) because every corner of the world could now be "shipped to" and was no longer completely dependent on the local harvest that year.

'Relocalisation is a fancy way of saying "let's go back to the past". It won't work.'
The real concern is having to give up the semi-truck, not the goods coming from Taiwan to Los Angeles.

We will go back to the past by re-inventing the freight train. The distant shopping malls WILL shut down. Production may not re-localize too much. SHOPPING PATTERNS will.

JD, you missed seeing the real problem. Containers on the high seas have nothing to do wiht localization, at least not for middle America. The US (and USSR and China) are mostly in-land countries. As oposed to Japan and Europe, for instance. Nebraska will have a hard time of it.

Or do you see something that I missed?

 
At Wednesday, May 3, 2006 at 2:32:00 PM PDT, Blogger mattbg said...

If shipment between the coast and interior comes to an end before shipment between two ocean-separated countries, doesn't that automatically imply an end to trade between two ocean-separated countries, since the products won't be able to be affordably shipped from the coast to their interior destinations?

Everyone could move to the coast, or...? Or, localization could be used to reduce or eliminate the expensive interior trips.

 
At Wednesday, May 3, 2006 at 9:41:00 PM PDT, Anonymous Anonymous said...

It's not likely HedgeFund will read this, but I applaud his evaluation of the leveraged American consumer. If PO gets us to conserve and invest in improvements that lessen energy expenses that gets us Americans thinking more about saving and about the future.

 
At Monday, June 5, 2006 at 3:45:00 PM PDT, Blogger LoneSnark said...

"Everyone could move to the coast, or...? Or, localization could be used to reduce or eliminate the expensive interior trips."
Not at all. You are again forgetting trains. While rail consumes much more energy per ton-mile than a ship it is still rediculously energy efficient. So, what will happen is everyone will move to the coast or the nearest rail hub.

If a peal-oil disaster does occur it is my suggestion that you invest in railroad and ship construction. America does not have sufficient rail capacity, nor sufficient mileage, and anyone that can provide these will be greately rewarded.

 

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