From my perspective, there is a silver lining to higher fuel prices. As transportation costs go up (bad for our truckers), the harder it is to continue off-shoring manufacturing labor.
I remember in 2008 seeing ABC News reports of furniture manufacturing, and some textiles, starting to reappear in the Carolinas. One example cited was a couch. The couch’s frame was constructed in China, shipped to the U.S. for upholstery, and then back for final sale in Hong Kong. As fuel costs go up, that sort of ‘silliness’ becomes unprofitable.
Another example was shipping containers, Shanghai to New York, costing $8,000 to ship compared to $3,000. And this was happening at ~$4.00/gallon. As shipping costs climb, manufacturing will become more localized again.
A good person’s comments to watch with regard to energy topics, is Jeff Rubin. His latest post provides a sense of where we’re going.
For me, the question is less ‘how high will it go?’ Rather more of a ‘how fast will it climb.’ Nobody will like higher prices; I think we’ll be well north of $5/gal inside of 24 months. What is harder to adjust to is if it happens in 12 months, instead of 36.
For instance, if yours is a transportation business, you can revise fleet replacement strategies over a 36 month window. If it happens in 12 months, you’re stuck. Same thing with manufacturers: you cannot bring work back onshore until existing contracts run out.
How fast is a greater concern than how high, I believe. Is energy one of the 9 Business Inputs That Can Make or Break Your Day?