Forums: Discussions for entrepreneurs and small business.

Curiosity question for those of you that manufacture overseas.  Is there a point where the price for a barrel of oil makes it more economical to manufacture domestically rather than off shore?  Or is the costing so far out of whack that it would never happen?

Wouldn`t that be an interesting time for global economics!

Another related question would be, to my mind, at what point does the US manufacturing sector change their pricing structure to capitalize on shipping or transport costs.

From what we`ve just seen in the oil "bubble" (that people say is bursting), it looks like a rising tide will lift all boats. In other words, everyone, no matter where in the world, will increase their pricing based on energy prices---legit or otherwise.

To that end, the *relative* price differences from overseas manufacturing will stay the same, in my opinion, regardless of the price of oil.

There was an interesting study done earlier this year by a couple of researchers in canada who compared oil prices to tariffs:

These days, the cost of oil is the equivalent of imposing a tariff rate of about nine per cent on goods coming into the United States. At $150 a barrel, transport costs act like a tariff of 11 per cent. And at $200, all the trade liberalization efforts of the past 30 years are reversed, Mr. Rubin said.

Oil prices now account for about half of total freight costs, and for the past three years, for every $1 increase in world oil, there has been a corresponding one per cent increase in transport costs.

“Unless that container is chock full of diamonds, its shipping costs have suddenly inflated the cost of whatever is inside,” Mr. Rubin said. “And those inflated costs get passed onto the Consumer Price Index when you buy that good at your local retailer. As oil prices keep rising, pretty soon those transport costs start cancelling out the East Asian wage advantage.”

The whole article is here.

—paula