Are higher oil prices here to stay?

The good old days of cheap gasoline, under $2 a gallon, appears to be over! Prices for commodities such as oil are set by supply and demand, and recent oil prices — over $47 a barrel — indicate that world oil supply is stretching to keep up with the demand. A similar and even more exaggerated situation exists for scrap metal. Prices are now upwards of $300 per ton compared to $70 per ton in the recent past. 

It’s expected that cheerleaders for the brownwater sector will be dusting off those old “fuel efficiency” arguments again. There is fuel efficiency in dock-to-dock movements, but when fuel-guzzling truck hauls are included, the argument packs less punch.

Shippers don’t choose transport modes based on fuel efficiency. Even with the big changes in oil prices that we are seeing, it will not have much impact on rail versus barge, with other things being equal. 

But there are some significant impacts beyond the barge industry that are associated with the high prices for basic commodities. The new worldwide sucking sound of economic growth is coming from China, which is absorbing record quantities of raw materials to support its growth and industrialization. Thus the higher demand for oil, scrap, cement, and other commodities.

The long-term implications of the emergence of China in this decade as a major industrial world consumer of raw materials is that the nation will command larger and larger shares of limited world resources. Thus, record high prices for commodities with limited supplies like oil and scrap are likely to become permanent.

This should normally be regarded as good news for the barge industry because of the industry’s fuel efficiency versus other modes. However, it is bad news for the U.S. economy, which will ultimately foot the bill for sustained higher prices for raw materials that will hurt our industrial competitiveness. 

Our days as the world’s leading consumer of raw materials are about to end. We are about to become captive to the vast demands of a giant, emerging, industrialized society that will dominate world trade. It will have both positive and negative impacts for the brownwater sector. Sadly for the rest of the economy, it will be mostly negative. 

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Workboat Staff

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