The LA Times has a pretty interesting article on the effects of $200 a barrel oil on the commuter lifestyle of Southern California, but you could basically apply the effects almost anywhere in the US.
But with oil closing above $140 a barrel Friday, more experts are taking those predictions seriously — and shuddering at the inflation-fueled chaos that $200-a-barrel crude could bring. They foresee fundamental shifts in the way we work, where we live and how we spend our free time.
“You’d have massive changes going on throughout the economy,” said Robert Wescott, president of Keybridge Research, a Washington economic analysis firm. “Some activities are just plain going to be shut down.”
Besides the obvious effect $7-a-gallon gasoline would have on commuters, automakers, airlines, truckers and shipping firms, $200 oil would drive up the price of a broad spectrum of products: Insecticides and hand lotions, cosmetics and food preservatives, shaving cream and rubber cement, plastic bottles and crayons — all have ingredients derived from oil.
The pain would probably be particularly intense in Southern California, which is known for its long commutes and high cost of living.
“Throughout our history, we have grown on the assumption that energy costs would be low,” said Michael Woo, a former Los Angeles city councilman and a current member of the city Planning Commission. “Now that those assumptions are shifting, it changes assumptions about housing, cars and how cities grow.”
Push prices up fast enough, he said, and “it would be the urban-planning equivalent of an earthquake.”
Personally I think that’s a bit tame. People still seem to think we’re going to see an orderly transition to the new oil paradigm, and that all Americans will simply grin and bear it.
I do not have quite that much faith in my fellow man. Heck, the article is even talking about the silver lining.
If any retailers would benefit, it would be those on the Internet. In a recent survey by Harris Interactive, one-third of adults said high gas prices had made them more likely to shop online to avoid driving.
Restaurant operators such as Brinker International, which owns the Chili’s and Romano’s Macaroni Grill chains, are suffering and are likely to struggle even more as consumers look for ways to reduce spending. Fast-food chains wouldn’t be immune, experts say, although they might fare better as families downscale their dining choices.
Vehicle sales, too, would probably continue to tank. Sales of new cars, sport utility vehicles and light trucks fell more than 18% in California in the first quarter compared with a year earlier. Although some consumers have been shopping for smaller, more fuel-efficient vehicles, many dealers are demanding premiums for gas-sipping hybrids, wiping out much of the financial advantage of buying one.
Nationwide, $200 oil and $7 gasoline would force Americans to take 10 million vehicles off the roads over the next four years, Jeff Rubin, chief economist at CIBC World Markets, wrote in a recent report.
Fewer cars, less of a carbon footprint, right? Sure, fewer Americans would be driving, but that also means fewer Americans would be spending, working, etc. too. We’re a mobile society. Taking away that mobility is going to result in far, far more than a culture shock. Everything will cost significantly more.
It takes about 7,000 tons of bunker-fuel to fill the tanks of a 5,000-container cargo ship for a trip from Shanghai to Los Angeles. Over the last year and half, the cost of that fuel has jumped 87% to $552 a ton, according to the World Shipping Council, boosting the cost of a fill-up to more than $3.8 million.
“To put things in perspective, today’s extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering North America,” said Rubin of CIBC World Markets. “At $200 per barrel, the tariff equivalent rate will rise to 15%.”
If oil continues to rise from current levels, officials at the Port of Los Angeles believe West Coast ports would gain business because they are 10 to 12 days’ sailing time from Asia, versus the 18-to-20-day route from Asia to the East Coast through the Panama Canal.
But local ports could lose business if shipping costs get so out of hand that companies begin shifting production back to North America from Asia — something that’s happening in the steel industry, Rubin said.
America’s long dormant manufacturing sector is being revived out of necessity. It’s finally gotten to the point where it costs more to ship steel in then to pay union workers. But there are far more economic sectors where people will be losing jobs instead, because after all if people can’t afford the products steel is found in, the demand for steel will drop back to the point where shipping it in will meet enough of the demand.
Right now, people are anticipating demand continuing to rise for products in the US. This will not be the case.
Dramatically higher transportation costs would usher in an era of virtual mobility, or zero mobility, for many workers.
“We’re seeing companies go to four-day workweeks, place increased emphasis on working at home, show bigger interest in setting up satellite offices — anything that gets commute times down and gets people off the road,” said analyst Rob Enderle of Enderle Group in San Jose.
Videoconferencing, touted as “the next big thing” for years, would finally have its day, thanks to improved technology and a desperation to cut corporate travel budgets.
Telecommuting, or working from home, is easier than ever because of the spread of high-speed Internet access, said Jonathan Spira, chief analyst at Basex Inc., a business research firm in New York. In particular, workers in “knowledge” jobs that can be performed with computers and phones would benefit.
But Gilligan of USC noted that lower-income workers tend to be in jobs that don’t favor telecommuting, such as retail and food service.
“These are the same people who are already being creamed by the mortgage crisis,” he said. “The impacts of energy price increases are highly disparate.”
Although white-collar workers may be able to telecommute, they could also take a serious financial hit because soaring energy prices tend to wreak havoc on the stock market. The explosion of 401(k) plans and similar retirement accounts in the last few decades — and the decline of traditional pensions with guaranteed payouts — have tied workers’ financial futures more closely to stocks than they were during the 1970s oil shocks. A prolonged Wall Street downturn could mean a no-frills retirement, or none at all.
If your “knowledge job” can be telecommuted to working at home or a satellite office, it can be outsourced to India, China, or elsewhere. Once businesses start seeing the number of people in their ranks that CAN telecommute out of cost savings, the next logical step is to outsource those jobs to people making a third as much.
When the deflationary spiral really sets in, job losses over the next couple of years are going to be staggering.
Does your job involve a computer and a phone, without face to face contact with your company’s customers on a daily basis or physical contact with your company’s product? A lot of IT, support, accounting, management and customer service jobs these days fall into this category.
If you can honestly say “Yeah, actually I could telecommute a couple days a week” then your job is in a tremendous amount of jeopardy right now, particularly the IT and support jobs. A lot of white collar jobs are going to go away and not come back, along with a lot of retail and service industry jobs as the spiral continues to rip like a tornado through our economy.
Now is the time to start making a brutally honest assessment of what $200 oil means for you and your loved ones. It means a lot of people out of work, not buying products and services, further putting more people out of work as more and more businesses shutter their windows and put up SPACE FOR LEASE signs.
If your job was outsourced or eliminated tomorrow, what would you do?
It’s time to ask yourself.
Be prepared.
