From Volume 7, Issue 33 of EIR Online, Published August 12, 2008

Global Economic News

Transportation Costs Spur De-Globalization

Aug. 3 (EIRNS)—After 20 years of closing down U.S. industry to "take advantage" of cheap labor, especially in Asia, companies are now finding that it is "cheaper" to produce at home, rather than cart materials around the world. Over the last few years, the cost of shipping a standard industrial container of cargo has gone from $3,000 to $8,000. This is spurring a new movement, called "the neighborhood effect." Furniture manufacturers are moving production from China back to the Carolinas and Virginia. Items which used to use raw materials from one country, manufactured in another, assembled in a third, and then shipped to the consumer (the U.S.), are now being moved onshore. Even Swedish home furnisher Ikea is building its first U.S. plant, in Danville, Va., rather than ship from Europe.

Another manifestation of insanity—just-in-time production, in which companies keep no inventory—is also in trouble. Oceangoing ships are slowing their speed to conserve fuel, and companies are finding that they must build up inventory on site, since transportation is taking longer and becoming less reliable.

One problem that manufacturers are finding in this "move home," is that the American workers who used to man the factories, and had the skills, no longer exist.

Shipbuilding Can't Buoy South Korean Economy Amid Rising Cancellations

Aug. 6 (EIRNS)—Just three weeks ago, Bloomberg reported that "[s]hipyards in South Korea, the world's biggest shipbuilding nation, are winning orders to build vessels at record prices for a fifth year as shipping lines bet on a rebound in global trade. Shipbuilders are also charging more as they pass on some of the costs arising from record steel prices to their customers." Shipbuilding was regarded as one of the strong points in an economy with most exports—especially autos and electronics to the U.S. and Europe—falling rapidly and import prices inflating.

However, cancellations and even worse, payment defaults are now being reported at major South Korean shipyards.

Daewoo Shipbuilding & Marine Engineering and Hyundai Mipo Dockyard Co. said Aug. 1 that they had cancelled container-ship orders worth more than US$800 million combined.

In addition, Daewoo said on Aug. 5 that Germany's Niederelbe Schiffahrtsgesellschaft GmbH & Co. had failed to make timely payments for eight container carriers worth 619 billion won (US$608.4 million).

Hyundai Mipo said a Spanish company, whose name it didn't disclose, hadn't made an initial payment for a US$208 million order for four product carriers.

International shipping is being hurt both by the decline in international trade and the very high costs that shippers are incurring for fuel oil. A trend to "in-sourcing" is being reported, because the rise in shipping rate hikes the cost of imported goods, even manufactured with cheap labor, over local products.

Japan Declares Economic Emergency, Prepares Special Budget

Aug. 6 (EIRNS)—Japan's government declared that the economy is "deteriorating," and announced an emergency stimulus package and a supplementary budget, to be released at the end of the week. This comes just a week after Prime Minister Yasuo Fukuda replaced 13 of his 17 cabinet ministers, bringing in established (and more popular) figures from all the factions of the ruling Liberal Democratic Party (LDP). The move has improved his sagging popularity in the polls.

The stimulus will target sectors being hit the hardest by fuel costs. Yomiuri Shimbun reported that this will likely include: subsidies for fertilizers, which have doubled or tripled in price over the past year; lowering of highway tolls; support for ferries between the islands; and the extension of tax breaks for mortgage holders.

Malaysia Forms Emergency Economic Council

Aug. 6 (EIRNS)—Finally dropping the "I'm all right, Jack" mentality about the global economic crash, the Malaysian government formed an emergency Economic Council, comprising both government and private sector leaders, to "take on the role of an advisory body to tackle inflationary issues and a weak global economy that has had dire consequences on the country," according to a statement released by Prime Minister Abdullah Badawi's office. Until now, the government has insisted that the strong "fundamentals" in Malaysia would get the country through the global economic crisis.

The leading economic ministers, business executives from industry, banking, and services sectors, as well as think-tank economists, will all participate. They are assigned to devise policies to "spur economic growth and overcome uncertainties."

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