By Chris Nelder
Posting in Cities
High oil prices are changing our world in many ways; some for the good, and some for the worse, columnist Chris Nelder writes.
High oil prices are changing our world in many ways; some for the good, and some for the worse.
Contemplating these changes, I'm reminded of a book I loved as a child, Fortunately, a tale of reversing fortunes:
Fortunately, Ned was invited to a surprise party.
Unfortunately, the party was a thousand miles away.
Fortunately, a friend loaned Ned an airplane.
Unfortunately, the motor exploded.
Fortunately, there was a parachute in the airplane.
Unfortunately, there was a hole in the parachute.
And so on. Such it is with high oil prices.
Last week, I wrote that drivers in the U.S. will be forced to simply hand over the keys to new drivers in developing countries as competition for oil increases. But there are other reasons too, like lower costs and less stress. Bus and train ridership increased by 2.3 percent in 2011 over 2010, according to new data from the American Public Transportation Association, reaching one of the highest levels America has seen since 1957, according to the Washington Post. Subway ridership was up 3.3 percent nationwide.
Intercity transportation is also moving away from air and rail and toward buses, according to research by the Chaddick Institute for Metropolitan Development at DePaul University in Chicago.
Bus service between cities has been growing steadily since 2006, and was the only form of intercity transportation to grow appreciably in 2011. Free wi-fi and power outlets, spacious seats, online ticketing, and convenient pickup locations have increased the appeal of what was once a disparaged mode of travel, even as air travel has become less convenient and more unpleasant.
Transit-hub based bus service enjoyed 6 percent growth in 2010, and 7.1 percent growth in 2011. Traffic on "curbside operators," which offer pickup at various locations aside from transit hubs, grew a whopping 32.1 percent in 2011. Big curbside operators BoltBus and Megabus posted the greatest growth, and appear to have now reached profitability. Megabus boasts 15 million cumulative passengers since it began operations in 2006. BoltBus, which opened in 2008 to some fanfare for its gimmick of selling one seat on each bus at random for just one dollar, is a comfortable and very cheap way to get between major cities in the Northeast. For example, one can book a trip from Boston to New York on BoltBus just two days in advance for between $17 and $25; on an airline, tickets for the same trip start at $360. Smaller operators offering more deluxe accommodations, such as Limoliner, Lux Bus America and New York Shuttle also expanded service in 2011.
Intercity bus service growth rates, 1960-2011. Source: Chaddick Institute for Metropolitan Development
The enthusiasm for comfortable and relatively low-cost bus service contrasts markedly with air and rail service. Scheduled airline departures shrank slightly in 2011 while passenger seat-miles increased a modest 1.5 percent. Rail passenger seat-miles rose just 1.2 percent but train-miles fell by 1.1 percent.
Estimated growth in passenger ridership, 2010-2011. Source: Chaddick Institute for Metropolitan Development
Interestingly, as I detailed in January ("The revolution will be bottom-up"), this is one of the many transformations under way in America which are forced by high oil prices but which aren't easily detected in official data. The researchers observe: "Accurate passenger traffic statistics are not available for the intercity bus sector due to the fact that no federal government agency compiles and audits such statistics, as is done for intercity rail and airplane travel."
As ever, high oil prices hurt the airlines most of all. The last time global oil prices were this high was in the first half of 2008, when I detailed the carnage in the airline sector. By October of that year, when I heard airline industry expert Michael Boyd explain at an energy conference that every airline in the world is obsolete at $100 a barrel, 30 small carriers had gone bust.
Now we are seeing the next tranche of air carriers being wiped out by intolerably high fuel prices. Southwest Airlines, one of the few carriers who hedged their oil price risks properly in 2008 and avoided heavy losses, said yesterday that it will not earn a profit in the first quarter of this year.
But at today's oil prices, merely being unprofitable is doing very well indeed. Air France-KLM reported a $1 billion loss for 2011, saying that it had not been able to offset the rising cost of jet fuel. Australia's Qantas Airways reported last month that high fuel costs had halved its profit in the first half of 2011, and that it would cut 500 jobs in a bid to save the company. AirAsia X announced this week that it is suspending service to New Zealand due to unprofitability, as prices have increased more than 30 percent since it launched the route. Also this week, Israel's El Al Airlines announced higher fuel surcharges, eliminated its service to Brazil and iced its plan to expand service to the U.S. Of the six major airlines in India, only one is currently profitable, and the Indian airline industry as a whole is expected to realize a $2.5 to $3 billion loss for the 2011 fiscal year.
Worst of all, South Carolina-based public charter airline Direct Air suspended its operations yesterday without notice when it ran out of money to pay for fuel, stranding its customers without offering them alternative arrangements.
Unfortunately, there is little that the airlines can do to accommodate an era of permanently higher fuel prices, other than raising their own prices accordingly. Of necessity this will mean a shrinking industry and a gradual transition to buses and long-distance rail for overland transport, and an eventual return to seaborne transport for economy-class international travel. Looking 20 to 30 years into the future when the global supply of oil will be 30 percent or more lower than it is today, we can easily imagine air travel returning to its roots as a mode of travel that only the wealthy can afford. Indeed, Simon Fraser University urban studies professor Anthony Perl, the author of the 2008 book Transport Revolutions, predicts that no more than 25 airports will be functional worldwide by 2025.
Trucking and delivery services
Next to airlines, long-haul trucking companies are arguably the most vulnerable to fuel price shocks. With a single diesel fill-up costing up to $900 and very thin profit margins, most have no choice but to pass along their increased costs to customers.
"There's no way that the trucking industry can absorb fuel costs, it can't happen," trucking company owner Jim Ganduglia told ABC News. Where he operates in Fresno, California, diesel is running from $4.25 to $4.35 a gallon this week. "So there's a fuel surcharge and without that fuel surcharge we'd all be out of business."
Nowhere is the cost of trucking more evident to consumers than at the grocery store. Fresh produce and other perishables must be shipped promptly no matter what fuel prices are. Grocers, who also operate on razor-thin margins, must raise their rates in turn. So if you're wondering why a head of lettuce has jumped from $1.59 to $2.00, that's why.
Local drivers for repair services, florists, cleaning services, pizza shops, mobile food businesses, and so on are feeling the pinch even more. Many of them cannot pass their increased fuel costs along to customers without losing business, so they wind up eating the loss.
Operators of small fleets, like Phoenix-based HVAC repair shop George Brazil Services, try to maximize their fuel efficiency by switching to more efficient vehicles and increasing the size of their fleets so drivers don't have to travel as far on each call. With up to 2,000 house calls per week, they spend $10,000 to $20,000 on gasoline every 10 days, said owner Jim Probst.
Larger fleet operators are turning to logistics services to optimize their fleet activities, using GPS devices to track their drivers on a minute-by-minute basis. But such tools are generally beyond the reach of small businesses. So Google Green, take note: There's a hungry segment of small business owners who could really benefit from real-time guidance on avoiding slow roads, optimizing routes and shifting deliveries to less congested times of the day.
Optimizing the behavior of drivers is another fuel-reduction strategy advocated by companies like Dubai-based Dynamic Technical Training. By training drivers to shift strategically and avoid hard acceleration or hard braking, they have shown that fleet operators of 100 vehicles can save $31,500 annually in fuel costs. Larger fleets, in the 1200-vehicle range, could save $1.2 million per year.
For national delivery services like UPS who have already optimized their drivers' habits and engaged in a long campaign to upgrade the fuel economy of their fleets, the main recourse is to simply keep raising their fuel surcharges. One year ago, the surcharge was 5.5 percent. Now it's 7.5 percent, and it will be 8 percent by April according to the UPS surcharge schedule. Indeed, if diesel prices continue their current trajectory, UPS will have to issue a new schedule by summer because prices will have gone beyond its highest bracket of 9.5 percent.
Farmers are being forced to find ways to conserve fuel as well. Although most consumers do not realize it, an estimated 7 to 10 calories of fossil fuel are embedded in every calorie of food that arrives on American tables, mostly from diesel used to power farm equipment and big rigs, and from natural gas used to make fertilizers. Fuel is an enormous part of the cost structure for farmers, but they are often forced to absorb fuel price increases because they can't pass them along to consumers.
So they have to be creative. Farmers are looking to no-till practices and switching to crops that require less tilling in order to save on fuel.
"We'll think of ways, maybe make less passes through the field with the tractor than we normally would have. Try to figure out ways by maybe using weed sprays instead of cultivation," farmer Greg Markarian told KFSN in Fresno.
This highlights a somewhat counterintuitive result of rising fuel prices. While it's true that organic farmers generally use less fuel than conventional farmers, the prices of organic foods may increase even more than that of their conventional counterparts if the farmers who grow that food are committed to using permaculture practices like cultivation instead of spraying herbicides to control weeds.
Creative as they may be, however, farming is an historically low-margin business, and it is likely that diesel prices remaining stubbornly over $4 a gallon will spell significant losses for many of today's farmers. At the same time, higher food prices should encourage more local food production and ultimately lead to the relocalization of American farming. As we progress into the era of expensive oil, we cannot continue having our food shipped an average 1,500 miles from the farm to our tables.
Another area in which relocalization is becoming attractive is in supply chain management. High oil prices and the North American recession are destroying the labor arbitrage that once made it attractive to offshore manufacturing to Asia, and have elevated transportation costs to a prime consideration.
One analyst who has predicted this for many years is former CIBC chief economist Jeff Rubin, author of the book Why Your World Is About To Get A Whole Lot Smaller: Oil and the End of Globalization. "Soaring transport costs suddenly change the entire economics of importing everything from cheap labour markets half way around the world," he writes, "So much so that triple digit oil prices will soon breathe new life into our hollowed-out rust belts, and, in the process, bring long-lost manufacturing jobs back home."
In 2008, MIT professor and supply chain expert Dr. David Simchi-Levi analyzed the historical impact of diesel prices on supply chains. He found that every $10 increase in the price of a barrel of crude added 4 cents per mile to transportation rates (against a $75 a barrel baseline price), and that when oil prices hit $150 a barrel, it begins to reverse offshoring prompted by labor costs. Philadelphia and Omaha suddenly become competitive with Juarez, Mexico.
In supply chain parlance, moving manufacturing back to North America is known as nearshoring. Logistics managers are increasingly considering it as a way to maintain profitability in the face of rising fuel costs. A new survey by Logistics Management magazine found that 38 percent of its readers are actively working on nearshoring strategies, and another 6 percent are considering it in the future. The magazine cited another recent survey of senior executives by Alix Partners, which found that 63 percent of the respondents were considering moving manufacturing operations slightly closer to home in Mexico, and that 19 percent want to bring operations back to the U.S.
Indeed, the repatriation of some manufacturing is already happening. CBS News recently featured a small bead manufacturing operation in Michigan, which found that making their product with domestic labor and parts delivered more profit and higher quality than its previous Chinese provider had. One in ten new manufacturing jobs in America are being created in the Michigan rust belt, CBS observed, and noted that everything from tractor parts to wind turbine components are now being made there.
So look sharp, America. Peak oil and the new era of higher oil prices may mean that you can't just flit off to Vegas for a weekend on the cheap anymore, but it also means that you can once again have a good job, and rebuild America's manufacturing base. Your world will be a whole lot smaller, but it might also be a whole lot better.
Photo: 11-year-old girl working in the Rhodes spinning factory, Lincolnton, North Carolina, 1908. (U.S. National Archives)
Mar 13, 2012
Chris, Maybe it's just old impatient me, and this'll probably go over like a lead balloon. Isn't it about time we let the deniers stew in their own ill wind and take a positive tack. Or as positive a tack as we can take in a storm of climate change, resource depletion, and population over shoot. We need to start prioritizing as a communal people to define what we can and must save from our rotting civilization, if we are to define the new civilization without losing nearly all of it. New ways of thinking don't arise by magic. New visions aren't arguments with the old visions. That is most of what we are doing now, letting the deniers define the dialogue. They win.
Mr. Neider cites the rising cost of transportation as a big factor in moving farm production to local areas near cities. This oft-cited assumption is just a pipe dream. The truth is that most cities are not in prime agricultural areas. The climate is not right, or the soil is poor, or the land is too expensive, or there is not enough water, or some other factor prevents efficient production of food. Prime corn growing land in the midwest, for example, can produce twice as much per acre as elsewhere. This advantage will overwhelm any local advantage caused by increased transportation costs. It's winter here in the US. The next time you go to the grocery store, look around the produce section. You'll probably see fresh carrots, broccoli, strawberries, blueberries, etc. None of this stuff grows in most of the US this time of the year. Where does it all come from? It comes from the southwestern US and Mexico, where produce can be grown year-round. It even comes from Central America, Chile, and New Zealand. If transportation costs become too expensive, this stuff simply won't be available in the winter. And forget bananas, cocoa, and coffee. These things can't be grown commercially in the continental US at all. In most places in the US, anybody can put in a summer garden and grow tomatoes, or put in a fruit tree. So it seems like a lot of your food could be grown locally. But while you in your area might produce one crop of tomatoes a year, prime tomato growing regions can produce two or three crops a year. How can a local producer compete with that? A late spring freeze might keep your backyard fruit tree from producing a crop one year, which might not be a big deal. But to somebody trying to establish an orchard in your area it's a disaster that cannot be risked. How many people can go without income even one year in five? These basic facts will still give the advantage to remote food producers in the best agricultural areas for some time to come.
My family had a hog farm during the '60s and '70s, so I know a little bit about farm economics. As Mr. Neider says, farming for decades has been a low profit business. Many farmers had to have part-time jobs off the farm to make ends meet. The problem was that farmers were just too successful. Farms kept becoming more efficient, and ultimately by 2000 there was enough food to feed the world's then population of 6 billion. World population growth has changed all that. We are now at 7 billion, and heading to 9 billion in 20 or so years. This means we need 50% more food than we produced in 2000, and farmers just can't do that. They've finally reached the limits of arable land and water. The demand for food has increased food prices and farmers are now getting record crop prices. This is not a temporary thing. Mr. Neider cites increasing energy prices in farming, and they are a factor. But they affect every farmer, so prices will simply go up. The biggest trend by far, however, in the production of food will be the global competition for it.
If automated "Google Cars" which drive themselves become a reality, it will actually be possible to save large amounts of fuel on long trips. Why? Because if these cars establish links with each other they will be able to drive within inches of each other, much like racing cars do today when drafting. Anybody who has watched "Mythbusters" knows that you can save huge amounts of fuel this way. They saw savings of up to 40% when driving 10 feet behind a big rig. I don't know what the value would be behind another car, but there are plenty of big rigs on the interstates. Also, much like cyclists the lead could be switched periodically so one lead car doesn't have to bear the brunt.
Nearshoring will not necessarily translate to having a good job. New factories will be, on average, more automated than past ones. That translates to better paying jobs, but fewer of them, than in factories of the past with similar capacity. Companies with relatively labor intensive processes will locate their factories in states with right to work laws to avoid labor unions and the living wages that accompany them.
Thank you Mr. Nelder for the wider view of the cost of oil pushing up other costs in other industries. I find it interesting that there is some adjustments being made, taking intra city buses instead of flying and near shoring to reduce cost of shipping. Educating everyone about what is changing and why will help make the adjustment to increasing oil costs. Unfortunately, there are people who are spreading disinformation to people and making it sound like all we have to do is drill and be ruthless about squeezing every drop out of the land and hell with protecting the environment. An honest dialog would be helpful instead of partisan hype.
There are signs of this happening down here in WA (Western Australia). For reasons of supply reliability, higher costs and MOQ out of China and higher transport costs, some manufacturers are bringing operations back onshore. At the moment this is mostly in high tech or high ticket items but it will gradually migrate down into the lower tech, low ticket areas. The other big plus is the flexibility of having local control.
The cheapest, most sustainable, and most environmentally friendly way to cope with dwindling natural resources (not just oil) is to curb population growth. And that can be done by increasing freedom. Better contraceptives, better education, and improved communication can reduce unwanted births and conserve what resources the human population has remaining.
Engineering and science classroom hours must be increased. Creationism should must never be considered a science and cut into this valuable and precious time. We are beginning to lose to the world in the value of our schools. Talking about the needs of the future cannot be complete without addressing this issue. U.S. greed and wasted vehicle technology will slow a transition from oil, or increase the rate of shortage. Maybe the U.S. will consider the subsidies wasted on the oil industry and take into consideration the fact that the long range estimates of fuel availability get harder and more costly to access. And, finally I haven't driven a car in 20 years... Take the bus!
It'll be Pterodactyl Air in 2030. No, actually I'm certain fuel technology will change, as prices increase with low supply. RE: Julian Simon's, Ultimate Resource.
I agree, Ron. Even my attempts to educate and inform here pale in comparison to someone actually growing their own food, producing their own energy with rooftop solar, reducing their own transportation energy footprint, and so on. Lead, follow, or get out of the way. Argument is too often a substitute for action.
Zackers, You should have a look at this documentary for what happened in Cuba when they were forced into peak oil by the fall of the Soviet Union and the US blockade. http://video.google.com/videoplay?docid=-1721584909067928384 In one fell swoop they lost half of their oil and nearly all of their inputs for industrial agriculture. This they call their "special period." The average cuban lost 20 lbs in a few years. That turned around in a few years and by 5 years 80% of Cuban agriculture is now organic, their food stocks are far healthier and much more varied than in the past, farm size has dropped dramatically, farmers are respected and well paid, and 50% of the food stocks are grown within 20 miles of where they are consumed. It can be done and will have to be done here. We did it during WWII, when 40% of the horticultural crops were grown in victory gardens. We've learned a lot since then about permaculture, intensive organic growing, and relatively closed loop systems like aquaponics. When we don't have many of the industrial inputs anymore, and can't follow Monsanto's chemical quidelines to Hell of climbing on the air-conditioned tractor to make the Earth submit, we'll have to do it the old fashioned way with knowledge and real labor. That's not so bad and can be done. Sure, grain and large stock animal production is not an urban/suburban enterprise, but that can still be done on the plains as always on smaller, rotated fields as it was in the first half of the 20th century before monoculture and its attendant evils. The stock animals will be primarily pastured with most of the smaller grain harvests for human consumption. We simply won't have any other choice eventually. Note how critical railroads will be to this change. I grew up on a smaller poor farm in Michigan. As a tyke, in the early 50's we were still doing it right, with one small tractor and draft horses and only small inputs of chemical fertilizers. I've watched it change over the years, more and bigger machinery, more chemicals and fertilizers, then irrigation and a dropping water table. The worms and soil biota have disappeared in the chemical soup along with the fence lines and most of the wildlife. As a kid, my brother and I built miles of fences which have all been bulldozed away and will have to return. It won't be easy, but it can be done.
Before we had cheap fuel to carry fresh produce from far away to our local market, people use to can their own garden produce to keep it over the winter. We might see the practice or something like it, return.
I like the drafting idea but the thought of a multi-vehicle pile up while doing 60 mph is not pretty. why not have the cars link up to one another, train style, in real time so they can move as one? think also of the congestion this would eliminate - time and fuel savings would follow... then again, trying to get around a "train" of 10 cars might not be enjoyable...
Agree. For instance check out your local injection molder and notice how few cars are in the parking lot.
@dixondesign, thanks for your on-topic comment. That is interesting, considering that Oz is a whole lot closer to China than the U.S. is. As you pointed out, transport costs are but one of several reasons why nearshoring is happening.
With a majority of the globes population grow focused in Asia, Africa and to a lesser degree South America, good luck with controling population growth. Western nations seem to get the most attacks for out of control population, but the facts do not support those arguments. - - Today about 42 percent of the world population lives in nations with sub-replacement fertility. - - http://en.wikipedia.org/wiki/Sub-replacement_fertility I find it interesting that the US has been pummeled with advertising most of my 40+ year life that people are starving to death by the millions in Africa. Yet the population of the African continent has gone from around 200 million post WWII to over 1 billion now and a projected 2 billion by 2050. http://en.wikipedia.org/wiki/World_population
If we can get our on-site renewables going and transition to super efficient freezers. Does anyone know about wood burning electric production for the ocassional renewable down-times? Possible or not, if the batteries just won't cover a bad lull?
The best way to reduce birth rates around the world is to educate women, particularly in those societies where women are considered chattel.