Monday, May 01, 2006

The Upside To High Oil Prices

I read a forlorn message on a community bulletin board the other day from someone in Dickenson County (Virginia). He was essentially conveying his belief that the economy in Dickenson is on the decline because his Southwest Virginia county is isolated from the rest of the country and employers wouldn't want to relocate to an area so far removed from our urban marketplaces.

My thought when I read that was, "So how is it companies in the jungles of Honduras are doing so well?"

We need to talk ...

Dear reader:

1) What was Virginia's number 2 export in 2004?

- Answer: Wood (
source)

2) Where was much of that wood shipped?

- Answer: China (
source)

3) What was the number 4 import to the USA from China in 2005?

- Answer: Furniture (
source)

The number 9 export from the USA to China in 2005 was cotton. The number 5 import from China to the USA in the same year was apparel.

Did you know that most of the shoes being purchased here in the USA are made in China (particularly if they're made of leather)? A full 53% of the world's total shoe production resides there. (
source)

So where do the Chinese get their raw leather? In part, it comes from cattle ranches here in the USA.

So what is my point?

Actually I have two:

First - If we can cut down a tree in Dickenson County, haul it to a port, put it on a boat, ship it to China, have it processed into furniture, package it, truck the finished product to a port, put it on a boat, ship it to Newark, put it on a train to an inland warehouse, truck it to the Big Stone Gap Wal-Mart where it will be sold at some every-day low price, by comparison just how remote is Dickenson County? In this case, it's a heck of a lot closer than the point of manufacture.

This leads to the obvious question: Why can't the raw material be processed right here in Southwest Virginia - as it had been for many decades?

Second - how much fuel is consumed in that process? Trucks, trucks, trains, ships, trains, processing, trucks, trains, ships, trains, trucks, forklifts, trucks ...

With the ever-rising cost of fuel, the likelihood of cotton and wood and leather being shipped half way around the world and apparel and shoes and furniture being sent back becomes ever more cost-prohibitive.

Which means - believe it or not - there is an upside to the staggering prices we're all dealing with at the pump. Removing taxes from the equation (the Chinese don't pay Governor Kaine's taxes), it will become more and more attractive for manufacturers to locate their plants here as the cost of transporting goods climbs.

Dickenson County by God, Virginia - if it plays its cards right - can reap the harvest.

Strange as it may sound, you should cheer when oil hits $100 a barrel. Before, that is, you pull up at the pump ...