The silver lining to black gold's high price

It may be hard to appreciate as you’re shelling out what seems like a small fortune at the gasoline pump, but there are silver linings hidden in the dark clouds of runaway oil prices.

As some folks switch from private cars to public transit, total travel on U.S. streets and roads is declining for the first time in decades, reducing both congestion and pollution. Transit ridership is hitting 50-year highs, easing some of the budget pain bus and rail agencies are feeling from the higher fuel prices they must pay, too.

Meanwhile, the economic ascendency of our European allies shows that nations can prosper despite gas prices that Americans, even today, would find horrifying. Gas taxes alone range from $4 to $5 a gallon in England and much of western Europe — compared with a federal-state average of 39 cents here — and still their currencies are thrashing our dollar on world financial markets.

The best news for Americans from surging oil prices, however, may be an increase in domestic manufacturing that is already getting attention from economists.

“Higher energy prices are impacting transport costs at an unprecedented rate,” Jeff Rubin and Benjamin Tal of CIBC World Markets Inc. reported last month. “So much so that the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today. In fact, in tariff-equivalent terms, the explosion in global transport costs has effectively offset all the trade liberalization efforts of the last three decades.”

They note that this development has already given the U.S. steel industry a welcome cost advantage over its foreign competitors. China’s steel exports to America are now falling by more than 20 percent a year while U.S. domestic production has risen almost 10 percent – even amid a slowing economy. “The transport component is large enough to turn the global steel cost curve on its head,” they wrote.

While it cost $3,000 to ship a standard 40-foot container from Shanghai to the U.S. eastern seaboard just eight years ago, it’s now up to $8,000. At the $200-a-barrel oil price Rubin and Tal predict for the near future, the same shipment would cost $15,000.

This trend could also give North American manufacturers newfound dominance over typical Chinese exports such as furniture, apparel, footwear, industrial machinery and metal, rubber and paper products, Rubin and Tal said.

“In a world of triple-digit oil prices, distance costs money,” they wrote. “And while trade liberalization and technology may have flattened the world, rising transport costs will once again make it rounder.”

To be sure, rising transport costs also inflate the prices of homegrown food and goods, but not to the extent overseas imports are affected. And that spells new opportunities for American farmers and factory workers.

Many of us are already adapting to the changed energy environment. In March, U.S. motorists drove nearly 11 billion fewer miles than in March 2007, the Federal Highway Administration reports. That 4.3 percent decline nationwide, the first in March since 1979 and the sharpest year-to-year drop on record, capped a first quarter in which U.S. greenhouse gas emissions from tailpipes fell by an estimated 9 million metric tons.

Minnesotans drove 70 million fewer miles in March, a smaller 1.5 percent decline, although the 12-state North Central region as a whole saw a disproportionate 5.4 percent falloff.

As driving dropped, riding surged. Americans made 2.6 billion trips on bus and rail transit in the first quarter of this year, a 3.3 percent rise over 2007, the American Public Transit Association reports. Light-rail ridership increased 10 percent, to 110 million trips. Early figures for April show continuing surges in transit patronage.

In the Twin Cities, Metro Transit ridership rose nearly 7.6 percent in the first quarter, following a 5 percent increase in 2007 to 77 million trips, the most since 1982. The Minneapolis-to-Bloomington Hiawatha light rail line continued its remarkable popularity with a 16 percent fare box surge in the quarter. The Metropolitan Council has set a goal of doubling its transit ridership by 2030.

The Public Transit Association projects that national ridership could be even greater if buses and trains were easily accessible to more than the current 20 percent of U.S. households.

It’s unlikely that the world will return to the days of cheap energy that fueled private mobility and global commerce. But Minnesotans can make the most of the new reality with smart investments in transit, compact residential and business development and maybe even a new boom in made-in-Minnesota products.