Akio Okawara

Executive Director
Sumitomo Shoji Research Institute, Inc.

The Beijing Olympics have ended without serious incident, and what seemed like an unusually long summer is finally ending. After the subprime crisis hit about a year ago, global economic woes filled the news, but recently political matters have come to the fore, including the fighting in Georgia, the departure of Pakistan's president, and a state of emergency in Thailand. And here in Japan, September 1 brought the bombshell announcement that Prime Minister Yasuo Fukuda is stepping down.

Meanwhile, on the business front, a modal shift has been progressing around the world in response to high fuel prices and concerns over global warming. The term "modal shift" is used in Japan to refer to the shift in modes of transport for people and goods away from motor vehicles and airplanes to ships and trains, which can carry larger volumes while placing less of a burden on the environment. Transport accounts for 20% of Japan's carbon dioxide emissions, and of this, 90% is from motor vehicles. Japan is likely to step up its modal-shift efforts as it strives to meet its emissions reduction targets under the Kyoto Protocol. Similar moves are underway in the West and in emerging economies, including the use of high-speed trains instead of planes for intercity transport and the adoption of streetcars for urban transport.

In the area of the movement of goods around the world, one idea now in the limelight is "food mileage," which is measured in kilometer-tons by multiplying the weight of food by the distance it is transported from producer to consumer. People are calling for greater reliance on locally grown foods. But resources like coal and iron ore can be extracted in volume only from certain places and must often be transported great distances. For example, China's tremendous demand for steel has led to a surge in the volume of steelmaking materials transported from Brazil and Australia, and this has caused the cost of transporting raw materials by ship to rise 10-fold over the past five years.

In response to the rise in shipping demand, shipbuilding orders have also surged, and more than 200 "capesize bulkers" with capacities of 150,000 tons or over are now scheduled for launch in 2010 (against 800 now on the seas). There are concerns that this will cause a severe weakening of market conditions for shipping lines and that it will be difficult to find sufficient crew members.

The sharp rise in shipping costs is beginning to affect businesses' decisions about procurement sources and sites for new plants. A recent analyst's report from the Canadian Imperial Bank of Commerce notes that the cost of shipping a container from Shanghai to the US East Coast has tripled since 2000; this and rising wages are sapping the competitive position of Chinese steel and other products, causing a shift in trading patterns. Other recent developments include renewed interest in the Trans-Siberian Land Bridge and the possibility of shipping via the Arctic Ocean, where the ice has been melting. From now on, logistics strategies will become an increasingly important aspect of business.