What If Oil Hits $200?

Even the cost of getting away from it all on Santa Catalina Island would go up. Greg Bombard, president of the Catalina Express ferry service, has trimmed schedules, raised fares and reduced hiring to make up for fuel costs that have risen sevenfold since 2002. Another big increase and he says he'll have to ask state regulators, who control his rates, to OK another fare hike.

Trade

The fee increases on the ferry would be nothing compared with the added cost of transoceanic shipping if oil goes to $200. Some experts say high energy costs are altering global trade and slowing the pace of globalization.

It takes about 7,000 tons of bunker-fuel to fill the tanks of a 5,000-container cargo ship for a trip from Shanghai to Los Angeles. Over the last year and half, the cost of that fuel has jumped 87% to $552 a ton, according to the World Shipping Council, boosting the cost of a fill-up to more than $3.8 million.

"To put things in perspective, today's extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering North America," said Rubin of CIBC World Markets. "At $200 per barrel, the tariff equivalent rate will rise to 15%."

If oil continues to rise from current levels, officials at the Port of Los Angeles believe West Coast ports would gain business because they are 10 to 12 days' sailing time from Asia, versus the 18-to-20-day route from Asia to the East Coast through the Panama Canal.

But local ports could lose business if shipping costs get so out of hand that companies begin shifting production back to North America from Asia -- something that's happening in the steel industry, Rubin said.

Local distribution patterns could change too. Stephen Gaddis, chief executive of Pacific Cheese Co., a Hayward, Calif., cheese processing and packaging firm, thinks high fuel prices will push restaurants, retailers and food manufacturers to look for suppliers closer to their operations.

"Local sourcing is ideal. You won't pay as much for freight, and when you use less fuel it's better for the environment," Gaddis said.

Soaring diesel prices will make companies rethink whether they should have large, centralized plants or build smaller ones around the country.

That's what Pacific Cheese is doing. It's building a packaging plant in Texas to be closer to one of its larger suppliers and expects to serve its Southwestern clients from there.