I pointed out some years ago that when shipping and logistics costs were low, it made sense for US manufacturers to "off-shore" their manufacturing to countries with low labor and input costs, because the expense of shipping them to the USA was less than paying US wages and input costs. However, if those logistics costs grew, it would make offshore manufacture much less attractive.
Well, as we've seen, the cost of shipping goods from the Far East to the USA has exploded; so now manufacturers are actively "re-shoring" their facilities and production. The Loadstar reports:
A new report by supply chain platform provider Thomas indicates a pronounced increase in manufacturers’ interest in shifting sourcing.
Its survey of North American manufacturers found 83% likely, or extremely likely, to reshore sourcing, a leap from 54% in March 2020.
Thomas president and CEO Tony Uphoff said: “We are witnessing the wholesale re-examination of supply chain relationships, which will realign global manufacturing for decades.
“With North American businesses accelerating reshoring and replacing some of their overseas suppliers with domestic alternatives, US manufacturers are being presented with an unprecedented opportunity.”
Companies had already begun to shorten their supply chains with the impact of the tariff war between the US and China, noted Brian Bourke, chief growth officer of Seko Logistics. Then, Covid-19 and Brexit prompted firms to reshore and diversify, he added.
US-based forwarder Team Worldwide has noticed an increased interest in nearshoring. SVP international Bob Imbriani said: “It’s now becoming more of an issue.”
A survey of more than 130 manufacturers published by technology and professional services provider Sikich and Industry Week, found that 93% of respondents had experienced challenges from Covid-19, and 76% reported that the pandemic had exposed gaps or weaknesses in their supply chains.
In addition to frequent supply chain disruption, extending lead times significantly, the higher costs of logistics are also causing companies to reconsider their options, Mr Imbriani said.
He notes it is not only container rates that have gone through the roof, but also the cost of land transport, including demurrage and detention charges, that are undermining the viability of importing goods from Asia. Some smaller companies had dropped unviable product lines or gone out of business, he said, adding that some low-cost products had been in short supply.
Almost half of the respondents in the Sikich study said they were diversifying their supply chains to reduce the risk of single- or limited sourcing, while others looked to production closer to their markets, or bringing production inhouse.
There's more at the link.
However, "re-shoring" is likely to happen on the most favorable terms for manufacturers, not the US economy as a whole. That means their human workforce is increasingly likely to be replaced, as far as possible, by robots and other automation technology. Automated production lines don't get sick, don't have disruptive political opinions, don't have to worry about political correctness or "woke" pressures, don't want time off or vacations, and avoid a host of other issues in our society. That means those hoping for a windfall of job opportunities due to "re-shoring" are probably doomed to disappointment.
That, in turn, means that we're going to have to consider very carefully what we're going to do with our existing workforce. Some argue that we'll have to provide some form of basic social income for those who can't get or hold down a job, and they have a point: if a significant proportion of the US population can't support itself because there are no jobs available for them, we can't just leave them to starve. On the other hand, it also has serious implications for the Biden administration's deliberately permitting illegal aliens to flood across our southern border. Many of them will be willing to work for a lot less than US workers, which will lead to conflict between them and local labor. That might make our cities and industrial areas a lot more volatile than they already are.
Each of those factors affects, and is affected by, every other factor. We can no longer look at manufacturing in isolation. It now has very real international and domestic political, social, economic and cultural implications. How it will all shake out, nobody knows . . . but it's going to be interesting to find out.
Peter
12 comments:
We bought three pair of shoes this weekend, all made in America. More and more websites are popping up with American manufacturing information.
and I am not the only one who is searching for the made in usa label at the stores...
Why should we buy from Red China, when we KNOW what Red China IS???? Starting with Untrustworthy...
The re-shoring movement started over six years ago, before I retired. Companies were finding out that they weren’t saving anywhere near as much money as they thought they would.
The trade magazines were talking about it, and I remember watching a YouTube video from an auto parts company about it in early ‘15 or even ‘14, I think.
I saw this before I left Pharma, as well. Sourcing materials from China and India often meant we would fail them on receipt for quality issues, or issues that came up during shipment (some things are just not meant to travel well with moisture and heat). So the big companies were looking local for raw materials they could trust rather than risk production slowdowns or loss in quality.
Cedar,
my experience with an Indian sourced med is that they have no concept of quality. That concept requires a broad distribution in the populace, it doesn't work to try to apply it from the top down.
For that matter, my experience in manufacturing and engineering in Silicon Valley shows that Indians don't seem to have a good grasp of it in their upper levels either. Watched a PhD from there kill a company due to this lack.
Unfortunately, I've been seeing a loss of this manner of thinking here in the US for several decades now. Probably due to our pathetic schools.
Exactly. It's been growing for a while. Rising costs in China as well as these problems have been behind it for a while, as well as increased competition from India, Burma, Malaysia, etc.
Some manufacturing was coming back onshore with Obama, our energy costs were half or more cheaper than our next alternative countries. Add in cost of shipping, quality issues, etc. and manufacturing was coming back. However, the 2 big costs are labor and energy, and automation-using energy in place of labor-is now the cheapest alternative. Manufacturing dollars have grown but manufacturing employment has stayed steady.
2 other significant issues. 1) Cost of relocation back to the USA, lots of regulations, etc. 2) We've set up conditions that disincentive people becoming blue collar workers. Couple this with a greedy Corpocracy who keep moving the money to the top and golden parachutes and a complete lack of leadership/inspiration and you've set conditions up for a lack of workforce.
“It’s now becoming more of an issue.”
They've been told from Day 1 that it was going to be a huge problem someday. They didn't listen, and they sold out US manufacturing and US labor in order to make a little more money.
"... what we're going to do with our existing workforce."
From what I've been hearing, that part of the workforce that makes a habit of showing up on time and actually working is likely to be fully employed for the foreseeable future. The not-employed portions have a variety of problems:
* Can't be bothered to show up.
* Unable or unwilling to learn basic job skills, never mind a skilled trade.
* Insufficiently intersectional for the enlightened HR department.
* Too old to hire. (This is very much a thing in Silicon Valley, and has been for at least 20 years.)
* Too burdened with student-loan debt to take on a low-paying job.
* Too burdened with university indoctrination to take on a low-prestige job.
* Totally burned out from doing three people's jobs the past year and a half.
I'm sure I've missed some.
Xoph: Regulatory costs are indeed a big barrier to some sorts of onshoring. Just try getting into the printed-circuit board fabrication business - yes, there are a few domestic PCB fab houses, but they're nowhere near price-competitive with the ones in China (which presumably can get away with dumping their toxic waste in the nearest river or field). We need to revisit environmental regulation with an eye to cost-effectiveness and the realities of compliance rates as a function of compliance costs, but that ain't happenin'.
Even if you replace low skill workers with some type of robotics, you will need skilled workers to manufacture, program, install and maintain the automation.
As for failing to get delivery from offshore, that was one of the reasons I retired in 2020. We had components such as circuit board components and other electronics that just plain never arrived, much less passed inspection. They were from US or NATO countries that moved manufacturing to Asia to save money.
My techs could not get parts and I couldn't get engineering and purchasing to find and qualify any new vendors. We lost business and I got to deal with customers headaches. So it was bye bye!
It may be apropos of nothing, but the thought occurs to me that not everything includes circuit boards or uses rare earths.
When I am home from sea and my wife happens to be working a night shift, I will on occasion watch the TV show 'Shark Tank,' have one or four too many whiskys and yell at the TV from about 9pm to midnight.
The show, if you're not familiar with it, is about a bunch of investors listening to sales pitches from people who are selling products and need an investor to build their business. Many involve manufacturing, and almost always, when pitching durable goods, part of the process will be the investor mentioning his/her connections with 'experienced manufacturers' (e.g. China). With the exception of clothing, which goes to Viet Nam, every billionaire investor still pivots to China.
I can't help but think expressing a desire to manufacture domestically is a cheap claim, and a form of virtue signaling in the domestic marketplace. Good intentions and all that. I would love to see it happen, but I am cynical that the sudden shift in talks will stay in talks and not move to action.
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