Some 65 per cent of the senior executives questioned by Accenture said they had moved their manufacturing operations in the past 24 months, with two-fifths saying the facilities had been relocated to the US. China was the second destination for relocated factories, with 28 per cent, followed by Mexico with 21 per cent.
Here is more.
The incessant focus on the location of manufacturing jobs in the media is part and parcel of the mercantilist mentality that Adam Smith had discredited so many centuries ago
I agree entirely, but if the jobs are coming home it means that the total wage bill in the US is lower than the foreign wage bill plus currency risk, sovereign risk, and transportation costs. The cost of capital in the US is near a record low.
So all mercantilist BS aside, this is good news for an American recovery. If true, our unemployment rate will drop and capital expenditures will rise.
Is the low cost of capital contingent on those funds being used for American-soil projects? i.e. Is it possible to borrow at low American rates and set up, say, a Mexican plant?
That’s a good question.
I guess it depends on the collateral and type of loan. If it’s cash with securities as collateral, I suppose it could be used for foreign investment in the carry trade.
If the loan must be collateralized by the objective of the loan, I suppose there is more assurance that it will be used here.
Low interest rates here will be used to finance both domestic and foreign investment. That should still result in more domestic investment. That’s the purpose of such low target interest rates. I guess I’ve just been looking for evidence that cheap money is working, because until now there hasn’t been much.
More jobs in Mexico will also have some good effects for the unemployed in America, no?
I always knew that guy was overrated
Yes, usually, but the nature of manufacturing in Smith’s time and in our own are very different. In Smith’s time, someone (Owen?) likely owned the factory by themselves or with partners, worked there, directly supervised the production of actual product using their trade secret methods. Today, a group of shareholders have stock in a corporation which hires managers to oversee its trademarked brand, and the product is something they commission to be built by a company that hires workers who may live in a shadow economy somewhere else using licensed or wholly owned IP. This web of laws and regulations that protect them from liability, responsibility, and competition is surprisingly still referred to (by people who should know better) as a “free market”.
The Freight Cost arguments for re-shoring are puzzling. Trans-ocean bulk and Container shipping rates are not very high. Is there real evidence of shipping costs rising?
Is it possible that these manufacturing-moves will be perennial and driven by a constant cycle of bait-n-switch: low tax-sops to tempt industry to your {nation / state / city} and then someone else repeating the strategy.
Freight rates have gone up significantly in the past couple of years and every penny counts when dealing with consumer goods. That said, the bigger factor is the appreciation of the Chinese currency and the increase in wages. US companies with vendor bases in China have been and are continuing to see significant price increases from their Chinese vendors.
2010 container shipping rates were about the lowest since 2000. Not sure how much things have changed in the last 1.5 year.
http://bit.ly/Container_Shipping_Rates
The Baltic Dry index as of Nov 2011 was also the lowest it has been in the last 10 years:
http://bit.ly/Baltic_Dry_Index
Is there other data to show increasing freight rates?
You’ve also got to factor in costs for armed guards, government bribes and kidnapping insurance for your executive staff.
Transport costs are starting to bind.
There is also a time element, local manufacture can be ramped up and down to meet the market with less lead time.
Oh yeah, Krugman had something on this back in 2008 with links to studies
This does not explain why P&G is moving to Singapore.
P&G’s move sounds a bit silly:
“The change will take about two years and see some 20 people move to Singapore”
20 people? P&G probably hires more people than that every day.
I suspect the rest of the hiring will take place in Singapore.
Re supertanker / bulk cargo ship logistics: “The QM2 [Queen Mary 2] has 4 diesel generators to push the ship along at an average speed … Overall it has a miles per gallon figure of 0.00753 or moves 40 foot per gallon of fuel burned.” – so if the biggest supertanker is about 500k tons or 6.6x as big as the QM2, which was 76k tons, then your biggest supertanker, which btw holds about 4.1 million barrels of oil, which is about the daily consumption of France, England and Pakistan *combined* (Pak has a small GDP and burns little oil but has lots of people–still, it’s impressive), will move about 6 feet rather than forty feet per gallon of fuel burned. Cargo ship stats will fall somewhere between these two points.
The Hyundai Brave is a 88 kton container vessel; pretty close to the QM2 for tonnage. Assume a transatlantic voyage of ~4000 miles and diesel at $4/gallon and your fuel-economy stats. give a consumption of around $2-Million.
Now consider that this ship carries 8000 container units. $285 / container shipped transatlantic doesn’t sound bad at all.
Agreed, the real calculations are a lot more complex; but my only point is that those low-fuel-economies only sound scary. They aren’t really. Shipping is the most economic way of getting things around.
Hyundai Brave would never make a transatlantic voyage – it’s way too big for East Coast ports and would have to come in light. I’m not privy to all the details on that ship, but sticking to a ship I do know:
Round numbers: 4100 teu (20 foot equivellent unit – a 40′ container is 2 teu)
62,000 dwt – GT is a calculated partial volume and not an accurate indicator of size. Deadweight is the lifting capacity including crew, supplies, fuel and cargo.
135 tons of fuel a day at 23 knots
$740/ton heavy fuel oil
3400 miles Rotterdam to New York
Some Calculations
Rotterdam – New York fuel 831.5 tons, $615,326.
– per teu $150
– given a 10,000 ton deduction for non-cargo weights and 52,000 tons lifted, $11.83 per ton if full
Assuming 276 gal/ton of HFO (varies with temp and actual chemical makeup of fuel):
[23 knots x 24 hours/(135 tons x 276 gallons/ton)] x 6076.1 feet/mile = 90 feet/gallon
Feel free to double check the math, I’ve been known to screw it up.
“Hyundai Brave would never make a transatlantic voyage – it’s way too big for East Coast ports and would have to come in light.”
Is that why I read Michael Lind going on about the need to conduct infrastructure work on American ports?
Good primer here. http://bpa.odu.edu/forecasting/sor/2010/2010_SOR_Container_Ports.pdf
Key thing is that max ship size on the east coast is, as a practical matter, limited by max size into New York, which is in turn limited by the combined max draft and air draft at the Bayonne Bridge.
More important than shipping costs is length of supply chains.
And, at least in apparel, the cost of factoring. And control of product quality. And inventory turns. And import regulation compliance.
The benefit of having a freely-floating exchange-rate and a decent business environment. Where are the stories of factories moving to Spain, Greece etc? If they had gone through anything resembling a full IMF-programme then you would expect them to be one focal-point of reshoring.
Freight rates are not one way. The iPad components assembled in a Chinese plant do not all originate in China. So for many imports you are paying transportation costs 2 (or more) times.
How much of this survey has the ‘Tom Bradley’ effect? I still believe most manufacturering is going to way of the car companies with manfacturering bases in Europe, Asia, and the Americas in order to better deal with geopolitilical issues.
CR
I wonder how much comes from the EU, the uncertainty over there has to be painful.
I like reading information about Mexican. Are you sure about what you was writing? Best wishes, Jessica.
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