Today, I spoke to a sales rep who sells wooden stair rail parts. He claims that his competitors make their parts out of Appalacian oak, just like his company does. But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S. ( I’m not quite sure I believe that you can send a board to China and back for less than the cost to machine it here, but- he is a salesman, and they never lie…)
Will the anticipated higher fuel costs have any noticeable effects on the origins of products most Americans purchase?
As a Regional Manager for a company who manufacturers American made building products, I sure hope the answer is YES. I’m tired of competing with all the Chinese made products, and especially those from a Japanese company who manufacturers in China…BUY AMERICAN.
I hope that manufacturers who use American parts and American labor advertise that fact in large red letters. I can’t speak for others, but it would matter to me.
The price of fuel affects the price of transportation, and the price of transportation affects the price of manufactured goods to the final consumer. So yes, the price of fuel does matter and whenever transportation costs rise one has to look at all alternatives to remain competitive.
Transportation is a necessary evil…in a perfect world all suppliers and all consumers would be right next to each other, and transportation needs would be minimal. But since we don’t live in a perfect world we can still minimize our transportation cost, and one way to do that is to minimize the need for transportation services by sourcing local suppliers wherever possible and by selling locally as well.
Increased fuel prices will affect the modes differentially. The most obvious will be to encourage a shift from long haul truck to intermodal. The reason is that fuel cost is ballpark 25% of truck operating cost and 7-8% of rail operating cost so truck costs will rise faster than rail on any given fuel price rise all else being equal.
Steamship liner rates will increase somewhat with fuel price increases. Whether or not that would encourage domestic production as opposed to foreign enough to make a difference is the real question. My sense is not much, particularly in the short term.
Remember we have hobbled the production side of our economy with all nature of regulation, while many foreign countries have not. The decision of where to source is far more complex that fuel cost, or even freight rates.
Wasn’t this topic brought up here about six months ago? And the answer then was, NO WAY! China does NOT allow wood to be imported into their country even if it is to be exported after finishing – something about bugs.
Transportation costs are one thing, but if you’re a US manufacturer thinking of moving operations overseas look at what you won’t have to put up with anymore: No EPA, no EEOC, no ADA, no Social Security payments, no federally mandated ANYTHING for that matter, and no unions. You just pay Ding Hao Enterprises for the finished products and that’s it. If we want to get manufacturing back into this country, the “Alphabet Soup” of federal agencies and regs have got to be cut back. Sorry to sound like Rush Limbaugh on this but it’s the truth, boys and girls. People go into business to make money, not to support government beaurocracies!
Yep, we just have to settle for the standard of living that places like China have.
Oh boy, sign me up. Besides, if we don’t employ any Americans, then who is going to be able buy the crap made in China? But I guess that kind of long term thinking is too complicated for the lazy bums that just want to maximize their greed today.
I’m a lumber and building material salesman. A LOT of lumber products come from China, including a lot of manufactured products made with wood from somewhere else. I was astounded to see plywood marked as made in China.
Are you certain? This powerpoint says China is importing around $5 billion per annum of saw logs and lumber. I was at one of our ports a week ago watching a Handymax size ship being loaded with Douglas-fir saw logs, and another with wood chips, and I was told it was for China. But maybe they were kidding me.
That’s correct. Globalization is a convenient means by which we can sidestep labor and envirnomental laws by allowing one to employ cheap labor elsewhere in countries that have no environmental regulations. And since that happens “far away” we can remain smug in our belief that it isn’t really happening at all.
Yes, I’m sure corporate greed is a factor that I can’t discount. Look at the mess the “whiz kids” made of the economy the past few years. I have no love for those irresponsible idiots AT ALL, considering all the people they hurt. As James Kilpatrick said “I’m a capitalist, and business has no bigger friend than me. But they sure make it hard, sometimes.” And by the way, the standard of living in China is rising, no wonder with all the money coming in. Not at our level yet but they’re on their way. All this being said, I stand by my previous post.
…The “noise” is getting louder…all over the world…! The northern tier of Africa is now in no man’s land…Where it’s headed, is anybody’s guess.
Certainly, we should all be glad the dictators are been rubbed out, now we have to pray some sort of stability will be put in place, but by whom, and when…
The movement started now in this country…{what looks like union busting}, is spreading…Where are we going…??
It certainly looks like fuel costs around the world for the near future is now in great uncertain territory…It sure would be great that this massive change might end up with increased production of {almost everything}, back in this country…Right now, things are running a bit scarey around this old world.
Sure, but not at a rate of change that will be amazing and dramatic. Look at the numbers. Logistics as an component of the cost of goods delivered to the end user in the U.S. is about 10%. Assume fuel accounts for 20% of logistics costs, or 2% of total price of the goods. Thus if we double the cost of fuel, we’re raising the price of the goods by 1%. That will push some manufacturing back to the U.S., particularly manufacturing of heavy or bulky goods (e.g., appliances, earthmoving machinery), goods that have very high value but very low sales volume, and goods where the market demands frequent product changes and fast lead times. Thus you see companies such as Caterpillar, G.E., and specialty tooling and machining companies moving production back to the U.S. Companies making high-volume consumer goods with high labor inputs, such as shoes, clothing, toys, and consumer electronics, will not. More important may be the effects of rapidly escalating labor costs in China, on the order of 18-25% per year, and a rapidly shrinking labor pool in China – it peaked in 2005 and will decline by 1/3 by 2050. What China has going for it, as a columnist pointed out in the Fina
Once China gets too expensive, we’ll move to the next 3rd world country. But there is a bright side… some day we will get to be that 3rd world country providing slave labor for other countries. Yay.
As we’ve seen in the news over the last month, globalization involves complexity and risks which are beyond the control of even the largest enterprise. Are those costs sufficently offset by the economic advantages of doing business in those countries? I would say that increasely the answer would be no.
I work with customers who have for the most part rejected globalization…these are manufacturers who see the benefits in manufacturing locally inspite of higher labor cost and more stringent environmental laws here. These advantages are:
less complexity…and often a resultant lower cost at least from that vantage point.
faster response time…if you’re in Toronto and you need a widget from a supplier in Toronto you can get it on that day instead of having to wait weeks for it to come in from China…response time is often important. if you’re in business…
less risk…that’s pretty much self explanatory…
lower overall transportation cost. If you’re supplier is in the same city you’re in you can get a 40 thousand pound load moved for 250.00 dollars…that jumps to four thousand dollars and up if you’re bringing in those same supplies from overseas. Transportation is expensive and time consuming…thus from the manufacturers’ perspective the less of it you need the better off you are.
While the current Middle East crisis may be driving up oil prices, I believe that general price inflation of commodities is also beginning. Depending on whom you believe, our fed policy of printing money will cause inflation. Bernanke says it will cause inflation, but somehow that will be a good thing. I don’t pretend to comprehend monetary policy and world currency trading, but I am not convinced anybody else does either, including the fed chairman. Unless our economy starts to really boom, I don’t see how we are going to grow out of our current debt.
I suppose that rising fuel prices might have some sort of silver lining effect, but I am not sure what. One benefit might be that it will ease traffic congestion because fewer people will be driving. But it will raise the price of everything that needs to be transported. Add to that the general inflation of food,
Before this “Great Recession” circa 2008, there was already anecdotal evidence in the Wall Street Journal of some companies coming back ‘on-shore’ again - some to the US, some to Mexico for the reasons pointed out above by others - due to both higher fuel costs back then for overseas shipping, and the trend of higher labor and other costs in China reaching a new equilibrium between the limited supply and a higher demand, as RWM memtioned. So I would expect that trend to resume.
Today’s WSJ had an article about Maersk ordering 10 new 'world’s largest" containerships - bigger than a U.S. Navy aircraft carrier, even - with an option for 20 more, at a mere $190 million each. See “Maersk Orders 10 Huge Ships From Daewoo” at:
They will be Maersk’s “Triple-E” class ships, 1,312 ft. long, 193.5 ft. wide, 239.5 ft. high, with a capacity of 18,000 TEUs - nothing said about the engine HP, though. And they won’t come to the US - no harbors deep enough, per the article. But they do illustrate the trend to more and cheaper trans-ocean containerized shipping.