Posted in: Industry News

What Goes Around Comes Around—Reshoring

Posted on Sunday, June 1, 2014

During the past 20 to 25 years, in an effort to achieve maximum profits, to keep product prices down and in some cases to remain in business, manufacturers have looked overseas—mainly to China—to move manufacturing production jobs. Now, both from experts and from anecdotal evidence, the number of factory jobs being created in the United States has matched the number of jobs leaving.

The rationale for moving jobs to China was hard to counter; the cost of labor was so low that components were being produced for as low as 20 cents on the dollar. Even if the reject rate was high, the cost savings was too high to ignore. Small and large U.S. companies took advantage of this cheap labor, sometimes laying waste to small towns across the Midwest and eastern states that depended on a few local companies for their tax base.

U.S. factory payrolls have grown for four straight years, with gains totaling about 650,000 jobs. That’s just a small fraction of the 6 million lost in the previous decade, but it still marks the biggest and longest stretch of manufacturing increases in a quarter century.

According to the LA Times, several factors lie behind the change.

1) Over the last decade, Chinese labor and transportation costs have jumped while U.S. wages have stagnated. The average hourly pay for non-supervisory manufacturing workers in the United States has barely kept up with inflation, rising on average just 2.3 percent over the last 10 years and by only half that since 2010, according to Labor Department figures. Factoring in the rise in value of its currency, China’s base wage, measured in dollars, has risen 17 percent a year, according to an April report by Boston Consulting Group.

2) Manufacturing also has become more automated, further reducing labor’s weight in the cost equation. Walk into an updated plant today and you will see fewer people operating the facility—the change from when I started in business 35 years ago is profound.

3) The boom in natural gas production in the United States, largely driven by fracking and other new drilling techniques, has led to a 25 percent decrease in gas prices in America, contrasted with a 138 percent increase in China, Boston Consulting found.

4) Online commerce has made local control of supply chains more important, especially because many U.S. manufacturers report growing problems with quality control of goods made in China.

Also, as evidence of reshoring, there is now a Reshoring Initiative, a Chicago nonprofit that works with companies to bring manufacturing jobs back to the United States. (See Kevin Biller’s Tough Talk column on page 34 in the March/April 2014 edition of Powder Coated Tough for more on this subject.) According to Harry Moser, who runs this nonprofit, “Now prices are escalating, quality is dropping and deliveries are being delayed,” he says, referring to companies that produce offshore.

For the North American powder coating market, the move to reshoring bodes well. With U.S. productivity continuing to improve, increasing automation and smart supply chain management, more and more companies will be moving their production back home.