One of the hot topics in manufacturing in recent years has been the possible resurgence of US manufacturing with jobs coming back to the US from China. The term for bringing manufacturing back to the US is called “reshoring”. After a huge outflow of jobs going to China in the earlier part 2000, we have actually seen a reversal. Granted, at this point, only about 1 % of the manufacturing that has left the USA has come back. Hardly a flood, but perhaps a step in the right direction.
Some are still pessimistic about this trend continuing, but there are some factors that could accelerate the reshoring trend, although it is very doubtful that the US will get back to levels of a decade ago. Here are some reasons that US Manufacturing could continue to rebound in a large way.
- Many companies that have shipped manufacturing overseas are now realizing that labor cost is only a small piece of the total cost and value puzzle. Flexibility, logistics, quality control, supply chain support and communication are huge parts as well. All those aspects take a nose dive when outsourcing to China.
- Shipping costs have increased and it is believed that this will increase more in the next couple of years. Depending on product size, shipping costs can be a fair portion of the total cost.
- The wage gap is narrowing. China wages have been increasing by 12-20 % each year. The US manufacturing wages have been flat or even declined. Many parts of the US can be considered low cost manufacturing centers.
- US Energy Costs: Energy costs realized by US manufactures are some of the lowest in the world, granted, this may not be applicable to industries that involve light assembly, but for major processing industries that consume a great deal of natural gas to build a product, the US is the best place to be.
- Made in USA Boon: This has become a larger economic and political issue in the US, some companies that are manufacturing off shore are getting negative press about this.
On the other side of the issue, there are some reasons to be pessimistic:
- US wages are due for a major increase, Government intervention, unionization and improving employment are all factors that could drive wages up and widen the wage gap.
- Skilled Labor shortage: hard to believe when unemployment is near 8% but manufacturing companies are complaining about the lack of skill in areas such as CNC machining, measurements, welding etc. This is a sad commentary on our skill base when we can find more skilled labor in Asia.
If manufacturing does continue to return to the US, then a lot of complementary industries (like material handling equipment) should also benefit.