Second in a series on American manufacturing

Blog4Truckers Editorial Columnists

You read it here first. American manufacturing is the Comeback Kid of 2011. This is the consensus opinion of a number of economists, summed up by John Schultz of The Wall Street Journal, when he recently wrote: “The best news for American trucking has nothing to do with trucks.” In 2010, the number of U.S. manufacturing jobs grew for the first in fourteen years! 

Manufacturing Returns to the U.S.
Last year, American companies added 136,000 factory jobs, which was a rise of 1.2%. Economists expect that to double this year. Leaving aside agricultural goods, U.S. cargo hauling is almost evenly divided between the retail and industrial sectors. This means a big increase in transport volume as raw materials are taken to factories and finished products leave them.

Several forces are combining to make the United States "one of the cheapest locations for manufacturing in the developed world," said a newly-released report by Boston Consulting Group (BCG), a prestigious firm that advises companies on global business strategy. The foremost reason is (grab your pencils; here comes a term that will be on the test) labor arbitrage.

Pricing Labor
Labor arbitrage sounds like a difficult concept, but it’s basically no different than pricing plumbers. If you’re a manufacturer, it means locating a place with the most appropriate (read: cheapest) labor pool. Another phrase for it, which you’re probably more familiar with, is “off-shoring.” The reason everything is made in China these days is because Chinese will work for less than Americans.

Or used to. The labor landscape is changing. As manufacturing has increased in China, experienced workers have demanded higher wages. In the five years between 2005 and 2010, Chinese factory wages soared by 69%. At the same time, more Americans are willing to work for less. According to BCG’s Hal Sirkin, “If present trends continue, sometime around 2015, manufacturing will be indifferent between locating in America or China.” 

Because of this plateauing of experienced/skilled workers (regardless of country) the BCG report predicted a “manufacturing renaissance” in America, a phrase that caught the media’s attention and got BCG network exposure. (Even non-profit studies have profit objectives. In this case, BCG came to the attention of investors and entrepreneurs who might have use for global business strategizing.) 

“A Manufacturing Renaissance”
Romain Wacziarg, an economics professor at the University of California, Los Angeles, concurs with the prediction but finds different forces at play. “I agree that it’s likely manufacturing will come back,” says Wacziarg, “but I think it's due more to the depreciation of the dollar, not a leveling of wage costs in China and the U.S." 

Whatever the reason, the “American return” has already happened with several companies. Caterpillar is shifting some excavator production from abroad to Texas. NCR has returned manufacture of cash machines to Georgia. Sauder Furniture of Ohio, which specializes in ready-to-assemble office and home products (48,000 cartons shipped every day) is moving some of its plants back to the United States in a process Sauder calls “in-sourcing.” (Buzzword alert: watch for in-sourcing to start popping up across the web.) 

Advantages: Flexibility and Speed-to-Market
In-sourcing has allowed the furniture company to get more contracts, said CEO Kevin Sauder. Like General Motors and other big companies, Sauder doesn’t make all its furniture parts. Instead it contracts some manufacturing to smaller companies. Sauder found that dealing with American suppliers significantly reduced delays, which in turn gave it an edge with giant retailers like Walmart and Ikea. “All things being equal,” says Sauder, “we prefer to go with a regional manufacturer. Even though it might be a little extra money, it’s worth the trade for greater flexibility and speed-to-market.” 

Some Industries May Never Return
Not all industries will benefit equally from the shift to made-in-America products, though. Construction equipment and appliances are leading the shift to domestic production, but industries such as textiles and consumer electronics may never be affected. 

"Industries that require a large labor pool of less-skilled workers are likely to stay in lower-cost environments,” says Michael Zinser, who co-authored the Boston Capital report.  

China’s “Roadblock” – Its Trucks
One unanticipated reason for in-sourcing to the U.S. is the superiority of our trucking system. While China is in no danger of losing its position as the planet’s top manufacturer, companies are moving elsewhere because of the “roadblock” of China’s transportation system.

This may come as a surprise to those of us accustomed to reading about China’s massive investments in infrastructure and expressways, but many of these are expensive toll roads. To help pay for them, the government has burdened trucking companies with heavy taxes, insurance and registration fees. In China, there are only a few great fleets of the kind that dominate American trucking, and these are often foreign subsidiaries. The majority of trucking companies are family-owned businesses, usually with less than a hundred trucks. Breakdowns and delays are common. 

The result is that while American companies may be able to manufacture their products more cheaply in China, they pay for it in higher transport costs and unpredictability of schedules. “Making our product in China is only part of the story,” said one businessman who wished to remain anonymous. “Getting the product out of China and onto the ship is a whole other matter.” 

Thanks, Trucker!
So stand up tall, American truckers! Honk if you love the union label. The “Made in America” brand is back and one of the reasons is you. Truckers may be cusses and cayuses—uncouth, ornery and too-independent-for-their-own-good—but they keep the schedule. Keep it up, boys and gals, because somewhere sitting on a bench in a hallway, there is a yet-to-be-hired American factory worker who is counting on you to bring the jobs home. 

Sources for this article include Strategic Sourceror.com, Delaware Online, ABC News, The New York Times and The Economist.  

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