This could be a GQ but I imagine there is some debate as to the ramifications of high fuel costs. Do higher transport costs give “local” business the edge or do the increased prices for raw material transportation mitigate any advantage?
It can, yes. The exact advantage depends a lot on the item and the local manufacturing possibilities.
Just read an article about this in Wall Street Journal Online a week or two ago. Can’t seem to find it now in a brief search (too lazy for in-depth at the moment), but it talked about the higher cost of shipping and how some companies were closing down manufacturing elsewhere to return to the states.
I remember a mention that it now costs $5600 to ship a container from China to the United States.
One company in Kentucky (I think it was) made warmers used by the NFL. They had closed down their factory a year and a half ago to move it to China, laying off 400 people. Due to rising shipping costs, they’re re-opening the plant here and have already hired 150 people. They still had all the manufacturing equipment, having been unable to unload it in that time.
Another company made specialized batteries. They were in the process of moving to a plant they bought in Mexico. Now they’ve decided to stay here.
Higher gas prices do have a silver lining after all, it seems. I’ve never liked offshoring.
With the high transport costs, it is now feasible to farm wheat in new England. I’d like to buy local produce-I can’t see importing salmonella-laced tomatoes from mexico-we can produce all we need here!
Only in marginal industries. The wage advantage , lack of environmental concerns and lack of regulation in both manufacturing and product are still difficult to compensate for. Wages are slowly rising in India. China has a little wage push too. But when you can get engineering and technical professionals at 20 percent of the cost here ,you will stay there. We still are not prepared to work in factories for 80 cents an hour. If we did ,the companies would come back tomorrow.
You’re missing the bigger picture - what makes you think the transportation cost of the finished good is the biggest transportation cost?
It can often take 20 lbs of raw material to make a 10 lb item. So if that item is currently made locally by shipping the raw materials in, it might make more sense to make it where the raw materials are, then ship to the point of sale. In other words, for some products it could have the exact opposite effect.
But this illustrates why ‘local manufacturing’ is generally a ridiculous thing to treat as a universal good. Manufacturing anything requires raw materials, and most modern goods are made of materials that are collected from all over the place. And most manufactured goods are made of intermediate goods which are products in their own right - the local tractor manufacturer uses steel from Korea, screws manufactured in the U.S., instruments from Germany, rubber from Malaysia, seats made in Ottawa, etc.
Whenever you change the cost of one element of production, it has ripple effects over time. The market restructures to maximize efficiency. But I see nothing that would turn that restructuring in the direction of more local manufacture, simply because local manufacture is kind of an illusion anyway. It’s a global economy, and very few products are built from scratch out of purely local materials.
For years, a local farm market (where I shop) has advocated “Buy local, buy fresh, be green”.
Kistaco Farm Market
That is a very perceptive analysis, Sam Stone.
The alleged “silver lining” of local manufacture has other implications as well; the reason nations like China and India are advancing as they are isn’t just because their populations are willing to work cheap; it is also because they are adopting–by virtue of being exposed to–new manufacturing (and agricultural) techniques and methods, which replace older, less effective, more costly means of production. And whlie these nations have typically been used as the dumping ground for low paying and pollution-producing manufacturing, they too are starting to recognize the cost of such and are slowly improving. If we revert to local manufacture, this interchange and transfer of novel and superior methods and technologies is dramatically reduced.
“Offshoring” is often a short-sighted effort to reduce apparent costs (often at the expense of product quality or service), but it also offers opportunities to less progressive nations to develop to a point where it is cost-effective and valued to adopt cleaner and more modern production methods. And as Sam Stone notes, wherever you manufacture something, you still have to ship the raw materials to that location.
Stranger
I agree wholeheartedly. This si one reason I get pissed at some of the “hair-shirt” environmentalists who want to basically destroy human life as much as possible by raising the price of energy in every form they can conceive of. They don’t comprehend what this does to ordinary people, nor what poverty this creates.
Yeah, I love those people for the simplicity of their vision and the stark raving insanity of their lack of comprehension about how the real world works. My favorite was the guy who insisted that we should all be living in small villages under a form of anarchy. :rolleyes:
But that’s for another thread. (Oh, I’ve love to tell some of those stories!)
I go back to that article, thinking about some of the issues. Low margin items where a large portion of the end-user price is transportation and not the manufacturing itself. Moving production half-way around the world, then shipping the item back to the distributor, then shipping it out to stores all adds up big time.
For my own part, I also think of several companies I’ve worked for, or people I know have worked for. Sure, you can outsource everything to China and India. The Chinese make it, the Indians run the IT and support. But then we come down to my final question: At that point, what the fuck does the company need with an overpriced American CEO and marketing department? We could pay some guy in India 1/10th the money and he’d be closer to the support network. Close the marketing, close the distribution network, outsource it to someone else. Maximize shareholder value by all means possible if that’s all you really care about!
It also makes me think of a new-agey card and book set, based on American Indian mythos stuff that I bought a couple of years ago. Printed in China. Super cheap ass construction of the cards and really horrible quality of materials used in the book. At the end of the equation, just how much or how little did it really save the company to have this piece of shit manufactured in China and shipped back to the US (rather bulky too for what you got, which increases shipping costs), when there are millions of outfits here in the US that could do a better job of it? How much has it cost them when people like me look at the product and say that I’ll never buy anything else from Company X because of how shoddy this product was?
(True enough, it’s not the Chinese manufacturer’s fault. They made it within guidelines and acceptance provided by their American customer.)
In a condition of high transport prices, locally manufactured goods can have a price advantage in the local market over imported goods – so long as they can be made out of locally available materials. Otherwise, the cost of importing the materials eats up the advantage, doesn’t it?
That’s what Sam Stone said, about five posts before.
I don’t think people fully understand the complexity of industry and the number of hands a product and its subcomponents have to go through to end up in the consumer’s hands.
I certainly don’t, that’s part of the reason I started this thread.
Although there is a lot more transportation of raw materials to locations where labor is cheap and there are tax advantages - then transportation of those resulting parts to other locations - sometimes halfway around the world - for completion of final product - than transportation of the final product to its final destination. I work for a manufacturing company that still does some manufacture in the U.S. - and more and more of the “factory jobs” are robotic every year. Where we locate factories is where the tax advantages are - which are NOT in the U.S. We are starting to move all of our component factories closer together and shut down the ones that require shipping parts for final assembly. There aren’t a lot of manufacturing jobs in these factories, but there are jobs for people to maintain the equipment, the remaining manual labor, etc.
Well, fair enough. Most people don’t; we all have our industries we work in and get little opportunity to see much else.
Simply put, nobody does everything. Except for a very small number of basic goods, almost everything requires a hideously complex number of tasks to make. The great majority of physical goods that you will ever use in your life were made by a long string of companies, in most cases a half dozen or more, that you will never hear about or deal with; most manufacturers never sell a single item to an end consumer.
Let me give you a fairly simple example; a nail. If you buy a plastic box of simple nails, like you’d get from Home Depot, you’re buying a product that has gone through the hands of at least eight to ten companies BEFORE it got to Home Depot. The nails themselves are the product of the mining corporation that mined the ore (mostly iron), the steel mill that produced the steel, the company that formed the steel into wire, the fastener manufacturer that took the coiled steel and cut anf formed it into nails, in some cases a metal galvanizer that galvanizes the nails, and the industrial distributor that sells the nails to Home Depot. Along the way you might also have another company that heat treats the steel coil, although that capability may lie with the wire or fastener companies. That’s six companies, give or take, and I haven’t even gotten into the string of companies that made the plastic box, which by my count, off the top of my head, is at least five, and possibly as many as eight. And thats just the companies that physically make the product. A hammer takes just as many; you need resource extraction, casting or forging, plating, rubber molding and forming, assembly, distribution and retail. At least.
You can play this game for almost anything. Even simple products require several manufacturers, and a complex one many. The computer you’re using is the product of at least thirty to fifty manufacturers across a vast array of industries; just the plastic part of your DVD-ROM involved at least five companies - resource extraction, base plastic manufacturing, dye production, injection molding, and die making - before those parts could even be part of the kit that assembled the drive (six) and then be sold to the company that made the computer.
Today I visited a company that fabricates large steel things. They were working on a steel kiln that makes concrete - just the steel part of the kiln, and that alone required them to count on, by my count, the mining company, the steel mill, three other steelworking companies (to make angles, cut profiles, and do some roll forming) plus all the companies involved in making welding consumables, which by itself is a hideously complex business. That’s just direct inputs. Their approved vendor list was four pages long; someone has to sell them tape measures, inspect their forklift, sell them propane to run the forklift, do welding inspections, install and fix their lighting, blah blah blah. It makes you dizzy.
When you start adding up how many companies it takes to do all this, the fruitlessness of “local manufacturing,” at least for most items, is obvious; moving the factory close to you just means the inputs have to be trucked to a different spot. The only way you could cut down on the transportation costs for the manufacture of most goods is to put ALL manufacturing in one place and truck only the finished goods out to stores. (Practically speaking, that actually tends to happen to some degree; support manufacturers tend to set up shop near their customers. The decision by Toyota to build a factory in Woodstock, Ontario will likely result in dozens of companies moving to, or setting up shop, in that area.)
This isn’t to say you couldn’t theoretically get some local stuff; anything that can be converted directly from a locally available natural resource into the product you buy can be done without a lot of transportation. It doesn’t take a lot to get you a strawberry; you can buy them right off the plant, if you know where to go. But that’s a fairly small portion of the stuff you’d want to buy, even leading a reasonably frugal lifestyle.