The Wall Street Journal
Stung by Soaring Transport Costs, Factories Bring Jobs Home Again
By TIMOTHY AEPPEL
June 13, 2008; Page A1
The rising cost of shipping everything from industrial-pump parts to lawn-mower batteries to living-room sofas is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas. "My cost of getting a shipping container here from China just keeps going up -- and I don't see any end in sight," says Claude Hayes, president of the retail heating division at DESA LLC. He says that cost has jumped about 15%, to about $5,300, since January and is set to increase again next month to $5,600. The privately held company, known for making the heaters that warm football players on the sidelines, recently moved most of its production back to Bowling Green, Ky., from China. Mr. Hayes says the company was lucky to have held onto its manufacturing machinery. "What looked like an albatross a year and a half ago," he says, "today looks like a pretty good asset."
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The cost of doing business in China in particular has grown steadily as workers there demand higher wages and the government enforces tougher environmental and other controls. China's currency has also appreciated against the dollar -- though not as much as some critics contend it should -- increasing the cost of its products in the U.S.
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But moving production closer to markets won't avoid all the problems associated with rising transportation costs. Manufacturers face hefty surcharges on domestic shipments by truck and train. And already congested domestic transportation systems may have difficulty handling a sudden upswing in demand from manufacturers buying and moving more raw materials and other supplies over U.S. rails and highways. Moreover, in certain industries the advantages derived from offshore production continue to trump higher transportation costs. Electronics firms, for instance, are now clustered in Asia and gain a major benefit of proximity to one another.
While many manufacturers are re-evaluating production strategies, there are limits to how many jobs will flow back to the U.S. One problem is that much of the basic infrastructure needed to support many industries -- such as suppliers who specialize in producing parts or repairing machines -- has dwindled or disappeared. U.S. job losses in manufacturing have averaged 41,000 a month so far this year -- nearly double the pace last year, with sectors such as autos and construction materials tied to the housing slump especially hard hit. In essence, every job added as a result of companies pulling work back home is being more than offset by others reeling from the domestic slump.
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Bremen Castings Inc., a family-owned foundry in Bremen, Ind., is seeing a wave of customers bringing work back from China and other low-cost countries. Last month, a pump manufacturer, which had moved more than $1 million worth of metal-casting work from Bremen to China two years ago, called "to reactivate everything," says J.B. Brown, the foundry's president. "They told me the cost of transport from overseas was the straw that broke the camel's back -- and they said they didn't see it going back down any time soon." And the heavier and bulkier goods are, the more sensitive they are to fuel costs. CIBC's Mr. Rubin predicts Mexico will be "the biggest winner of all" as increased transportation costs make China uncompetitive in an ever-growing list of businesses in North America. Even Mexico may be too far for some companies.
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