1:6 IS A GOOD START…
December 30th, 2009It would have cost you $5 per half ounce to send a letter via the Pony Express from St. Joseph, Missouri to Sacramento, California. Adjusted for inflation, that is something like $118 in present dollars. Much of our present economy is based on cheap transportation depending upon relatively cheap energy costs. (Yes, gasoline at less than $3 per gallon is cheap energy.)
That is what makes it possible for a company in the United States to contract with a company in China to manufacture a DVD player, ship it across the Pacific and then haul it across the United States to a store where you can buy it for $19.99. The key is that the cheaper labor costs in China offset the more than 18,000 miles of transportation costs.
Thankfully, for local manufacturing jobs, that is changing.
From the BBC:
Manufacturers are moving production back to the UK amid concerns about poor quality and higher freight costs, a report has said.
One in seven companies has moved its manufacturing operations to the UK from abroad in the past two years, a report by the EEF and accountants BDO said.
The EEF said the UK had become “increasingly competitive and efficient” over the past few years.
The EEF represents thousands of manufacturing companies in the UK.
“Many companies have taken advantage of the low-cost emerging markets, both as market opportunities and also as a means of reducing costs,” the EEF’s chief economist Lee Hopley told the BBC.
“If you look at how UK manufacturers compete in global markets, it’s about quality, it’s about customer service and it’s about delivery times.
“If lower labour cost producers can’t provide what they need when they need it, then the alternative is to produce in-house and bring production back to the UK, which some are clearly doing.”
One-in-seven is low, but it is a start. Energy — at least until we can develop fusion reactors — will never be cheaper again. The costs will only go up and when they reach the point where labor costs are no longer low enough to offset the transportation costs, then manufacturing will again become a local phenomenon.
I think that is good.
one of the big successful finance guys was speaking on the City Club. He was a great proponent of “free trade”. He said there is only a 10 percent difference in cost goods when the transportation and logistical costs are factored in of manufacturing in China vs manufacturing in the USA. something about America being more productive or efficient.
So, a traditional American Tariff system would be better for America. The TeaBaggers were absent from the Battle in Seattle.
The proponents of these free trade deals are all very flawed or very dishonest people.
Shalom Ryan,
Absolutely yes to your final statement.
As to the 10 percent difference, that may have been true in the last century, but I don’t believe it today or in the foreseeable future. Energy costs are going up and even burning bunker oil — the really nasty stuff fueling the container ships — is going to become a major cost factor.
B’shalom,
Jeff