Today, I spoke to a sales rep who sells wooden stair rail parts. He claims that his competitors make their parts out of Appalacian oak, just like his company does. But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S. ( I'm not quite sure I believe that you can send a board to China and back for less than the cost to machine it here, but- he is a salesman, and they never lie.....) Will the anticipated higher fuel costs have any noticeable effects on the origins of products most Americans purchase?
Thanks to Chris / CopCarSS for my avatar.
As a Regional Manager for a company who manufacturers American made building products, I sure hope the answer is YES. I'm tired of competing with all the Chinese made products, and especially those from a Japanese company who manufacturers in China...BUY AMERICAN.
I hope that manufacturers who use American parts and American labor advertise that fact in large red letters. I can't speak for others, but it would matter to me.
Dave
Lackawanna Route of the Phoebe Snow
The price of fuel affects the price of transportation, and the price of transportation affects the price of manufactured goods to the final consumer. So yes, the price of fuel does matter and whenever transportation costs rise one has to look at all alternatives to remain competitive.
Transportation is a necessary evil...in a perfect world all suppliers and all consumers would be right next to each other, and transportation needs would be minimal. But since we don't live in a perfect world we can still minimize our transportation cost, and one way to do that is to minimize the need for transportation services by sourcing local suppliers wherever possible and by selling locally as well.
What if manufacturing did increase in the US?
Would the railroads be able to compete domestically?
Increased fuel prices will affect the modes differentially. The most obvious will be to encourage a shift from long haul truck to intermodal. The reason is that fuel cost is ballpark 25% of truck operating cost and 7-8% of rail operating cost so truck costs will rise faster than rail on any given fuel price rise all else being equal.
Steamship liner rates will increase somewhat with fuel price increases. Whether or not that would encourage domestic production as opposed to foreign enough to make a difference is the real question. My sense is not much, particularly in the short term.
Remember we have hobbled the production side of our economy with all nature of regulation, while many foreign countries have not. The decision of where to source is far more complex that fuel cost, or even freight rates.
Mac
Murphy Siding But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S.
But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S.
Wasn't this topic brought up here about six months ago? And the answer then was, NO WAY! China does NOT allow wood to be imported into their country even if it is to be exported after finishing -- something about bugs.
Transportation costs are one thing, but if you're a US manufacturer thinking of moving operations overseas look at what you won't have to put up with anymore: No EPA, no EEOC, no ADA, no Social Security payments, no federally mandated ANYTHING for that matter, and no unions. You just pay Ding Hao Enterprises for the finished products and that's it. If we want to get manufacturing back into this country, the "Alphabet Soup" of federal agencies and regs have got to be cut back. Sorry to sound like Rush Limbaugh on this but it's the truth, boys and girls. People go into business to make money, not to support government beaurocracies!
Yep, we just have to settle for the standard of living that places like China have.
Oh boy, sign me up. Besides, if we don't employ any Americans, then who is going to be able buy the crap made in China? But I guess that kind of long term thinking is too complicated for the lazy bums that just want to maximize their greed today.
It's been fun. But it isn't much fun anymore. Signing off for now.
The opinions expressed here represent my own and not those of my employer, any other railroad, company, or person.t fun any
cacole Murphy Siding: But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S. Wasn't this topic brought up here about six months ago? And the answer then was, NO WAY! China does NOT allow wood to be imported into their country even if it is to be exported after finishing -- something about bugs.
Murphy Siding: But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S.
cacole Wasn't this topic brought up here about six months ago? And the answer then was, NO WAY! China does NOT allow wood to be imported into their country even if it is to be exported after finishing -- something about bugs.
Are you certain? This powerpoint says China is importing around $5 billion per annum of saw logs and lumber. I was at one of our ports a week ago watching a Handymax size ship being loaded with Douglas-fir saw logs, and another with wood chips, and I was told it was for China. But maybe they were kidding me.
http://www.forestprod.org/internationaltrade06zhang1.pdf
RWM
zugmann Yep, we just have to settle for the standard of living that places like China have. Oh boy, sign me up. Besides, if we don't employ any Americans, then who is going to be able buy the crap made in China? But I guess that kind of long term thinking is too complicated for the lazy bums that just want to maximize their greed today.
That's correct. Globalization is a convenient means by which we can sidestep labor and envirnomental laws by allowing one to employ cheap labor elsewhere in countries that have no environmental regulations. And since that happens "far away" we can remain smug in our belief that it isn't really happening at all.
Yes, I'm sure corporate greed is a factor that I can't discount. Look at the mess the "whiz kids" made of the economy the past few years. I have no love for those irresponsible idiots AT ALL, considering all the people they hurt. As James Kilpatrick said "I'm a capitalist, and business has no bigger friend than me. But they sure make it hard, sometimes." And by the way, the standard of living in China is rising, no wonder with all the money coming in. Not at our level yet but they're on their way. All this being said, I stand by my previous post.
....The "noise" is getting louder....all over the world...! The northern tier of Africa is now in no man's land....Where it's headed, is anybody's guess.
Certainly, we should all be glad the dictators are been rubbed out, now we have to pray some sort of stability will be put in place, but by whom, and when..
The movement started now in this country....{what looks like union busting}, is spreading.....Where are we going....??
It certainly looks like fuel costs around the world for the near future is now in great uncertain territory.....It sure would be great that this massive change might end up with increased production of {almost everything}, back in this country......Right now, things are running a bit scarey around this old world.
Quentin
Murphy Siding Today, I spoke to a sales rep who sells wooden stair rail parts. He claims that his competitors make their parts out of Appalacian oak, just like his company does. But, he claims, Brand X send the oak boards to China, has them machined into stair parts, and ships back the finished goods for sale here in the U.S. ( I'm not quite sure I believe that you can send a board to China and back for less than the cost to machine it here, but- he is a salesman, and they never lie.....) Will the anticipated higher fuel costs have any noticeable effects on the origins of products most Americans purchase?
Sure, but not at a rate of change that will be amazing and dramatic. Look at the numbers. Logistics as an component of the cost of goods delivered to the end user in the U.S. is about 10%. Assume fuel accounts for 20% of logistics costs, or 2% of total price of the goods. Thus if we double the cost of fuel, we're raising the price of the goods by 1%. That will push some manufacturing back to the U.S., particularly manufacturing of heavy or bulky goods (e.g., appliances, earthmoving machinery), goods that have very high value but very low sales volume, and goods where the market demands frequent product changes and fast lead times. Thus you see companies such as Caterpillar, G.E., and specialty tooling and machining companies moving production back to the U.S. Companies making high-volume consumer goods with high labor inputs, such as shoes, clothing, toys, and consumer electronics, will not. More important may be the effects of rapidly escalating labor costs in China, on the order of 18-25% per year, and a rapidly shrinking labor pool in China -- it peaked in 2005 and will decline by 1/3 by 2050. What China has going for it, as a columnist pointed out in the Financial Times today, is Third-World costs and First-World infrastructure. Vietnam, Bangladesh, etc., have really cheap labor but very poor infrastructure.
Effects on railroads of manufacturing returning to the U.S. are quite complex. On the negative side, it diminishes long-haul intermodal freight, and may not present a compensatory domestic intermodal product as the effort is usually made to locate factories within a single day's truck radius of the majority of the customers. On the positive side, general growth of the U.S. economy means more disposable income, which means more electricity, food, and consumer goods consumed, which means more rail movement of coal, grain, and containers.
Here's a paper on logistics costs -- kind of dense, but might be helpful.
http://ops.fhwa.dot.gov/freight/freight_analysis/econ_methods/lcdp_rep/index.htm
Firelock76 Yes, I'm sure corporate greed is a factor that I can't discount. Look at the mess the "whiz kids" made of the economy the past few years. I have no love for those irresponsible idiots AT ALL, considering all the people they hurt. As James Kilpatrick said "I'm a capitalist, and business has no bigger friend than me. But they sure make it hard, sometimes." And by the way, the standard of living in China is rising, no wonder with all the money coming in. Not at our level yet but they're on their way. All this being said, I stand by my previous post.
Once China gets too expensive, we'll move to the next 3rd world country. But there is a bright side... some day we will get to be that 3rd world country providing slave labor for other countries. Yay.
As we've seen in the news over the last month, globalization involves complexity and risks which are beyond the control of even the largest enterprise. Are those costs sufficently offset by the economic advantages of doing business in those countries? I would say that increasely the answer would be no.
I work with customers who have for the most part rejected globalization..these are manufacturers who see the benefits in manufacturing locally inspite of higher labor cost and more stringent environmental laws here. These advantages are:
1) less complexity...and often a resultant lower cost at least from that vantage point.
2) faster response time..if you're in Toronto and you need a widget from a supplier in Toronto you can get it on that day instead of having to wait weeks for it to come in from China...response time is often important. if you're in business...
3) less risk...that's pretty much self explanatory..
4) lower overall transportation cost. If you're supplier is in the same city you're in you can get a 40 thousand pound load moved for 250.00 dollars...that jumps to four thousand dollars and up if you're bringing in those same supplies from overseas. Transportation is expensive and time consuming...thus from the manufacturers' perspective the less of it you need the better off you are.
While the current Middle East crisis may be driving up oil prices, I believe that general price inflation of commodities is also beginning. Depending on whom you believe, our fed policy of printing money will cause inflation. Bernanke says it will cause inflation, but somehow that will be a good thing. I don’t pretend to comprehend monetary policy and world currency trading, but I am not convinced anybody else does either, including the fed chairman. Unless our economy starts to really boom, I don’t see how we are going to grow out of our current debt.
I suppose that rising fuel prices might have some sort of silver lining effect, but I am not sure what. One benefit might be that it will ease traffic congestion because fewer people will be driving. But it will raise the price of everything that needs to be transported. Add to that the general inflation of food, energy, and clothing, and I don’t see how any good comes from it. I don’t see wages keeping up with it. Social Security won’t keep up with it.
Before this "Great Recession" circa 2008, there was already anecdotal evidence in the Wall Street Journal of some companies coming back 'on-shore' again - some to the US, some to Mexico for the reasons pointed out above by others - due to both higher fuel costs back then for overseas shipping, and the trend of higher labor and other costs in China reaching a new equilibrium between the limited supply and a higher demand, as RWM memtioned. So I would expect that trend to resume.
Today's WSJ had an article about Maersk ordering 10 new 'world's largest" containerships - bigger than a U.S. Navy aircraft carrier, even - with an option for 20 more, at a mere $190 million each. See "Maersk Orders 10 Huge Ships From Daewoo" at:
http://online.wsj.com/article/SB10001424052748704476604576157871902178028.html
They will be Maersk's "Triple-E" class ships, 1,312 ft. long, 193.5 ft. wide, 239.5 ft. high, with a capacity of 18,000 TEUs - nothing said about the engine HP, though. And they won't come to the US - no harbors deep enough, per the article. But they do illustrate the trend to more and cheaper trans-ocean containerized shipping.
- Paul North.
There would be a lot more American Made Products and tons more jobs if the EPA Would butt out of everyones Bizness. USA and Steamers all the way!!!!
Paul, thanks for the link to the WSJ article from a couple of years ago...I remember reading that at the time and felt optomistic. Then came the Great Recession.
The uncertainty in the Middle East is certainly sending waves out around the world. The list of African/Middle Eastern countries with unrest is again pushing us to explore alternatives for oil. Throw in the uncertainty of the Suez Canal and there is little wonder we have oil issues again.
Let's take a look at what is occuring at this time:
1. Egypt's administration resigns
2. Libya is unstable
3. Protests in Iran a year ago
4. Protests in Madison, Ws and now other states
5. QE2 in US is suddenly pushing commodity prices higher with food prices beginning to rise.
6. China's low cost advantage is beginning to melt away (slowly). Other issues with China includes a demand for protein and a shortage of women...how are they going to keep the population happy?
7. The mess in Europe. How long can the Euro survive? How long can Germany prop up the Euro?
I am sure there are more issues, but these are the ones that pop to my mind this morning. There is considerable unrest, anger, and uncertainty out there and with the infrastructure of instant communications everyone knows everything that is occuring.
Can manufacturing return to US? Perhaps as a steady uptrend as all of these uncertainties exist worldwide. As I see it, for manufacturing to return a company either must be extremely large in order to face all of the regulations or very small (exemption from regulations are generally pegged at 50 employees or less).
I remain cautiously optomistic. In my sales job, I see hundreds of old factory buildings vacated and left for reclamation. I dont see those buildings being filled with workers again - too expensive to maintain and operate...but the real estate should be cheap and somewhere there is smart money waiting.
Ed
waltersrails There would be a lot more American Made Products and tons more jobs if the EPA Would butt out of everyones Bizness. USA and Steamers all the way!!!!
Sorry, but I have a preference for reasonably clean air and water.
Just heard on a morning program that OPEC has announced it will up production to cover the loss that might occur from Libya.
EPA regulations. Perhaps a better set of regulations could be devised if appropriate people, organizations, government, businesses and any other proper people that should be at the table and hammer out that better system of what really makes economic sense, and still protect the population in a reasonable manner.
The cost of environmental compliance is insignificant next to the cost of labor, machinery, raw materials, and energy. Even for a very dirty process such as oil refining, environmental compliance is less than 1% of operating costs. The American Petroleum Institute (the industry's own advocacy group) calculates that environmental compliance costs about $0.14 per barrel of refined products sold. Cancelling every possible environmental regulation tomorrow wouldn't move significant jobs back to the U.S.
Modelcar Just heard on a morning program that OPEC has announced it will up production to cover the loss that might occur from Libya. EPA regulations. Perhaps a better set of regulations could be devised if appropriate people, organizations, government, businesses and any other proper people that should be at the table and hammer out that better system of what really makes economic sense, and still protect the population in a reasonable manner.
I deal with environmental regulations and the factions on all sides of the debate on a daily basis, as they affect railroad planning, construction, and operation. The problem is really not environmental law, it's property rights. Environmental law is at its core all about who gets to do what with private and public property. No one wants anyone to tell them what to do with their private or public property, and no one is willing to allow anyone to do anything that might negatively affect the value of their private or public property, or their view, or their air, or anything.
Everyone's definition of "reasonable" is different, and no one sees any reason to budge. I go to at least one of those "let's all sit down together and hammer this out" meetings every week, and it's a rare meeting when something is actually hammered out. Democracy is messy that way. China just takes whatever it needs from its property owners, the property owner has no rights to complain or argue, and while it's true China gets things done, is that really the way we want to live?
Railway Man Modelcar: Just heard on a morning program that OPEC has announced it will up production to cover the loss that might occur from Libya. EPA regulations. Perhaps a better set of regulations could be devised if appropriate people, organizations, government, businesses and any other proper people that should be at the table and hammer out that better system of what really makes economic sense, and still protect the population in a reasonable manner. China just takes whatever it needs from its property owners, the property owner has no rights to complain or argue, and while it's true China gets things done, is that really the way we want to live? RWM
Modelcar: Just heard on a morning program that OPEC has announced it will up production to cover the loss that might occur from Libya. EPA regulations. Perhaps a better set of regulations could be devised if appropriate people, organizations, government, businesses and any other proper people that should be at the table and hammer out that better system of what really makes economic sense, and still protect the population in a reasonable manner. China just takes whatever it needs from its property owners, the property owner has no rights to complain or argue, and while it's true China gets things done, is that really the way we want to live?
China just takes whatever it needs from its property owners, the property owner has no rights to complain or argue, and while it's true China gets things done, is that really the way we want to live?
..........No, not in my opinion, it is not....!
Thanks for the interesting input and thought guys, but will higher fuel prices push buyers more toward American made goods...how about starting with American made oil.
Petroleum is somewhat fungible commodity, although there are a lot of different grades of petroleum. I doubt that petroleum from US wells would be appreciably cheaper than that from other locations. Drilling offshore, especially in deep water, is appreciably more expensive than land-based operations.
Railway Man waltersrails: There would be a lot more American Made Products and tons more jobs if the EPA Would butt out of everyones Bizness. USA and Steamers all the way!!!! The cost of environmental compliance is insignificant next to the cost of labor, machinery, raw materials, and energy. Even for a very dirty process such as oil refining, environmental compliance is less than 1% of operating costs. The American Petroleum Institute (the industry's own advocacy group) calculates that environmental compliance costs about $0.14 per barrel of refined products sold. Cancelling every possible environmental regulation tomorrow wouldn't move significant jobs back to the U.S. RWM
Its also easy to forget that environmental regulations provide jobs too. For example, my girlfriend used to be a field tech for a firm that made the equipment that monitors air quality compliance. Its not all bureaucrat jobs. There's a lot of work in those fields for all sorts of people.
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