Manufacturing Jobs to Shift from China to US

Manufacturing Jobs to Shift from China to US, Report Says

Oct 7, 2011 4:22PM GMT
"Reshoring” trend expected to bring more factory work back to States over next 5 years
John D. Boyd, Associate Editor
Source: The Journal of Commerce Online
A big shift of manufacturing from China to the U.S. and other parts of North America will create up to 3 million U.S. jobs in coming years, says a study from Boston Consulting Group.
The report says labor costs in China are rising so fast, while U.S. productivity continues to climb, that the cost advantage of sourcing many types of goods production in China is rapidly shrinking.
“Factor in shipping, inventory costs and other considerations,” and for many types of goods “the cost gap between sourcing in China and manufacturing in the U.S. will be minimal,” according to the report.
The report, titled “Made in America, Again,” cites various examples of companies already shifting work back to the U.S. and says that process will quickly speed up.
The move of jobs and production back to this country is often called “re-shoring,” and some organizations are promoting policies to spur greater returns of factory jobs from overseas.
In just five years, BCG said, “the total cost of production for many products will be only about 10 to 15 percent less in Chinese coastal cities than in some parts of the U.S. where factories are likely to be built,” before counting shipping costs.
But the report said ocean shipping rates have risen in recent years, mainly because of spiking bunker fuel prices since the depths of the recession in 2009, while a shortage of container port capacity projected in 2015 and a falloff in shipbuilding could push rates higher.
The authors said the steady appreciation of China’s currency against the U.S. dollar isanother factor raising the cost of goods made there, while trade disputes continue over many products made in China and the ocean supply chain is subject to threat of disruptions.
BCG said several southern U.S. states “will turn out to be among the least expensive production sites in the industrialized world.” Mexico is also getting some of the output shifting from China, and can deliver goods into the U.S. in one or two days compared with 21 by ocean. But BCG officials said Mexico would not benefit as much as some expect because U.S. expertise in many goods would draw the work back here instead.
The group said industries most likely to see a production shift back to the U.S. are transportation goods, electrical equipment and appliances, furniture, plastics and rubber products, machinery, fabricated metal products, and electronics. “Together, these seven industry groups could add $100 billion in output to the U.S. economy and lower the U.S. non-oil trade deficit by 20 to 35 percent,” BCG said.
BCG is an international business management advisory firm with offices in 42 countries.

By Rip Watson, Senior Reporter
This story appears in the Sept. 26 print edition of Transport Topics.
Driver turnover among larger fleets rose modestly in the second quarter, but declined slightly at smaller fleets that traditionally have greater success in retaining drivers, American Trucking Associations reported last week.
Turnover at truckload fleets with revenue of $30 million or more climbed 4 percentage points to 79% in the second quarter, from 75% in the fourth quarter of last year. Fleets with sales under $30 million saw turnover drop to 47% in the second quarter, from 50% in the first quarter.
The higher churn rate for larger fleets was the third consecutive increase and brought large fleet turnover to the highest point since the second quarter of 2008. Turn-over increased by 6 percentage points in the first quarter, and 20 points in the fourth.
“Large fleets tend to have more of a problem with turnover in tight driver markets than their smaller counterparts, so the fact that the spread is increasing is not surprising,” said Bob Costello, ATA’s chief economist.
For example, when turnover peaked in 2005, smaller fleets’ driver losses were about 35 percentage points lower than their larger counterparts, ATA statistics show.
Among less-than-truckload fleets, turnover fell to 6% in the second quarter from 8% in the first quarter.
“The basic reason for turnover is that drivers don’t feel they have value or are treated with respect,” said consultant Duff Swain, president of Trincon Group LLC, Columbus, Ohio. “The key difference comes up when smaller carriers reach out [to drivers] on a more personal basis. They are more engaged.”
Jim Subler, president of Classic Carriers Inc., Versailles, Ohio, is one of those who believes in the personal touch.
To keep drivers, “the biggest thing is to try and understand what the driver personally needs and wants,” Subler said. His 140-power-unit fleet has seen turnover rise from 25% last year to what he termed a “still respectable” 48% this year. “Seeing family and home time are becoming bigger and bigger. You have to cooperate better with drivers to satisfy their home needs and personal lives,” Subler added.
“Respectable” was the same word used by Swift Transportation Co. President Richard Stocking at an investor meeting to describe turnover at the Phoenix-based truckload carrier.
John Steele, chief financial officer for Werner Enterprises Inc., told an investor meeting, “There is a lot more churn and turnover in this marketplace.”
“A lot of things have changed in the driver corps,” Subler told TT, citing retirements among older drivers at Classic, whose median driver age is 57.
He also cited the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program and its driver performance yardsticks as a key turnover factor.
“If you had a person with a lot of tickets in 2008, 2009 or ’10, you tried to work with them,” Subler said. “Now, with CSA, we have gotten to the point where it is time for them to go.”
Drivers who have been let go from other fleets because of poor CSA scores now account for more than half of people seeking work at Classic, he said.
Subler also highlighted the difficulty in finding qualified new owner-operators, whose ranks are becoming more sparse, he said.
Swain and Costello also linked turnover and the tight driver supply.
“Despite the relatively small increase in turnover, we believe the driver market is tightening, as we hear reports nearly daily of carriers not finding enough drivers,” Costello said.
“When the driver market tightens, turnover increases as drivers tend to jump from carrier to carrier for various reasons, including carriers aggressively recruiting drivers,” he said.
“Many fleets are boosting pay and working hard on retention efforts,” Costello said. “Perhaps both are paying some dividends.”
While driver pay is increasing, Swain said, money alone won’t help retention. He maintained that past efforts to retain drivers by raising pay have failed.
“The fact that turnover continues to build is proof that we are not dealing with the issue effectively,” Swain said. “We won’t solve this by doing more of the same strategy that hasn’t worked in the first place.”
“The big carriers can do a better job of training and . . . [introducing drivers to their fleet], but on a day-to-day basis, the driver can become a number there,” Swain told Transport Topics.
As a result, he said, fleets tend to lose drivers in the first three or four months, which is a sign that either the wrong person was hired or the hiring process was mismanaged.
Swain noted that some carriers have had success attracting people as they leave military service. Keeping them, as well as other new hires, he said, is a matter of demonstrating that there is a career path in the industry beyond driving, such as jobs in safety or other management positions.
“We are in competition in hiring with other professions, such as construction, electricians or plumbers,” Swain said.
The three-year gap between high school graduation and the minimum age for truck drivers hurts hiring when compared with those other lines of work, he added.