Understanding the Changes in
Manufacturing and Sourcing
Abstract
How will onshoring and nearshoring impact the intermodal
freight network? What data are available to bring clarity to
the public and private decision making?
a large increase in U.S. automobile and appliance
manufacturing in recent years due to the favorable
employment rates and the ability to get the product to market.
The dramatic increase in international trade in containers, was
the catalyst for intermodal traffic growth in North America. The
need to transport the huge container volumes experienced in a
cost efficient manner led to the development of the double
stack containers cars and eventually the transformation of the
intermodal business into a domestic container system.
Outsourcing is not going to disappear but it could be an issue
impacting our infrastructure demands going forward. Without
a substantial upgrade and investment in U.S. infrastructure,
there could be more reliance on neighboring countries for
manufactured products.
In recent years, significant changes in offshore sourcing have
caused many U.S. manufacturers to reevaluate their sourcing
options. These included: increased costs of manufacturing in
Asia as a result of higher wage rates in emerging markets;
higher logistics expenses due to increased fuel costs; port
congestion; international security concerns; political pressures
to stay home following the recession; and, an updated rail
infrastructure in Mexico.
Mexico, a successful and growing example of nearsourcing,
now has a modernized and efficient rail structure enabling
products to reach U.S. destinations easily. Mexico has enjoyed
U.S. Manufacturing is the World’s Eighth Largest
Economy
•The U.S. manufacturing sector is so huge that if it were its
own country, it would rank as the eighth-largest world
economy. The United States produces the most goods and
services overall as measured by gross domestic product
(GDP), and is far ahead of second-place China.
Another major factor that will influence where goods are
sourced from is consumer preferences. Consumers, more than
ever before, are given a broad array of options when
choosing products.
Referred to as omni-channels, they can select products from a
physical store, online store, mobile application, print catalog
or social media. This is already having profound influence on
big box stores, and traditional distribution practices, with
Amazon dominating online purchasing and investing heavily
in the logistics needed to extend all the way through its
delivery chain.
Primary Resources:
Manufacturing Jobs Returning to America
•Made in the U.S.A. is hot again, and the number of
manufacturing jobs that are returning to the U.S. — or coming
to the U.S. for the first time — from overseas has hit a record
level.
•Shale gas activity in the US has taken root in the last several
years, and its effects on the country’s energy mix and energy
independence have progressed beyond prognostication and
shaped new realities. The ‘shale effect’ on manufacturing, too,
is taking shape—making the US a more attractive locale due to
relatively low energy and feedstock costs.
•2014’s net increase of at least 10,000 jobs was the first net
gain in at least 20 years.
•One big catalyst behind the trend: escalating wages in
traditionally lower-cost countries, including China, have pushed
companies to reconsider sourcing strategies.
The Myth of Manufacturing Jobs Returning to America
•For the casual observer, it is easy to get the impression that
manufacturing in America has entered a new renaissance.
•U.S. government data points to a different picture where,
coming out of the Great Recession, American manufacturing
has still not recovered to 2007 output or employment levels.
Moreover, the lion’s share of growth that has occurred appears
to have been driven by a cyclical, rather than structural,
recovery, and as such may represent only a temporary trend.
Government and Industry Organizations
Mexico’s Manufacturing Sector Continues to Grow
•Mexico’s economy has performed well relative to other major
Latin American economies in recent years, largely because of
its thriving manufacturing sector. The country has continued to
see solid growth because of its integration with and
dependence on the U.S. market.
•Rising wages in China have once again shifted the equation in
global manufacturing. Average manufacturing labor costs in
Mexico are now almost 20 percent lower than in China,
whereas in 2000, Mexico’s labor costs were 58 percent more
expensive than China’s.
Industry Trends
•Companies realize that in many cases they overdid it, and are
discovering hidden costs in moving production a long way from
home.
•Shift in consumer shopping behaviors from in-store to more
online shopping has created an increase in demand for faster
delivery of “last-mile goods”.
•National Association of Manufactures: The National
Association of Manufacturers (NAM) is the largest
manufacturing association in the United States, representing
small and large manufacturers in every industrial sector and in
all 50 states.
•Manufacturing Institute: The Manufacturing Institute is the
authority on the attraction, qualification, and development of
world-class manufacturing talent.
•Reshoring Initiative: The mission of the Reshoring Initiative is to
bring good, well-paying manufacturing jobs back to the United
States by assisting companies to more accurately assess their
total cost of offshoring, and shift collective thinking from
offshoring is cheaper to local reduces the total cost of
ownership.