| Stung by Soaring Transport Costs, Factories Bring Jobs Home Again
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 cost of shipping a standard, 40-foot container from Asia to the East
Coast has already tripled since 2000 and will double again as oil prices
head toward $200 a barrel, says Jeff Rubin, chief economist at CIBC
World Markets in Toronto. He estimates transportation costs are now the
equivalent of a 9% tariff on goods coming into U.S. ports, compared with
the equivalent of only 3% when oil was selling for $20 a barrel in 2000.
"In a world of triple-digit oil prices, distance costs money," Mr. Rubin
wrote in a recent report. He figures that for every 10% increase in the
distance of a trip, energy costs rise 4.5%.
Transportation costs are just part of a larger wave of inflation
sweeping global manufacturing, which has also been pounded by higher
costs for basic materials, such as steel and resins.
When savings fall to far less than 15%, it gets harder to justify having
the work done in distant Chinese factories that take 12 weeks to deliver
products.
The higher costs are particularly problematic for lower-value goods: The
cheaper a product, the more significant transportation costs are in the
final price. That may help explain why Chinese exports of such
"freight-sensitive" goods to the U.S. are now falling for the first time
in more than a decade, according to CIBC's Mr. Rubin.
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