September 23, 2010, Caterpillar broke ground for a new hydraulic excavator manufacturing facility in Victoria, Texas. Production is anticipated to begin in mid-2010, and once fully operational, the plant is expected to employ more than 500 people and triple the company’s U.S.-based excavator capacity. That’s good news for Victoria and for the U.S. economy.
Among the excavator models the new facility will produce are several currently manufactured in Akashi, Japan, and exported to the U.S. While the facility in Japan will continue to operate to meet the growing demand for excavators in Asia, moving production of excavators for the North American market back to the U.S. is a welcome example of an onshoring/backshoring/reshoring trend that began in 2009. Just how is that trend holding up and will it continue?
In a recent article on thomasnet.com, writer David R. Butcher asked: As the economy slowly improves, will the 'reshoring' trend continue or will offshoring to low-cost countries pick up again? Butcher mentioned factors that contributed to the trend — "higher costs for labor, fuel, and transportation, theft of intellectual property, and higher rejection rates for foreign-made goods in developing countries."
After citing sources, such as this 2009 survey of major third-party logistics providers and this July 2010 article from Machine Design that suggest the movement has gained momentum, Butcher then said, "Despite these signs of repatriating work to the U.S. becoming more prevalent, other data indicate that offshoring to low-cost countries is picking up again.
"While many companies actively pursued nearshoring and onshoring in 2009, or expected to do so in the future, Grant Thornton's 2010 survey of U.S. manufacturing executives concluded that the trend remains active but dampened since last year.
"'[N]earshoring appears to have lost some momentum over the past year,' Grant Thornton explains. 'While some companies brought operations closer to the U.S., fewer did than in our 2009 survey. Fuel prices — one driver of nearshoring — came down, at least temporarily. So, too, did raw materials prices such as steel.'"
According to Butcher's article, "despite the diminished nearshoring highlighted in its 2010 survey, Grant Thornton believes that U.S. companies serving U.S.-based customers with operations in Asia will continue to bring operations closer to home, including to U.S. soil. Among the companies that are currently nearshoring, the largest group is actually repatriating some aspects of sourcing to the U.S. Nearly six in 10 (59 percent) of those moving operations closer to home are locating those operations in the U.S., followed by Mexico (49 percent)."
Among the 59 percent are Ford, which announced in August that it was bringing jobs currently done in India, Mexico, and Japan back to the U.S., and Sleek Audio, an earphone manufacturer that is moving most of its production back from China to Florida.
Quoted in an American Public Media piece that mentioned these companies' onshoring was Mark Krywko, president of Sleek Audio, who said the quality issue was his company's biggest problem with Chinese production. "It forced us to hire people to inspect each and every little item that was coming back from China."
Also quoted was Kevin Potts, vice president at Emptoris, which works with companies on their supply chain costs. Potts said that producing quickly can be more important than producing cheaply and most of his clients are considering onshoring. Potts predicts more high-end production, such as medical device manufacturing will return here. I hope he's right, and I hope it happens soon.
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