North American Manufacturing Gears Up

John B. Byrd, III, president of AMT—The Association For Manufacturing Technology, predicts a major upswing in North American manufacturing production within the next 12 months. A combination of external forces will place domestic manufacturers in a position to bid competitively against manufacturers overseas for contracts.

Mr. Byrd contends that rising international shipping rates, continually improving North American productivity, changes in currency values and the escalating demand for raw materials will result in a restructured international manufacturing landscape. While some pundits predict more outsourcing of manufacturing, indisputable factual evidence points in the opposite direction.

“Shipping costs and the availability of affordable raw materials will reduce the ability of overseas manufacturers to continue domination of U.S. and European manufacturing in many categories,” says Mr. Byrd. “As these market forces converge, they will create upheaval in the international manufacturing sector. The result will be a boom in the North American manufacturing sector unlike anything we have seen in the last quarter century.”

Since the end of 2002, high demand by China for raw materials and products such as steel and scrap metal has tripled the cost of shipping those goods by boat. Currently, the only way to get these products to China is ocean transport, so these costs are unlikely to go down.

“Until now, Chinese manufacturing concentrated primarily on producing goods for use abroad,” Mr. Byrd says. “However, the Chinese people are increasing their purchases of consumer goods. This means China will need to continue importing goods to make products for its foreign customers, while at the same time increasing imports of parts and raw materials to produce goods for its own people.”

As a result, more foreign manufacturers are building plants in China to meet the country’s domestic needs. Because steel is needed to build manufacturing plants and produce the goods that are in demand in China, it is likely that shipping costs will continue to increase, and availability of space on cargo ships will continue to shrink.

Labor rates in China have been the attraction for many foreign manufacturers looking to make products more cost-effectively, but shipping will substantially raise export costs and increase delivery time. Because the cost of shipping raw materials, parts and finished products into and out of China has tripled, prices on North American-produced goods will become more attractive. And North American and European companies will begin looking at production locations nearer to their end-user markets. “Forward-thinking manufacturers should begin making strategic purchasing and product development decisions now. During the next 12 months, North American demand for goods in the retail and industrial products sectors is likely to remain stable or increase,” Mr. Byrd says.

Consumption and shipping issues associated with oil will also play a role in the renewal of North American manufacturing. China is now the second largest consumer of oil in the world. Rising levels of manufacturing in China are going to push that country’s consumption of oil up and create continuing upward cost pressure.

Finally, U.S. manufacturing costs have been favorably impacted by the strengthening Euro. It is only a matter of time before the Chinese revalue the Yuan. This will make U.S. manufacturing more competitive in relation to most global economies.

“Most Americans understand ‘three strikes, you’re out’ from baseball,” Mr. Byrd says. “Think of increased shipping costs as strike one, productivity improvements as strike two and currency revaluation as strike three. This can only mean that U.S. manufacturing is back in the ball game. I encourage all manufacturers to consider IMTS a ‘must attend’ event this year.”