The question is ….will we use it?
I think we will for the betterment of the economy, the job numbers and the material handling business.
As I have mentioned previously I read and review at least 15 financial and business publications a month, and recently it has been a bit confusing about what to expect and when in terms of GDP, interest rates, employment, inflation (deflation) and the almighty dollar. And every month you find some useful information and details that specifically addresses the material handling industry.
This month I was reading John Mauldin’s Thoughts from the Frontline dated September 14, 2014. In it is an exhibit prepared by Boston Consulting Group comparing manufacturing costs for the top 25 export economies, with some very surprising results. The four major areas of direct costs for each country listed are compared in terms of 2014 dollars. The costs covered are:
Labor
Electricity
Natural Gas
Other
No other costs are considered and the survey covered all the major export economies including China, Mexico, Japan, etc.
What do you think this exhibit shows?
What it shows is labor being the biggest factor among the four expense categories as you would expect. But what is surprising is how much impact energy costs have on the overall outcome. Mexico for example is now manufacturing for a lower cost than China, and from what I have been reading about new manufacturing sites Mexico is getting more than their fair share which is borne out by the new auto manufacturing plants being built in Mexico.
Also surprising is when comparing the US to China they are pretty close, with the US having a 100 reading compared to China’s 96. Mexico is 91. What brings us so close to China is the difference in our energy costs compared to theirs. In short, our excess labor costs are offset by our very attractive energy costs.
After reviewing this chart you have to ask yourself why more manufacturing jobs are not coming back to the US. Unless you are selling a good portion of what you are manufacturing in China to China you have to believe that management will find it advantageous to bring the work home, and thus provide more opportunity for the US lift truck industry.
Sounds easy does it not….it’s cheaper to manufacture here than China so bring the work home. And now we get to the more confusing part dealing with currency values. Want to get a more favorable spot on this exhibit just weaken your currency and the rest will take care of itself. The US Dollar has been pretty strong lately but we still sit attractively on the exhibit because of our very efficient energy cost.
You are all probably aware of the issues facing our dollar, with the IMF as well as the other major countries trying to set up their own international currency to replace the dollar. When your national debt as well as unfunded obligations total what ours does I can appreciate how holders of our debt assign a higher amount of risk to that investment. Time will tell how this will play out, but to be replaced as the world’s reserve currency is not a good thing, especially with the number of dollars we are currently printing.
The exhibit in this newsletter exemplifies what I mentioned earlier about finding items of interest related to your industry. You wonder if our local, state and federal are aware of this opportunity and are taking steps to encourage this transition to take place.
You also have to wonder if any customers you have with foreign production sites have considered this opportunity. It may be worth a discussion with the right parties along with your offer to help them plan and set up their new manufacturing and warehousing sites.
On the other side of the coin I bet any increase in activity would cause an extension of lead times getting equipment. Now wouldn’t that be a nice place to be ….maybe.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail editorial@mhwmag.com to contact Garry.
