U.S. Manufacturing Poised for Growth in Billions of $ in Export Money
Now could be the perfect time to be a U.S. manufacturer or exporter.
According to the Boston Consulting Group (BCG), “Export manufacturing has recently become the unsung hero of the U.S. economy.”
This makes us like to think that as a freight forwarder, Universal Cargo Management is quietly going about the job of doing heroic work as we help companies like yours export goods from the U.S. to countries all around the world.
“Despite all the public focus on the U.S. trade deficit, little attention has been paid to the fact that the country’s exports have been growing more than seven times faster than GDP since 2005. As a share of the U.S. economy, in fact, exports are at their highest point in 50 years,” Harold L. Sirkin, Michael Zinser, and Justin Rose say in their BCG report titled The U.S. as One of the Developed World’s Lowest-Cost Manufacturers.
One of the biggest highlights of the BCG report is they “project that the U.S., as a result of its increasing competitiveness in manufacturing, will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade” and “by 2020, higher U.S. exports, combined with production work that will likely be ‘reshored’ from China, could create 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.”
Interestingly, one of the factors causing increased U.S. export projections from BCG is the increase in U.S. imports from China over the last many years and the U.S. trade deficit resulting from it.
Here is how BCG describes shipping costs factoring in:
On several important international trade routes… transportation costs give U.S.-based manufacturers another significant advantage. The large trade deficits that the U.S. has run up in the past decade have had a perverse impact on the shipping industry. Containers have been arriving in U.S. ports filled with imported products—and sometimes departing empty. The ports of Los Angeles, Long Beach, New York, Seattle, and Tacoma all process more than twice as many U.S. imports as exports. Meanwhile, capacity at U.S. ports nearly doubled between 2000 and 2008. As a result, the capacity utilization rate at U.S. ports was only around 54 percent as of 2010—one of the lowest rates in the world….
The imbalanced trade flow has translated into low outbound-freight costs on a number of important trade routes. In late 2011 and early 2012, it cost an average of $3,900 per 40-foot equivalent unit (FEU), or around 72 cubic meters of container space, to ship goods from Yokohama to Rotterdam. The comparable shipping rate from New York City was $1,400. Although freight costs from the west coast of the U.S. to Japan are only slightly lower than those from Europe to Japan, U.S. exporters have an advantage because the shipping distance is shorter, meaning they can more quickly get their goods to Japanese buyers. Because so many shipping containers from the U.S. to China are returning empty, freight costs from the U.S. to China are particularly cheap—just $850 per FEU. That compares with $700 per FEU from neighboring Japan. As a result, Japan’s proximity to China will not necessarily be enough to offset the U.S. advantage in lower overall production costs for many products that are not time sensitive.
Outside of freight rates and shipping costs, BCG says the U.S. “now has a distinct production-cost advantage compared with other developed economies” based on the three factors of labor, natural gas, and electricity.
Here’s how they say manufacturing costs will compare to the U.K., Japan, Germany, France, and Italy by 2015: “…average manufacturing costs in the U.K. will be 8 percent higher… Costs will be 10 percent higher in Japan, 16 percent higher in Germany and in France, and 18 percent higher in Italy.”
These are big time numbers for the U.S. and good news for the economy in upcoming years.
The BCG report calls the export sector “a little-noticed bright spot in the U.S. economy”.
“Since 2005, export growth has averaged nearly 8 percent per year—despite the global recession of 2008 to 2009. Exports of U.S. goods, excluding food and beverages, now account for around 10 percent of U.S. GDP, the largest share in five decades,” BCG reports.
But it’s BCG’s projection of accelerated momentum from the export sector of the U.S. economy that really is exciting:
Because of lower costs, we project that by the end of the decade, the U.S. could capture $20 billion to $55 billion in annual exports from the four Western European nations we studied, which would represent 2 to 5 percent of those nations’ total exports. In addition, we estimate that the U.S. could capture $5 billion to $12 billion in Japanese exports by that time, or 1 to 2 percent of Japan’s total current exports.
The end message for manufacturers from BCG is that the U.S. is steadily emerging as “one of the lowest-cost countries of the developed world” and should cause companies to “reassess their global production strategy”.
That does not mean BCG thinks companies should not retain diversified global manufacturing, but U.S. manufacturing for global business is a strong choice for a wide range of products in a wide range of industries.
BCG sums it up well with, “Improving U.S. cost-competitiveness compared with developed economies, combined with rising costs in such offshore-manufacturing havens as China, represent what we believe is a paradigm shift that could usher in an American manufacturing renaissance.”
As always, Universal Cargo Management is here to help you with your exports in this manufacturing renaissance whether you are interested in ocean freight shipping or air cargo shipping. And, of course, we’re ready for your imports too.