PrintLast summer, when the price of oil was bobbing around the $100/barrel mark, the business press was rife with trend stories on how companies were rethinking the feasibility of their global supply chains. BusinessWeek, for instance, wondered whether sky-high shipping prices could neutralize China's labor-cost advantages and bring manufacturing back to the United States. Of course, by the fall, the world had entered a nasty recession, the price of oil had sunk down to manageable levels, and this supply-chain story vanished from the news for a bit. Or so it appeared. But now here's the Financial Times reporting that, even now, energy concerns are driving a shift in how companies think about logistics:
Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts.
Companies are increasingly looking closer to home for their components, meaning that for their US or European operations they are more likely to use Mexico and eastern Europe than China, as previously.
"A future where energy is more expensive and less plentifully available will lead to more regional supply chains," Gerard Kleisterlee, chief executive of Philips, one of Europe's biggest companies, told the Financial Times.
Supply chain experts agreed, with Ernst & Young underlining how as much as 70 per cent of a manufacturing company's carbon footprint can come from transport and other costs in its supply chain.
Dan O'Regan, the accounting firm's head of supply chains, said: "It is not just the prospect of regulatory changes but also the downturn that is forcing many organisations to consider restructuring their supply chains in their entirety. I think you will find smaller, more regional supply chains."
Since I don't have much to add here, I'll just link to Barry Ritholz's list of the world's 25 busiest ports, which is worth perusing. Surprisingly, no U.S. port ranks in the top ten, although this seems a tad misleading, since if you combine Los Angeles (#13) with right-next-door Long Beach (#15), you get the world's fifth-busiest port—just nudging out Busan, South Korea.
COMMENTS (2)
It is good to see that manufacturers are looking ahead with clear eyes. It might be a couple of years from now or a decade or two, but soon energy costs are going to make it infeasible to ship raw materials across the world to fins cheap labor and then ship the finished products back across the world.
It is good to see that manufacturers are looking ahead with clear eyes. It might be a couple of years from now or a decade or two, but soon energy costs are going to make it infeasible to ship raw materials across the world to fins cheap labor and then ship the finished products back across the world.
I was in Singapore about a month ago. I rode a ferry from Singapore to neighboring Bintang, in Indonesia. Now, I grew up on a relatively busy harbor, Hampton Roads, and I'm used to seeing merchant ships at anchor. I used to buzz around the harbor with my dad in our 13 ft Boston Whaler, and the foreign crewmen of these container ships and coal carriers would wave to us as we cruised past. But Singapore...my God, I've never seen so many ships in one place. There were literally hundreds of them, all standing at anchor in the Strait of Singapore, all waiting their turn to load or unload at the docks. It was like a floating city.
I was in Singapore about a month ago. I rode a ferry from Singapore to neighboring Bintang, in Indonesia. Now, I grew up on a relatively busy harbor, Hampton Roads, and I'm used to seeing merchant ships at anchor. I used to buzz around the harbor with my dad in our 13 ft Boston Whaler, and the foreign crewmen of these container ships and coal carriers would wave to us as we cruised past. But Singapore...my God, I've never seen so many ships in one place. There were literally hundreds of them, all standing at anchor in the Strait of Singapore, all waiting their turn to load or unload at the docks. It was like a floating city.