Global Logistics: Asia Pacific’s challenges and opportunities in market integration

By Patrick Burnson, Executive Editor
September 01, 2012 - LM Editorial

Rethinking outsourcing
Terrorist attacks or angry acts of nature notwithstanding, it may appear that the tide has begun to turn on the flow of manufacturing jobs from the U.S. to the Asia Pacific.
According to a new study from The Hackett Group, Inc., some companies are already reshoring a portion of their manufacturing capacity, and this trend is expected to reach a crucial tipping point over the next two to three years.

“The total landed cost gap between the two regions continues to shrink, driven in part by rising wage inflation in China and continued productivity improvements in the U.S.,” says David P. Sievers, principal and strategy and operations leader for The Hackett Group.

At the moment, China remains a manufacturing powerhouse, with nearly 75 percent of the companies surveyed having some manufacturing capability in China for at least three years, either directly or through contract manufacturers. The Hackett Group estimates that Chinese manufactured exports to the U.S. currently support between 15 million and 20 million jobs in China.

But reshoring is expected to become more viable with each passing year, as the total landed cost gap of manufacturing offshore shrinks, say some analysts. The Hackett Group’s research found that the cost gap between the U.S. and China has shrunk by nearly 50 percent over the past eight years, and is expected to stand at just 16 percent by 2013. This trend is not only driven by escalating labor costs, but also by rising fuel prices globally, which affects shipping costs.

“This is good news for the American worker as growth in the U.S. manufacturing sector keeps more high-paying jobs at home,” says Sievers.
For Rosemary Coates, president of Blue Silk Consulting, some U.S. companies may simply be getting tired of exercising the diligence needed to start a business in China. “That doesn’t mean shipping and transportation providers will not be needed in the Asia Pacfic, however,” says Coates. “On the contrary, with greater inter-regional trade, U.S. shippers may be hedging their bets by doing business with several neighboring countries at once.”

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About the Author

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Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


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