Guess What Else Won’t Force Manufacturing From China: Rising Shipping Costs
Submitted by Experience Not Logic Blog
In case you haven’t heard, The Internet tells us that there’s a mass exodus of manufacturing from China in the wake rising labor costs, and appreciation of the RMB. In a time of rising, or is it falling [?], oil prices The Internet/Reputable Print Media is now telling us that rising shipping costs mean that China is no longer the place for manufacturing. But, The Internet tells us many many perplexing things. And Reputable Print Media? Well… Fortunately, somebody at The Economist decided to look at actual numbers and interview some people in China.
The findings? First off, manufacturing in China is not dropping, but the pace of growth in exports is dropping. So the sky has not yet fallen. For shipping it turns out, prices have increased:
The cost of shipping a standard 40-foot container from Shanghai to America’s east coast, for example, has jumped from $3,000 in 2000 to about $8,000 today.
The article quotes the executive of an American company in Shanghai that shipping costs accounts for 3-4% of the price of a shoe. The same executive says that this is just not a big deal.
There is also plenty of evidence that the Chinese government is taking affirmative steps to overcome these increased shipping costs by increasing the export tax rebates on low-value goods. Clothing products have had their tax rebates increased from 11% to 13%, and bamboo products have had their rebate increased from 5% to 11%.
However, The Economist article fails on one account in that it barely hints at what the real hope behind this increased shipping cost as reason to no longer source from China argument. The real hope is that increased shipping costs would be high enough to force manufacturers to relocate their manufacturing in the US or Europe thus bringing back jobs that have since been rendered obsolete. This is terribly apparent in the Tesla discussion in the New York Times article linked to in the first paragraph. But, the manufacture of a Tesla Roadster is on a different order of manufacturing prowess than, say, a motorcycle helmet. The Economist article interviews the co-founder of one of the world’s largest motorcycle helmet manufacturers, and he says that the only places in the world other than Guangdong that make sense for his factories are his two biggest markets, Europe and the USA. But, both of these places have substantially higher labor costs, and the economies of scale are more balanced. This means that he’s not leaving for some time to come.
On another note, anybody else not surprised that China is not [yet] the largest market for helmets?
