It’s Cheaper to Manufacture Plastic Products in Ohio than in China
Before you go on a bender claiming it is not true. It is true. Your costs of inventory and transportation are high. Three weeks on the ocean plus one week on the dock on each side of the ocean. Transportation costs and time to the buyer. Container costs this last go around were as high as $10,000. Typically they were at $4,000 or less.
Are you going to have 1 – 2 weeks of safety stock or are you going to cover the ocean in-transit time. What if? The static costs are higher. None of this is throughput, labor, or overhead costs. It is waste. Good article.
It’s Cheaper to Manufacture Plastic Products in Ohio than in China, plasticstoday.com, Norbert Sparrow, December 2, 2022
The world isn’t as flat as it used to be. Back in 2005 when The World Is Flat: A Brief History of the Twenty-First Century by Thomas Friedman hit bookstores, the one-two punch of globalization and China’s emergence as the world’s workshop seemed an unstoppable force. The view is very different from the perspective of 2022, and a report from Shale Crescent USA (SCUSA) released last month makes the case that offshoring is a spent force.
“China has lost its manufacturing competitive advantage and the annual $25 billion of exported plastic-based goods from China represent a vulnerable and accessible market share opportunity for US operations,” states the report’s executive summary. The long-held belief that it is cheaper to import plastic products is no longer true because, states the summary, “feedstock/resin and transportation are the largest cost drivers of globally produced plastic-based goods.” If you are a regular reader of our Resin Pricing Report, this will not come as news. While some of these trends have been exacerbated by the pandemic, and supply chains are still reeling from its shockwaves, the SCUSA report claims that this shift is not transitory. “Close proximity to low-cost raw materials coupled with direct access to consumer markets provide US manufacturers with significant cost advantages over China-based competitors,” notes the executive summary. “These changes are fundamental, long term, and will continue for the foreseeable future,” it adds.
Now, it’s worth noting that SCUSA is not an unbiased observer. It is a not-for-profit organization established in 2016 to promote the region of Ohio, Pennsylvania, and West Virginia, which sits atop the Marcellus and Utica natural gas fields, deemed to be the most prolific such fields in the United States. (The Shell cracker plant near Pittsburgh, which began operation last month, uses ethane from shale gas producers in the Marcellus and Utica basins. It is the first major polyethylene manufacturing complex in the northeastern United States.)
While SCUSA has a dog in the US vs. China fight, that doesn’t mean the assertions made in this report are unfounded. Clearly, the astronomical cost of shipping, a crippled supply chain, and China’s bizarre zero-COVID policy — a self-inflicted wound on manufacturing and commerce — have radically changed the offshoring calculus. The question is, I suppose, whether this is a permanent reset or a temporary dislocation. We know where SCUSA lands on this question. But, in my opinion, that is not the only consideration.
If we can build it here, we should, because we simply should not be an accessory to China’s ambitions. As Clare Goldsberry documented in PlasticsToday over the years in countless articles before she retired, China does not respect intellectual property rights. More recently, it has become a belligerent force, crushing dissent in Hong Kong, herding minority populations into “re-education” camps, and threatening the status of Taiwan.
Moreover, it doesn’t even make economic sense to manufacture products in China and ship them over here, according to the SCUSA report. Milacron helped the organization to develop a “production cash flow cost model” that compares the cost of manufacturing plastic products in Ohio versus China. As the graphic below shows, domestic production can be very competitive, and even cheaper in some cases, when transportation is factored in. The cost model is available to processors and can be tailored to take into account specific operation considerations, according to SCUSA.
Brand owners and other companies that do business in China should do themselves a favor and read this exhaustive, well-documented report. Then, ask yourself: Why am I over there?
Rethinking Onshoring Opportunities for U.S. Manufacturing, shalecrescentusa,
This isn’t exactly a new idea; the services industry has been “re-shoring” since last century. (Sentence I never thought I would type: Citi was the First Mover in this effort among the major Financial Institutions.)
Sparrow’s article is fascinating, notably in its pretense that China “;has become a belligerent force.” Those of us Of A Certain Age remember the ancient Vulcan proverb, “Only Nixon could go to China, because he was the only one who was enough of an asshole to sacrifice Tibet and impair Taiwan so he could discuss panda sex with Margaret Trudeau.”
This is certainly not the place to discuss it, but describing it as “China’s bizarre zero-COVID policy” is like saying “Japan’s bizarre anti-nuclear bomb policy” or “Dresden’s bizarre description of fire bombing as a war crime.” After seeing firsthand the effects, they took the same step that AB Contributor Mike Kimel advocates would have been best for the United States: shut down the area to reduced the spread of the disease. There may well have been short-term issues, though “a self-inflicted wound on manufacturing and commerce” seems a bloviating overstatement.
He may well be correct that the costs would be lower in Ohio, but is that because of the shipping-time lag (which firms are currently managing, and have been for years), the increased cost of shipping (assuming that is sustained), or the expectation that Ohio will sacrifice its workers’s health for a pandemic?
Only the second seems a clear economic reason to bear the cost of moving production from China to Ohio. The third–basically, expectation of another unexpected gap in the supply chain–can be mitigated, but the solution seems more a shift from JIT processing than reshoring.
Ken:
I was and am Supply Chain. If you have five weeks of inventory on the ocean and another inventory in stock JIC of demand increase (good issues), problems at the manufacturer (and it does happen as I have been sent there), shortages (nothing is perfect), throughput issues Labor, machine issues); what is the cost? Some of this could happen in the US too. And “no” it can not be easily mitigated. You can not manage out lead times even when you are the best damn planner on the planet.
The pandemic was the author’s opinion and is not a reason to toss the entire article. Its basis is sound.
So, why isn’t it changing? Maybe the cost of building manufacturing plants and equipment is too high?
Jack:
What was I writing about at The Fray early on when it existed?
Forgive me, Bill; I don’t remember. Remind me?
When I was aware of manufacturing site decisions two decades ago, preferential tax rules were high on the list of factors – perhaps the deciding factor. We were still developing international markets, so the shipping considerations were quite different from this report, but bringing back US sales for US manufacturing looks like it would make sense.
Except, the report does not mention taxes and tax rules are still quite ‘interesting’.
Panama Canal: Global warming’s threat to international shipping
Ten Bears:
“The issue is not with the locks. The size limitation is the ship’s draft not its dimensions. How deep does the Culebra Cut have to be in order to pass ships without grounding? When water is plentiful the water level is maintained at a level to accommodate ships with a maximum draft of 50 feet. During the current drought, the target water level of Gatun Lake is reduced so that it can only accommodate ships with a draft not exceeding 44 feet.
Container ships can reduce their draft by offloading some of their containers onto the Panama Railroad to transit the isthmus and reload them on the other side.”
Harbinger, things to come. Can only maintain the water levels when there’s water available to maintain them, and Panama’s future, at least near-term, does not look good. Certainly off-loading and ground-transport containers to be reloaded is doable, but that’s just one more cog in the supply chain to slow things down
Panama has been on my radar for a couple years but I haven’t given much thought to more than the water-cycle implications. This is the first my interests have intersected with yours. I don’t like it much but the simplest solution may be to route that traffic across the now nearly open Arctic Ocean
Ten Bears:
Weather is not a constant and it changes over time. You have a point. And if it freezes again?
As expected, transportation costs to dominate with larger, heavier goods. There’s the whole issue of manufacturing infrastructure, but we may start seeing some plastic production moving back to the US. Why not manufacture plastic patio benches and children’s play sets closer to the customer?
Weirdly, one of our neighbors has a son-in-law involved in the Detroit start up scene. Detroit isn’t in Ohio, but it’s not at the opposite end of the galaxy. The whole VC thing in Detroit is quite different from the one in Silicon Valley, but there is money there, and engineering expertise and railroads and interstate highways.
A few years ago, Apple moved Mac manufacturing back to China after attempting to build high-end models in the US, again. They moved it back, supposedly, because the tiny screws necessary for assembly were only available in China. Go figure.
Apple Moves Mac Pro Production to China
The $6,000 desktop computer had been the company’s only major device assembled in the U.S. …
WSJ – June 28, 2019
(But more recently, there is this…)
Apple will reportedly begin producing some MacBooks in Vietnam in 2023 as it shifts from China
CNBC – December 20 2022
(What the heck is a HomePod?)
HomePod is a powerhouse of a speaker. Apple‑engineered audio technology and advanced software deliver high‑fidelity sound throughout the room. It intelligently adapts to whatever it’s playing — or wherever it’s playing — and surrounds you in immersive audio that makes everything you listen to sound incredible. …