Recent reports have suggested that manufacturing has been the silver lining in the weak recovery. Growth has been stronger in the manufacturing sector compared to other sectors.
One of the key reasons for outsourcing is the cheaper labor available elsewhere – but is that offset by the higher cost to transport goods into the point of consumption in the USA? We talk continuously about the goodness of shortening lead times and try to stabilize lead times.
Lead times are essentially an evil when it comes to managing a tight inventory balance sheet. Putting this mantra into practice, one would think we are better off moving production close to the point of use. This cuts lead times and reduces uncertainty on the supply side. This helps you operate almost just in time and hence lower your costs across the board.
What else could drive the change? What do you see as trends in the newly emerging recovery?
Demand Planning LLC is currently researching this area, particularly container and bulk movement. We noticed in our research that most shipping companies are struggling. Their stocks have declined gradually to multi-year lows – Carriers that transport oil, dry goods and bulk haulers have all declined in value over the last few years.
Is this a forecast of continued weakness in the global economy or shrinking international trade or just move to making more production happen domestically in their respective countries?
Companies that own Oil tankers have suffered the most – Frontline, General Maritime Corporation etc. The latter is trading close to multi-year low of $1. The other bulk carriers have also been hit with excess capacity and declining demand. This could be the classic boom-bust scenario where the carriers have invested in excess capacity during the boom and get caught when the slow down hits them. However, there are other possibilities.
Stay tuned for the results of our research study. Please drop me a line if you are interested in an abstract of our findings.