Submitted by Elise Couston, Senior Managing Director at NGKF
I recently attended a 2015 Market Outlook sponsored by Industrial Info Resources. A lot of great information was provided by the panelists, so I chose two to interview and share their insights with you. Part 1 is an interview with Dave Pickering, Global VP of Research-Industrial Manufacturing at IIR. Part 2 will run in CIP’s next issue.
Q: What are some of the newest trends in U.S. manufacturing today?
A: Re-shoring is one the biggest trends underway right now. Many companies left the U.S. a decade ago because of the high cost of labor and higher fuel costs. Many companies send their manufacturing to Asia (i.e. China, Viet Nam, Taiwan, and Indonesia). However, now they have started coming back to North America because the lower fuel costs here have offset the higher labor costs. That has made it worthwhile to be closer to their customer base and cuts down on distribution costs. Also, the current strength of the dollar is helping to bring manufacturing back here.
The other newer trend that we are seeing is a significant increase in companies who are purchasing and re-occupying plants that had previously closed instead of embarking on organic new plant construction. Many companies are taking advantage of re-purposing closed plants instead of building new ones to save money. In most cases, it is less expensive to retrofit an existing plant than to do ground-up construction.
Q: Which primary industries are bringing their manufacturing back to the U.S. now, and why?
A: The movement out of the U.S. began with the textiles sector, which moved their manufacturing primarily to Asia due to cheaper labor. There has been some healthy textile manufacturing in the southern part of the U.S. Now, we are seeing some of the companies who moved their manufacturing to Asia, moving it back here. We are seeing a huge increase in cap ex spending by textiles companies in the U.S., as it has gone from approximately $200 million to $1 billion, with another $500 million already planned for 2015, and it could increase to $800 million. We are expecting that spending to slow in 2016 after this huge increase.
Another new trend is that the European automakers are moving more of their manufacturing to the U.S. VW has announced a $900 million expansion of their plant in Tennessee and Volvo is building their first plant in the U.S. in South Carolina at a cost of $500 million. One of the results of such a new plant will be that many of their tier suppliers will also build around the new plant. A total of approximately $1 billion in expenditures are expected when you combine the cost of the Volvo plant and all the local tier suppliers.
These automakers are coming to the U.S. because they are convinced it is now viable to be here, primarily because of the strong dollar and lower energy costs. New auto sales are skyrocketing, resulting in the sale of approximately 17 million units, which is similar to the pre-recession levels of 2005-06. During the recession, consumers were spending money on an “as needed” basis, but they have now switched to a “want to buy” philosophy which benefits new vehicle sales.
The Japanese automakers have always had “flexible” and “just in time” manufacturing. This means they have made multiple car models on a single line in the same plant instead of having separate plants for separate vehicle models, which is what the U.S. automakers had done prior to the recession. In the post-recession world, the U.S. automakers have finally adopted the same practices.
There has also been some re-shoring of plastics and rubber manufacturing, but not to the same extent as these plants tend to be smaller. Heavy manufacturers are also moving outside of union locations to non-union locations, as a cost-saving measure.
Q: What is 3D manufacturing, and how is it going to change manufacturing going forward?
A: 3-D manufacturing will change the plastics and rubber sectors the most. This means it will also impact the automotive sector, as approximately 70-percent of automobiles are plastic and rubber. Mostly, this process cuts down on their overhead and the number of employees required. The initial start-up costs are high, but the facility footprints are smaller because less machinery is required and the number of employees can be reduced from 200 to 20. These items positively impact their overhead costs.
The size of a 3D printer can be the size of a home printer to make smaller parts. The printers are shaped like a cube instead of the traditional “box”. Some are the size of an office printer, but others may get a little larger in order to manufacture a quarter-panel or bumper, for example.
Q: What are the most important elements that manufacturers look for when making locational decisions?
A: The access to a facility is of primary importance, as well as the infrastructure that is already in place. Access to labor is also very important, and is based on the size of the plant. Companies are now offering competitive salaries compensating for people to drive a little further to get to work. Some businesses are locating in lower income areas where they can offer jobs and train new employees. Some states are providing up to $1 billion in tax breaks plus the cost of the site’s infrastructure for a new location. Incentives can generate up to $30 million in savings to the company.
Q: Which manufacturing sectors are experiencing the largest growth in the USA?
A: Distribution and warehousing are on the upswing, and there is a lot of spec building underway in the “hub” areas. There is also healthy growth in the food sector and in cold storage facilities. We believe that saturation may be reached in about two years, and then it will slow down a bit.
Q: Which manufacturing industries are experiencing the largest growth globally?
A: Automotive and transportation systems are growing rapidly in Latin America. We are seeing more connectivity between the metals and mining industries and proximity to the ports in Latin America and particularly Australia. Australia is building new ports to accommodate growth in mine locations with port and mine being connected by rail systems. Australia is primarily an import country, and they are importing most products from Asia.
Note: Thank you to Dave Pickering IIR for providing this timely information about some current trends in industrial manufacturing. Check back for Part 2 in August which will cover trends in the Food and Beverage industry.
