Energy Costs Impacting Global Distribution Strategies

I read the on-line version of the Wall Street Journal early each morning as I get my coffee fix. This morning there was an interesting article, Stung by Soaring Transport Costs, Factories Bring Jobs Home Again. It’s about how the economics of manufacturing plant location around the world is quickly changing with the rapid spike in energy costs. From a U.S. shipping cost perspective:

…cost of shipping a standard, 40-foot container from Asia to the East Coast has already tripled since 2000 and will double again as oil prices head toward $200 a barrel…

The article quotes Emerson’s Chief Operating Officer, Ed Monser:

…logistics costs, which include all the expenses associated with moving goods, became a worry about a year ago.

“That’s when it became a dominant part of the discussion,” he says, adding that oil then was less than $100 a barrel. “So with oil now at $130, it’s even more serious.” Mr. Monser says Emerson’s larger strategy is to regionalize manufacturing, producing as much as possible within the part of the world where its sold.

Energy costs play a huge role in most process manufacturing industries. As I mentioned in a prior post on ways to save energy, there are things you can do to reduce your energy consumption and run your plant more efficiently. These are shorter-term solutions to help mitigate the pain of soaring energy costs.

Longer term, it may well mean more process manufacturing plants geographically dispersed where their manufactured products are sold. This trend has been going on for many years, but the spike in energy costs may accelerate it further and bring back manufacturing to regions where it departed.

This would mean that even more new plants added to the drawing board than are already in the works. It also means that we’ll need a lot more smart minds joining the process automation and process manufacturing ranks. And for you boomers recently retired or soon to retire, it means that you can probably contract out your expertise until you’re ready to fully “put your feet up.”

It’s all food for thought as we adjust personally and professionally to reality of these higher energy costs.

Posted Friday, June 13th, 2008 under Energy.

Leave a Reply