Reliable, plentiful, cheap, Energy will lead Manufacturing back to US

While I was in college pursuing my chemical engineering degree I worked in a manufacturing plant in Spartanburg, SC that made synthetic fibers for the textile industry.  Seems like a tale of long lost work that no longer exists in the US.  This was after all way back in 1993 and according to the U.S. Bureau of Labor Statistics between that year and now over 350,000 manufacturing jobs have been lost in that textile industry.

2012-09-02T181753Z_01_PEK02_RTRIDSP_3_CHINA-ECONOMY-PMIWell surprisingly I read this morning that 500 of them are now coming back.  We have cheaper energy, at least partly, to thank for that small but hopeful reversal.   As reported in The Wall Street Journal the Keer Group Company is opening a new plant in Lancaster county just outside of Charlotte, NC.   The owner of the new yarn spinning business is from where?  Wait for it…yep…you guessed it China.

According to the companies owner just how much cheaper was the power to run that plant in the US compared with the company’s home province in China?  Half.  Yes folks we are having a 50% off sale here in the US, and everyone is invited.   We have long had the most reliable power grid in the world, but the recent bounty of cheap natural gas is making that grid much more competitive when compared to typical costs for manufacturers in many parts of the world, including most of asia.

electriccost1

There are several other factors contributing to the move of many manufacturers back to the US.  Labor costs have been rising rapidly in China, and we do still put duties and tariffs on some goods coming into the US.  Another significant energy related factor is logistics costs.  There was a time when even if the raw materials were cheaper in the US that with much cheaper labor it made sense to ship those materials to China or other parts of asia, make them into products, and ship them back.

With oil persistently around $100 a barrel this makes a lot less sense than it used to as all those shipping costs are offsetting those shrinking labor savings.  Lenovo, the chinese PC manufacturer that acquired IBM’s Thinkpad line of laptops a few years ago is bringing new plants online in the US largely due to those persistently high logistics costs along with rising labor costs in China.

Labor costs alone would drive some of this work back to the US in time, but our new bounty of cheap, plentiful, and very reliable energy is accelerating these trends.   A good run down of the other factors can be found here in a great Business Insider story, “Why Manufacturing Jobs Are Returning To America For The First Time In Decades.

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