Would Reindustrializing America be the Spark Needed to Produce Stronger Freight Volumes?

For many years America has been the envy of the world.  Its powerful, diverse economy helped generate consistent freight growth and produce a very vibrant freight industry.  But America’s success ignited an escalation in the value of the greenback and a shift of production to lower cost sources of supply.  The current issue of Logistics Management contains some amazing statistics that capture the impact of these changes.

• The U.S. has lost approximately 42,000 factories since 2001.
• The U.S. has lost about 5.5 million manufacturing jobs since October 2000.
• Today 12 million American work in manufacturing jobs, the lowest level since 1941.
• The percentage of people working in manufacturing jobs has dropped from 28 percent in 1959 to 9 percent currently.
• The U.S. has lost 32 percent of its manufacturing jobs since 2000.

In a separate study reported on Canadian television this week, over the decade 2000 - 2009, U.S. based multinational companies have cut 2.9 million manufacturing jobs in America while they created 2.3 million jobs overseas.

During this same time frame a set other powerful forces were unleashed.  Certain countries became very proficient in manufacturing particular products (e.g. cars, television sets, smart phones, clothing etc.).  There was also the miniaturization movement that resulted in shrinking the size of so many technology based products.  Then the great recession hit in late 2008 and 2009 driving out more manufacturing jobs and causing a significant decline in freight volumes across all sectors.

An economic recovery is under way but is hitting a number of headwinds brought on by rising fuel costs, the CSA driver safety program and new (reduced) driver hours of service.  However, the good news is that as the U.S. dollar has fallen to its lowest level since August 2008, manufacturing jobs have risen for the first time since 1997.
 
According to IHS Global Insight and Moody’s Analytics, U.S. manufacturing jobs are expected to grow by 330,000 or 2.5 percent this year. Thomas Runiewicz, an economist with IHS Global Insight recently told the Wall Street Journal that the economic rebound is being driven by three factors:

• Quality - - U.S. workers produce superior products
• Onshoring - - U.S. manufacturers are rediscovering the value of producing goods in America
• Excess U.S. Capacity and Infrastructure - - Unused plants and real estate exist throughout the United States that can be retrofitted for specific purposes.

The Logistics Management article highlights three companies (e.g. Whirlpool, Dow Chemical and Caterpillar) that are expanding production in America.  The plunging U.S. currency is also providing a boost in revenue for many U.S. based exporting companies.  The 15 percent decline in value of the U.S. dollar over the past nine months is reigniting export sales. 

Vincent Delisle, Scotia Capital Strategist said a combination of healthy economic growth and a weak greenback represent “a sweet spot” for U.S. profit growth.  An article in the April 22 issue of the Toronto Globe and Mail highlights the fact that IBM receives 64 percent of its revenues from non-U.S. sources.  Their 2010 non-U.S. revenues were up 4.4 percent as compared to 2009.  Similarly Johnson & Johnson’s 2010 non-U.S. revenues represent 52 percent of their business and were up 3.6 percent over 2009.

Nearly one-third of S&P 500 revenues come from non-U.S. sources.  Peter Gibson of CIBC World Markets points out that roughly one-fifth of the companies on the S&P 500 are what he calls “value-added exporters” – U.S. multinationals that get more than half of their revenues from outside the U.S.  Analysts said that the U.S. sectors that stand to benefit the most from the weaker currency because of their large exposure to foreign markets are consumer goods, information technology, industrials, energy and materials.

Of course, what goes down may and likely will go up.  America cannot live forever on a low value dollar.  What will it take to sustain America’s growth?  The Harvard Historian Niall Ferguson, who has just written a book, Civilization: The West and the Rest, offered this historical context:  “For 500 years the West patented six killer applications that set it apart.  The first to download them was Japan.  Over the last century, one Asian country after another has downloaded these killer apps. ---- competition, modern science, the rule of law and private property rights, modern medicine, the consumer society and the work ethic.  Those six things are the secret sauce of Western civilization.”

Recent studies now indicate that America has slipped back on where it ranks on these variables.  As an example, in a 2009 study, American 15-year-olds ranked 17th in science and 25th in math out of 34 OECD countries.  America must refocus on these six killer apps as part of a process of reindustrialization to create expanded domestic and international freight flows.