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October 26, 2012
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Freight Cost Gap In Overseas Manufacturing Brings Jobs Back to U.S.


International Freight CostsTen years ago, U.S. manufacturers were following the winds of change by closing down U.S. based factories and moving operations to China, India and Mexico. China, by far became the country of choice for outsourcing due, in large part, to its low cost workforce. Many jobs that had been done for decades by skilled American workers were no longer economically viable for manufacturers competing in a global economy. Years later, the once insurmountable advantage that China has in keeping production costs the lowest in the world is beginning to lose ground.

Small manufacturers, such as Seesmart Inc. and large manufacturers like General Electric (GE), have come to the conclusion that it is now cheaper for them to build certain products in the U.S. than overseas. While American wages are still higher compared to workers in China, the plain fact of the matter is that Chinese wages are slowly rising. In addition to wages, manufacturers are facing a steady rise in shipping container freight costs. When looking at the overall cost to produce a product, international freight cost is becoming a crucial factor for manufacturers. 

For a small company like Seesmart that makes LED lighting devices, having everything made in China began to cut into their profit margins. They have a very short delivery window, and cost of sea freight, and slow shipping times were causing them to lose business. Desiring to get a handle on ocean freight cost while maintaining more control over manufacturing, Seesmart made the decision to transfer manufacturing to Simi Valley, California and Crystal Lake, Illinois. 

Likewise, GE took a look at the cost gap between manufacturing a battery product in China versus the U.S. After factoring in the cost of wages, which because of improved technology are not as prohibitive as they once were, they decided to locate their new battery factory in Schenectady, New York. Freight cost management also played a big part in helping them make the best decision for the company’s bottom line. Now there are 450 additional jobs in upstate NY that will boost that region economically.

 Any U.S. based company that is currently outsourcing manufacturing to China and other countries, may want to have an expert in freight consulting go over their operations with a fine tooth comb. The amount of money being spent on international shipping could be wiping out any cost savings had from paying lower wages. On the other hand, realistic freight cost reduction could significantly close the cost gap, allowing products to once again be produced in America.