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issue: October 2012 ApplianceMagazine.com

The Coming U.S. Exports Surge

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Report: U.S. becoming one of the lowest-cost producers in the developed world.

U.S. manufactured exports are expected to surge even more strongly in the coming years, according to research from The Boston Consulting Group (BCG), and - along with manufacturing jobs created from reshoring - may add 2.5 million to 5 million jobs by 2020.

By the end of the decade, the consulting firm said, manufacturers will shift production from countries in Europe and from Japan to take advantage of substantially lower costs in the United States.

BCG expects that, by about 2015, the United States will have an export cost advantage of 5% to 25% over Germany, Italy, France, the UK, and Japan in several industries.

This advantage comes mostly from in-country costs of labor, natural gas, and electricity. These factors could enable the United States to take over 25 to 4% of the exports from the four European countries named above and take 3% to 7% from Japan by 2020.

BCG estimates this would result in additional U.S. exports per year of as much as $90 billion. Add in increased United States exports to the rest of the world and BCG estimates the increase in exports may be as much as $130 billion.

The consulting firm expects the biggest gains in U.S. exports will be will be in electrical equipment and appliances, as well as machinery, transportation equipment, and chemicals.

"The export manufacturing sector has been the unsung hero of the U.S. economy for the past few years. But this is only the beginning," said Harold L. Sirkin, a BCG senior partner and coauthor of the research. "The U.S. is becoming one of the lowest-cost producers of the developed world, and companies in Europe and Japan are taking notice."

United States as Global Export Base

BCG said the trend of rising reshoring (also known as "insourcing" and "onshoring") is in its early stages. Still, it notes that some large foreign manufacturers are already planning to use the United States as an export base. It notes that:
* Toyota will export Kentucky-made Camrys and Indiana-made Sienna minivans to South Korea
* Honda intends to boost exports of U.S.-made vehicles
* Nissan intends to boost exports of U.S.-made vehicles
* Siemens builds gas turbines in North Carolina for shipping to Saudi Arabia
* Rolls-Royce opened a Virginia aircraft engine parts plant to take advantage of lower labor costs, productivity, and dollarization (doing business in U.S. dollars to mitigate local currency risk).

"Over the coming years, as European and Japanese companies decide where to locate new capacity, we can expect many more announcements like these," said report coauthor Michael Zinser, a BCG partner who leads the firm's manufacturing work in the Americas. "Producing in the U.S. offers increasingly compelling cost advantages--to supply not only North America but also some of the most important overseas markets."

BCG expects average manufacturing costs in 2015 to be:
* 8% lower in the U.S. than in the UK
* 15% lower in the U.S. than in Germany and France
* 21% lower in the U.S. than in Japan
* 23% lower in the U.S. than in Italy

China's average manufacturing costs will still have an advantage, but it is less than half the advantage it enjoyed 10 years ago. China's manufacturing costs will be 7% lower than in the United States in 2015, but such costs don't include transportation, duties, and other expenses.

BCG said: "When the many risks and hidden costs of managing extended global supply chains are taken into account, it will be just as economical to manufacture many products in the U.S. if those goods are sold in the U.S."

United States Advantages: Worker Productivity, Inexpensive Natural Gas

BCG - taking into account the higher level of worker productivity in the United States - determined that labor costs in the other large, developed economies will be 20% to 45% higher than in the United States.

Only a decade ago, the same U.S. worker cost only 12% less than the average factory worker in Europe.

Inexpensive natural gas will also boost U.S. competitiveness. For the foreseeable future, thanks to the recovery of vast U.S. underground gas deposits of shale, natural gas is likely to remain 50 to 70% cheaper in the U.S. than in Europe and Japan, BCG predicts. "That will translate into significantly lower costs for electricity generation, for fuel used to power industrial plants, and for feedstock used across many industrial processes," said Justin Rose, a BCG principal and coauthor.

Although some of the U.S. gains will come from making products that otherwise would have been imported from Europe and Japan, other gains will come from higher U.S. export shares in key international trade lanes. In many industries, the U.S. is expected to be significantly more cost competitive than Europe as an export base for Asia. In addition to lower labor and energy prices, it is 59% cheaper on average to ship goods from the U.S. to Japan than it is to ship from Europe to Japan. That's because the U.S. is closer to Japan, and rates are much lower for containers departing U.S. ports, where there is significant overcapacity. Similarly, the U.S. will be more attractive than Japan as a base for supplying many goods to Europe.

U.S. exports have risen by 30% since 2006, far outpacing growth in gross domestic product. "The signs pointing to continued export growth offer further evidence that the U.S. is poised for a manufacturing renaissance between 2015 and 2020," said Sirkin.


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