NEW YORK - When Martin Rawls-Meehan started making adjustable beds in 2004, it was a foregone conclusion that key parts would be made overseas. It was cheaper to manufacture in Taiwan than in the United States. And from Taiwan it was easier to ship to customers in Asia.
But this year, his company, Reverie, began making some of its beds entirely in a factory in New York. Shipping costs from Taiwan have soared between 50 percent and 60 percent since thecompany was founded.
“Shipping costs are tremendous,” he said. “I could put that money into the manufacturing side in the U.S.,” he said.
Reverie is one of a growing number of small businesses that are chipping away at the decades-old trend of manufacturing overseas. They’re doing what’s known as reshoring, moving production back to U.S. factories as labor costs grow in countries like China and India and as shipping also becomes more expensive. Over the past 20 years, the price of a barrel of oil has risen to about $95 from $20.
However, other issues also are encouraging the shift. Owners, who want to get products to customers faster, are tired of having to wait weeks for shipments on slow-moving container ships. Some newer businesses don’t even consider overseas manufacturing anymore. And it’s not limited to just small businesses. Some of the largest companies in the United States also are joining the trend, with companies such as Apple Inc. and Caterpillar Inc. among the manufacturers planning to bring production back to the United States.
Reverie has had the bases of its beds made in Taiwan since the company was founded. Rawls-Meehan and a business partner in Taiwan agreed that the cost savings and proximity to many customers were good reasons to manufacture there.
But shipping costs now make up as much as 20 percent of the wholesale cost of a bed made in Asia. In 2004, it was just 10 percent on some of Reverie’s products. So the company is now making a new line of upscale beds in Silver Creek, N.Y., near Buffalo. Shipping on those beds accounts for no more than 5 percent of the wholesale price - offsetting the higher cost of labor in this country.
A good deal of U.S. manufacturing shifted to foreign shores in the 1990s and early 2000s.
Workers in China, India and other countries earned far less than workers in U.S. factories. That lowered costs substantially for U.S. companies. Between 1997 and 2008, the United States lost nearly 4.5 million manufacturing jobs, according to the Census Bureau. And the amount of overseas manufacturing by U.S. companies grew 141 percent between 1997 and 2010, according to the government’s Bureau of Economic Analysis.
But the growing middle class in countries such as China and India have been demanding and getting higher wages. In Asia, labor costs are rising 20 percent a year, compared with 3 percent in the United States, said David Simchi-Levi, a professor atthe Massachusetts Institute of Technology whose specialties include supply-chain management.
A weaker dollar has also made foreign-made goods more expensive. A study by the consulting firm AlixPartners predicts that the cost of manufacturing in the United States and China on average would be equal in 2015.
Reshoring began picking up momentum in 2010 after the recession and as the dollar began to lose value, said Lisa Ellram, a professor at Miami University of Ohio who specializes in supply-chain management. Businesses that were unsure how strong their sales would be in a weak economy didn’t want to make as many commitments to farflung factories.
“They really just didn’t have as much certainty about their volume and their needs, so it was maybe a little bit easier to deal with somebody closer,” she said.
Innovations in U.S. manufacturing are encouraging the shift. Many U.S. companies use robots and highly specialized processes that allow them to make custom components for the automotive and aerospace industries.
Chinese companies are also using robots, but U.S. manufacturers are ahead of them, she said.
The government doesn’t have figures tracking how much manufacturing companies are bringing back to the United States, according to Jeannine Aversa, a spokesman with the Bureau of Economic Analysis. About 50,000 manufacturing jobs came back to the United States between 2010 and 2012, many in factories that turn out electricalequipment and components and metal parts, according to the Reshoring Initiative, a nonprofit group that advocates moving manufacturing back to the United States.
The trend could gain momentum because demand for U.S. goods is growing. Ninetyfive percent of manufacturers surveyed last year said they are increasing their purchases from domestic companies, or keeping them at the same level as 2011, according to ThomasNet, a company that operates an online marketplace where businesses can connect with manufacturers, distributors and service companies.
The amount of time it takes to get goods made overseas is another reason manufacturing is coming back to the United States.
It’s taking longer to ship finished products because cargo ships have lowered their speed by 20 percent to conserve fuel, Ellram said. That reduction adds four or five days to a container ship trip from China, she said. It takes two weeks or more for a ship to travel from China to U.S. ports, depending on where the ship departs from and where it makes its deliveries.
Shipping times matter for companies that need to get their goods to market quickly. Now that Cotton Babies, a manufacturer and retailer of baby merchandise, has moved manufacturing of its cotton diapers to Denver from Egypt, it has cut in half the time it takes to get them to market, said chief executive Jennifer Labit.
Product development can be slowed by the distance between U.S. designers and manufacturers in other countries, Labit said. Communication takes longer and expensive overseas trips are often necessary to make sure that the products are being made to specifications.
Reading Truck Body decided to bring manufacturing of truck parts back to the United States from China after losing sales because it didn’t have the parts it needed to meet customer requests, said national sales director Craig Bonham. Reading, based in Reading, Pa., also was concerned about the amount of time it took to get shipments.
Shipments were disorganized. The company didn’t know until it opened containers which parts had been shipped. That meant it couldn’t be sure ahead of time which of its truck bodies could be finished and sold. The company also dealt with the expense of sending two employees to China each quarter, at a cost of $100,000a year.
“You feel a larger sense of dependency when you’re relying on someone that far away,” Bonham said. The company received its last shipment from Asia in December.
Information for this report was contributed by P. Solomon Banda of The Associated Press.
Business, Pages 67 on 05/26/2013