High Fuel Prices Drive Manufacturing Closer to Home

This is the VOA Special English ECONOMICS REPORT.

In the last thirty years, American businesses have increasingly used suppliers in China and all over the world. This helped fuel a current account deficit of seven hundred thirty-one billion dollars last year. The current account is a measure of the difference between a country's income and its current spending.

Even so, many companies profited by importing goods from foreign suppliers as world trade barriers fell and oil prices were low. But wage costs have risen in China. And now, with oil so costly, many economists wonder how wise it is to make products far from home markets.

A recent report by Jeff Rubin and Benjamin Tal at the Canadian bank CIBC said shipping inflation is taking the place of the old trade tariffs. For example, in the year two thousand, the cost to send a twelve-meter shipping container from Shanghai to the American East Coast was three thousand dollars. Now the cost has risen to eight thousand dollars.

High transportation costs have already affected China's foreign trade. The rate of export growth decreased from about twenty-seven percent a year ago to twenty-two percent in the first half of this year.

To cut transportation costs, some companies are opening factories in countries where they sell their products. Sweden's Ikea, the world's largest seller of home furniture, just opened its first factory in the United States in Virginia.

Countries like the United States that have lost manufacturing jobs to foreign competition could see some of those jobs return. But a new report says American businesses are also looking at other ways to deal with high fuel prices. The report is from a transportation research company based in London, Eyefortransport.

It says that for years the industry has tried to reduce costs by moving goods through the supply chain as quickly as possible. Now, high fuel costs are making some companies restructure their operations. Fewer but larger loads are being shipped.

And companies are moving more goods by rail and by water, along coasts and inland waterways. Not only does that save fuel, the report says, it also helps shippers and carriers improve their "green" image.

With these changes, it says, American manufacturers are looking for low-cost countries closer to home -- known as near shoring. At the same time, there appears to be a common belief in the industry that some carriers are raising fuel charges just to increase profits.

And that's the VOA Special English ECONOMICS REPORT, written by Mario Ritter. I'm Steve Ember.