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Supply Chain by the Numbers

- Sept. 15, 2016 -

  Supply Chain by the Numbers for Week of Sept. 15, 2016

Chinese Factory Goes for Robots to Counter Labor Costs; German Ship Owners Going Bust; Ford is All in for Mexican Production; Interesting Look at US Trade Deficit with China, Mexico



That was how much more expensive labor costs were a couple of years ago at a Chinese lens factory of Germany's Zeiss Vision In China versus India, according a recent article in the UK's Daily Mail. The Chinese wages were also twice that of Mexico, the plant manager was told. So much for low cost Chinese labor. The answer at the Zeiss factory and thousands of others in China: robots. The factory introduced new automatic machines and techniques called "free form" manufacturing to replace humans in the plant. Now, the machines can take care of most of the major steps, including pasting protection films, cutting shapes, polishing glass and packaging. In 2012, the factory had 440 workers producing 4 million lenses every year. In 2015, the number of workers decreased by 70 people but output increased to 5 million. And the plant manager at the Zeiss factory in China says it is now the lowest cost plant in Zeiss' global manufacturing network.




That's how much of Ford's North American small car production will be coming from Mexico in the next two to three years, according to Ford executives this week, in news sure to draw controversy. Ford had previously announced in April it would invest $1.6 billion to build a new plant in Mexico and create 2,800 jobs there building small cars. Ford also said in 2015 that it planned to move production of its Ford Focus and C-Max hybrids cars from a plant in Wayne, Mich., to another country by 2018. So this week's announcement was simply the final dagger. It's an ironic twist for the Wayne plant because Ford spent $550 million in 2010 to convert the aging factory from a big SUV assembly plant to one that could build the Focus compact car. The core issue: costs are just too high in the US for automakers to turn a profit on making small cars here. Most other OEMs have recently moved production to Mexico or expanded operations there. The number of auto jobs in Mexico reached 675,000 last year, a 40% increase from 2008. US auto jobs increased a much smaller 15% over the same period.

$168 Billion

That was the US trade deficit in manufactured goods with China through the first half of 2016, according to the latest data available from the Census Bureau and recently summarized by Ernie Preeg of MAPI – The Manufacturing Alliance. On a global basis, the US and China obviously experience far different results in trade in manufacturing goods, where through the 1H the US had a total trade deficit in goods with the rest of the world of $304 billion, while China had a $441 billion surplus. Preeg observes that "This contrast is especially striking considering that in 2000, US manufactured exports were three times larger than Chinese exports." That seems almost hard to believe today. That $168 billion trade deficit with China represents 55% of the global US deficit. By contrast, the $30 billion trade deficit in goods with Mexico in 1H was less than 10% of the total US trade gap. Preeg notes that the deficit with China was 4.4 times larger than the meager $38 billion of US. manufactured exports to China, while that same ratio is a lower 2.4 with Mexico. That also means the $91 billion of US manufactured exports to Mexico were actually also 2.4 times larger than the $38 billion of US exports to China.



Strangely, that is the percent of total ocean container shipping capacity owned by German banks and investment funds, which several years ago went big into shipping, according to the German Shipowners' Association. But the financial malaise of the container shipping industry, highlighted of course by the chaos-inducing bankruptcy of Hanjin Shipping two weeks ago, has highlighted just how much trouble much of those investments are in. Almost one-fifth of the 2,200 ships owned by one large funds group are insolvent, analyst firm Deutsche Fondsresearch estimates, according to an article this week in the Wall Street Journal. "The number of emergency sales and/or insolvencies will rise," predicted Deutsche Fondsresearch manager Marcel Wodrich. "Fresh money from banks or investors is not in sight." With the Hanjin domino falling, many other ships or carriers are likely now to follow suit into failure, as the market at long last takes care of excess capacity and rock bottom rates, as it always does eventually.

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