NEWPORT, R.I. -- The combination of low China labor costs and low-cost ocean freight, which has fueled the import boom in the United States over the past seven years, may be coming to an end, according to two supply-chain experts. China’s inexpensive labor advantage will come to an end by 2010 as its costs continue to rise at an annual rate of 20 percent, said Jon Monroe, founder and president of Jon Monroe Consulting in Sausalito, Calif. He addressed the 12th Annual Trade & Transportation Conference sponsored by the Coalition of New England Companies for Trade on Friday. Labor shortages are already starting to develop, especially in the Pearl River Delta around Hong Kong where so much of the country’s manufacturing sector is located, as migrants from the rural west opt for better labor conditions in the Yangtze River Delta or to stay on their own farms, Monroe said.
Still other factors are threatening to drive up the cost of ocean freight from Asia to the U.S., Daniel L. Gardner, president of Trade Facilitators, Inc. in Palos Verdes, Calif., told the meeting. “Supply chain costs are being inflated at every level,” he said. Chief among these factors is the soaring cost of bunker fuel, which is causing ocean carriers to demand fully floating bunker adjustment factors. But Gardner cited a litany of other cost elements that are rippling through the trans-Pacific supply chain, including PierPass, the Los Angeles/Long Beach Clean Air program; the added costs that the “10 + 2” import filing that will be required by Customs and Border Protection; the rising cost of harbor truckers that will be touched off by the requirement for a Transportation Worker Identification Credential; a possible California port-based infrastructure improvement fee, and a possible federal infrastructure improvement fee.
On top of all these added supply-chain costs, the ongoing decline in the value of the dollar is driving import prices higher, even as it spurs U.S. agricultural exports, Gardner said. “As long as there is weak dollar, exports will continue to go up,” Gardner said. But the increase in agricultural exports and in the production of ethanol as a gasoline additive is driving up the cost of grain and food, he said. Peter Friedman, counsel for CONECT in Washington, called the U.S. government’s requirement that ethanol be used as a gasoline additive, no matter how expensive it is, a “stupid idea”. “We know that it uses more fossil fuel than it saves and that it drives up food costs,” he said.
Journal of Commerce
