The high cost of fuel - The tipping point

Let’s face it, there is absolutely no bigger topic in the world of logistics than the current price of fuel.

With the price of crude oil recently down from it’s high of $140 per barrel, the cost of gasoline now just under $4.00 per gallon, and the price of jet fuel causing airlines to jettison aircraft, reduce jobs, and eliminate unprofitable lanes, at what point will high energy prices cause companies who outsource manufacturing to offshore locations start bringing manufacturing back closer to home?

According to a report by MIT’s David Simchi-Levi, the tipping point for many companies to start looking at “nearshoring” is directly tied into the price of oil. Once oil reaches a certain threshold, companies may benefit by sourcing closer to home. Although the manufacturing unit costs are in many cases higher, those costs are offset by the increased shipping costs from offshore locations.

Many of the customers I currently deal with are still manufacturing all or at least a great majority of their products in China, especially those companies dealing in retail goods. However, over the past couple of months I have seen a slight increase in companies requesting quotes for transportation out of Mexico and South America. These companies are mostly looking to benchmark South America based supply chains and the corresponding total landed cost of goods with their current China based supply chain.

Drop us a comment and let us know if the high cost of fuel has warranted a look into “nearshoring” options within your company. We would be interested to know.