Good news for Americans: U.S. manufacturing continues to rise, with industrial production up 4.3 percent in June compared to the same period a year ago, according to recent figures from the Federal Reserve.
The trend can be seen across market segments, and the wood products industry is no exception. Federal Reserve figures by industry show the wood products sector growing 5.5 percent in production year over year, with furniture and related products advancing 5.9 percent in June 2014 compared to a year ago.
This is borne out almost weekly, where on WoodworkingNetwork.com we report on wood products manufacturers opening new plants, expanding business and/or reshoring production. The news is coming from large and small manufacturers in all market segments: cabinetry, furniture, millwork and components, flooring and more.
Some examples from 2014 include:
• Ethan Allen announced plans for a major expansion of the company’s U.S. residential furniture manufacturing efforts following a profitable 2013 fiscal.
• Dimension lumber and component manufacturer Quality Hardwood announced it would expand its operations, creating 25 new jobs.
• United Furniture said it will invest approximately $5 million to convert a former North Carolina factory into an upholstered furniture plant, creating 200 jobs.
• MasterBrand Cabinets Inc. announced plans to expand its Indiana operations, creating up to 262 new jobs by the end of 2016.
• The sister company of flooring maker Trout River Lumber, Trout River Dry Kiln is investing $5.5 million in its operations, creating 40 new jobs.
• Cabinet manufacturer RSI Professional Cabinet Solutions capped off a busy 2013 with the completion of a 50,000-square-foot expansion at it Mira Loma, CA, facility.
• After inking a five-year deal with IKEA, RTA giant Sauder Woodworking said it will hire 150 employees and invest $13 million to expand its furniture production.
• Delta Furniture recently expanded its operations in Mississippi to accommodate an increase in upholstered furniture production. The move creates 50 new jobs.
• Prime-Line, an Arkansas-based manufacturer of MDF moulding and millwork, opened a new plant. One of Lowe’s largest product suppliers, the company invested $7.2 million in a new plant in the state, and will double its workforce as business grows a projected 10 to 15 percent over the next three years.
• And in an example of industry reshoring, Armstrong World Industries began construction this year on its Lancaster, PA, facility where it is expanding manufacturing capacity for its flooring lines to include luxury vinyl tile for residential and commercial use. The company’s decision to make the $41 million investment and onshore its LVT production from China suppliers was announced in October 2013.
The Reshoring Trend
Boston Consulting Group’s 2011 report “Made in America, Again: Why Manufacturing Will Return to the U.S.” and the 2012 follow-up, “U.S. Manufacturing Nears the Tipping Point,” explain the reshoring trend and the reasons behind the growing phenomenon.
Chief among the factors, the rise in foreign wages is helping to level the playing field between China and the United States. Since 2000, when factory wages in China averaged 52 cents an hour, they have risen by double digits, averaging increases of 19 percent between 2005 and 2010. By contrast, BCG notes, wages of U.S. factory workers rose by less than 4 percent during the same period.
“Companies that continue to treat China as the default low-cost option for supplying U.S. markets on the basis of wage rates alone could soon find themselves at a competitive disadvantage,” the study notes.
Technology, higher U.S. worker productivity, supply chain logistics and other factors also will continue to drive the reshoring effort, particularly among the seven “Tipping-Point Industries” identified in the study: transportation goods; computers and electronics; fabricated metals; machinery; plastics and rubber; appliances and electrical equipment; and furniture.
According to the report, these “tipping-point industries” account for almost $2 trillion of U.S. consumption and nearly $200 billion in imports from China. Of note, furniture accounted for $75 billion of the consumed goods, and $13 billion in Chinese imports.
According to the study, an estimated 10 to 30 percent of goods currently imported from these seven industries could be reshored in this decade.
“We project that manufacturing in the seven tipping-point industries, combined with increased U.S. exports to Western Europe and other developed markets, will add $80 billion to $120 billion in annual output to the U.S. economy and create 2 million to 3 million jobs over the coming decade, of which manufacturing jobs will represent about 25 percent,” say the authors.
Labor Costs Spur Reshoring
A survey completed earlier this year by the Entrada Group also illustrated the popularity of reshoring and near-shoring by companies, with the United States ranked as the most attractive “low-cost” manufacturing location worldwide, followed by Mexico.
“With labor costs rising in the Far East, it isn’t surprising that companies are considering production locations in their own backyard,” said Doug Donahue, principal and vice president of Business Development with Entrada Group. “Additionally, for the past decade or so, manufacturers have seen increased pressure to produce in the same region where their product is sold. Thus, for many manufacturers, the U.S. is becoming more attractive due to rising costs in China coupled with this trend of regionalization.”
A survey last year by BCG offered similar results. The group noted a significant jump in the number of large U.S.-based manufacturing companies – with sales greater than $1 billion – that were considering the reshoring of their production from China. Of the more than 200 executives surveyed, 54 percent said they were “planning” or “actively considering” it, compared to 37 percent only 18 months earlier.
This is good news for the U.S., which has already seen an estimated 100,000 jobs returning in the last four years from companies reshoring production, notes the non-profit organization The Reshoring Initiative. According to Harry Moser, founder and president, additional benefits for companies reshoring include: improved product quality and consistency, improved turnaround time between order entry and shipment, reduced cost of ownership, reduced intellectual property and regulatory compliance risk, and the ability to cluster manufacturing near R&D facilities to enhance innovation.
Global Investments in America
U.S. manufacturing is also getting a boost from global investments. Two recent examples in the woodworking industry are Belgium-based BuzziSpace Inc.’s announcement earlier this year that it would locate a plant in North Carolina, and German-based Menck’s investment in a window production plant in Massachusetts, part of a manufacturing partnership between Menck USA and Menck-Fenster.
And despite a recent setback, Chinese furniture maker GOK has said it still plans to open a woodworking plant in Virginia, a move which would create hundreds of new jobs in the state. In the meantime, Chinese-based Zeyuan Flooring said it would take over GOK’s lease at the industrial park in order to open its first U.S. manufacturing facility.
There are many more examples of foreign plant investment in recent months. According to information presented at The M&A Advisor’s symposium on The New American Renaissance in Manufacturing, foreign capital investment in America jumped nearly 40 percent in 2013, to $208 billion. Experts predict that number will continue to grow in the coming years.
“A growing number of global companies are realizing there has never been a better time to invest in America,” said U.S. Secretary of Commerce Penny Pritzker during the recent Reinvesting in America, Creating Jobs at Home forum. “Many of them are finding that the total cost of production and other expenses related to manufacturing abroad can carry costs and risks that outweigh the benefits and are considering domestic operations.
“Businesses across the globe are looking to invest in U.S. manufacturing and services, and through Select USA, the Commerce Department is continuing its work to support and educate companies interested in reshoring,” she continued.
“Many companies that have offshored are unhappy with the quality of goods produced overseas,” added Rep. Frank Wolf, chairman of the House Appropriations subcommittee that funds the Commerce Department.
“Labor costs are rising rapidly. Shipping costs are rising rapidly. The cost due to the theft of intellectual property by the Chinese government is almost incalculable. That’s why there has been so much more interest in reshoring manufacturing over the last several years. I believe this trend will continue to accelerate, especially with encouragement from the government and business community.
“A great nation cannot survive by exporting ideas and innovations alone. It needs to also produce these items as well. Our future depends on it,” Wolf added.
Challenges of Reshoring
Of course, not all reshoring efforts have been successful. Of note was Stanley Furniture’s unsuccessful attempt to bring its Young America production back to the United States, due in part to the inability to “achieve an acceptable level of revenue within an adequate time frame to assure sustainable profitability.”
The closure of the Young America plant was not from a lack of effort. Stanley Furniture invested millions in outfitting its production with new technology, but found consumer demand for its American-made products waned when faced with a higher price tag. In an interview with the New York Times, president and CEO Glenn Prillaman also cited competition from China, particularly for U.S.-sourced lumber and veneer, as a contributing factor to the problem.
Stanley’s Young America was not the only company to reshore, only to encounter problems. Approximately one year after being lauded by President Barack Obama as an example of America’s manufacturing resurgence, Lincolnton Furniture abruptly closed its doors in January 2013. In an interview with WBTV, Lincolnton Furniture President and CEO Bruce Cochrane cited price competition with Chinese furniture, plus unanticipated costs to retrofit the existing plant, as contributing to the shutdown. The company manufactured bedroom and dining room furniture.
It bears mentioning that another challenge for those particularly in the wood products industry continues to be employee recruitment, in particular the lack of skilled labor. A number of programs are already in place at local and national levels, including those offered by various trade groups, which are intended to alleviate this problem over time.
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