Friday, June 23, 2017

Foxconn's Decision To Move Manufacturing Plant To The US -- June 23, 2017

In response to an article posted about Braskem / La Porte, TX, a reader wrote:
While the focus has been on oil in this "shale revolution" saga, I think gas - both natural gas and the accompanying NGLs - will prove to be the bigger issue over time.
The fact that Foxconn is planning a multibillion dollar plant in the heart of US union country rather than expand in China is a huge story.
The combination of rock bottom prices for feedstock coupled with extraordinarily low power prices - derived from natgas fueled plants - augars well for US industry for decades to come. 
I agree completely.

There were two data points in that comment:
  • the future of natural gas in the US
  • the reason Foxconn is coming to the US
With regard to  Foxconn, a writer at Forbes had an interesting observation: it was all about transportation. There may be some truth to that, and right now that may be the overriding issue -- transportation costs -- moving heavy television sets and computer monitors from China to the US. With regard to transportation it may not only be costs, but also time involved and the risk of strikes at west coast ports (not a trivial concern).

But in the big scheme of things, I do think that inexpensive, accessible energy is the main driver for manufacturers coming to the US. 

Back to the linked article in case the link breaks:
News today that Foxconn, famous as the assembler of Apple's iPhone, is planning a $10 billion investment in a display production plant in the US. This is a decision driven mostly by transport costs, little else. The cost of capital doesn't vary much around the world these days, the costs of labour are converging, leaving transport costs as really the one big variable. Something small and valuable like an iPhone, transport costs are a minimal consideration. Something large like the current display systems those transport costs could indeed be the thing which swings the location decision.
Earlier in the year, Forbes had a similar article, but a slightly different take. In this, the writer argued more about "cost of time" to move things from China to the US.

Both articles were written by Tim Worstall. 

If folks have followed the stories about the strikes at the west coast ports, one wonders if that might not be the over-riding concern for an operator like Foxconn. 

2 comments:

  1. Replies
    1. Agree completely.

      I would imagine when the Foxconn directors were debating to "move" a manufacturing plant to the eastern US, the PowerPoint Presentation had a final slide that listed all the advantages:

      1. Energy costs
      2. Transportation costs
      3. Transportation time
      4. Avoid west coast ports (time delay; strikes)
      5. Trained labor
      6. Population density in the east
      7. Better business environment in Rust Belt compared to California
      8. Free market capitalism in US vs whim of Chinese dictator

      Delete