What's one trend that's starting to feel the pinch of sky-high oil prices?If you answered 40-mile commutes to work and/or tank-sized SUVs, you're right, but in this case it's the business process called the global supply chain.
The logic of, for example, shipping Brazilian iron ore to China to be made into steel, then shipping it back to Long Beach, California in the form of washing machines is making less sense today than it did when oil was $25 per barrel a decade ago, The New York Times reported.
In fact, some manufacturing that fled Mexico for even-lower-cost-labor China is now returning to Mexico because it's cheaper per unit to manufacture the goods in Mexico and send them to the United States, after oils costs for shipping are considered, The Times reported.
Spanning the world: it isn't cheap
Economist Peter Dawson told BloggingStocks that investors / readers should expect more 'repatriation' of manufacturing if oil stays above $100 per barrel.
"Companies will be begin to shift, in some cases, on a product-by-product basis, the production of goods to net lower cost zones," Dawson said. "China's percentage of manufacturing in the world will continue to increase, but the calculus now is more complicated. It's no longer 'O.K., we need 200,000 auto motors, off we go to China.' Those motors may end up being less expensive if secured in Mexico, after transport costs are considered."
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