Shift in shipping
01 June 2009
There is a balancing act that has been ongoing since the onset of both globalisation and outsourcing that will remain with us as a dynamic force that continually shapes the electronics industry.
A number of variables are always going to contribute to determining what strategy suits every company – raw materials, end market, currency fluctuations, regional economic conditions, to name but a few. One of these is shipping costs and their obvious relation to the world oil prices.
There is a temptation to go on about the oil industry being the last major industry to survive as an unfettered capitalist community. While the foundations of the financial industry has recently crumbled, very few (very rich) people determine oil output in a way to maximise their profits – not exactly a fair distribution of a global resource.
However, the way the oil industry is organised is not really our concern in the electronics industry, but it obviously has consequences. Last July, a barrel of crude cost $147 and was then predicted to rise to $200. In fact it went in the other direction, reaching a low of $32 in January and last week reached a six month high of $63. The forecast is for a $75 price point later in the year. All this does of course have consequences for any product that is being manufactured remotely from its end market.
Such wild fluctuations and an uncertain future make it almost impossible to accurately build in shipping as a component of the total cost. I suspect the days of being lured by the lowest cost per placement type quotes are behind us – experience has lead most companies involved in outsourcing their manufacturing to look at the complete picture regarding communication, logistics, flexibility, as well as overall cost. Having to factor in costs that can vary by an order of magnitude is obviously a considerable problem.
It also changes the logical equation as to what is economical. A double-sided, low complexity board is light but it takes up approximately the same space as a 64 layer, ultra dense board which can weigh many times more. The relative shipping costs therefore are going to be greater for the low complexity board. So while this is the type of board that may previously have been deemed ideal for offshore manufacturing, it is also the type of board that may be more economical to manufacture and assemble in its end market if the price of shipping rockets again.
Conversely, the high complexity, high value board, typical of the local manufacturing model, may well become cheaper to produce if a trusted offshore partner can be found.
Ultimately, if the price of oil really does go through the roof then the balance for all products will shift back to local manufacture – perhaps the next stage of maturity of a global industry.
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