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Is The Global Supply Chain Shrinking?

Last summer, when the price of oil was bobbing around the $100/barrel mark, the business press was rife with trend stories on how companies were rethinking the feasibility of their global supply chains. BusinessWeek, for instance, wondered whether sky-high shipping prices could neutralize China's labor-cost advantages and bring manufacturing back to the United States. Of course, by the fall, the world had entered a nasty recession, the price of oil had sunk down to manageable levels, and this supply-chain story vanished from the news for a bit. Or so it appeared. But now here's the Financial Times reporting that, even now, energy concerns are driving a shift in how companies think about logistics:

Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts.

Companies are increasingly looking closer to home for their components, meaning that for their US or European operations they are more likely to use Mexico and eastern Europe than China, as previously.

"A future where energy is more expensive and less plentifully available will lead to more regional supply chains," Gerard Kleisterlee, chief executive of Philips, one of Europe's biggest companies, told the Financial Times.

Supply chain experts agreed, with Ernst & Young underlining how as much as 70 per cent of a manufacturing company's carbon footprint can come from transport and other costs in its supply chain.

Dan O'Regan, the accounting firm's head of supply chains, said: "It is not just the prospect of regulatory changes but also the downturn that is forcing many organisations to consider restructuring their supply chains in their entirety. I think you will find smaller, more regional supply chains."

Since I don't have much to add here, I'll just link to Barry Ritholz's list of the world's 25 busiest ports, which is worth perusing. Surprisingly, no U.S. port ranks in the top ten, although this seems a tad misleading, since if you combine Los Angeles (#13) with right-next-door Long Beach (#15), you get the world's fifth-busiest port—just nudging out Busan, South Korea.