Sunday, September 14, 2008

Come Home America

Fortune: Made (again) in America
Talk of a reverse migration of manufacturing from China to the U.S. has been buzzing across union halls and factory floors, corporate boardrooms and Wall Street.

The cost of shipping outsourced goods from China to U.S. customers has doubled in just two years thanks to high oil prices, and labor costs in China are rising sharply.

I suspect that a lot of the low end manufacturing that was done in China will wind up in Latin America. America will benefit where we have an existing base of facilities and talent. China likely will still be a force in high tech goods and other items that are labor intensive and have a high value to weight ratio. Going the other way, I wonder what the impacts of high transportation costs on U.S. agricultural exports will be?

When the various free trade agreements were inked, the line was that Americans would be moving out of low value manufacturing and into high value Information Technology jobs. Rising energy costs are having a much bigger impact on moving physical goods than on moving data. Perhaps Paul Krugman was right.

Sunday, September 07, 2008

A Building Legal Storm

Attorney general Brown sues 2 port trucking firms over labor practices

California Atty. Gen. Edmund G. Brown Jr. filed lawsuits against two small trucking companies on Friday on grounds they allegedly deprived drivers of benefits and "cheated the state of California out of thousands of dollars in payroll taxes."

Brown said in a statement that the lawsuits filed in Los Angeles County Superior Court signaled a crackdown on trucking companies at the adjacent ports of Los Angeles and Long Beach that classify drivers as independent contractors to circumvent state employment taxes and labor laws, and have an unfair advantage over competitors

Fed Ex Ground has been sued successfully on this basis in multiple jurisdictions. I suspect the California AG is hoping to establish a precedent for truckload carriers (which would be huge). In addition to the state potentially collecting millions in back taxes from trucking firms in the state, it would open the door for Port truckers to organize for better wages, something they are unable to do as "independent contractors".

This may also be a means to preempt the American Trucking Association's challenge to the Ports of Los Angeles' and Long Beach's plans to require all drayage operators to use employee drivers. Most of the current drayage fleets will not survive settling up with the State for back taxes.

The precedents are working their way through the industry. I suspect the first National Truckload carrier targeted will have a lease-purchase/captive finance program, pay a flat rate per mile, and have forced dispatch. Each of those makes the driver a bit more like an employee (with, as one wag put it, a 100 thousand dollar lunchbox).

Rapidly rising costs and the soft freight market are going to change the lease purchase business model rapidly. I expect the looming legal fights will just accelerate the process. Many "independent contractors" are in multi year leases/loans for traditional square nosed tractors which are now uneconomical to operate and are losing value rapidly (much like the used SUV market is imploding). Pre-buying new trucks to avoid 2008 emissions rules, the collapse of construction (a common 2nd home for the traditional design trucks),and marginal operations exiting the business have loaded up the used truck lots. Exports of used trucks will help, but it is going to take time for the market to clear. Tighter credit conditions will also be a drag.

In an Instant Everything Changed

Guelph Mercury: Anatomy of a car crash

That moment before impact -- the split second when Mary Wybrow lost control -- remains vivid in her memory, even two years later.

"I just remember thinking, 'Oh my God,' and then, 'Bang!' " the 59-year-old retired teacher says, smacking her hands together to emphasize the force.

"Something hit us. Or I hit something."

The collision left Wybrow in hospital for weeks. It destroyed a car and a transport truck, closed Highway 401, sprung a small army of emergency services into action and required a costly cleanup.

For the people in the cars and trucks that crawled by the wreckage west of Cedar Creek Road on Aug. 17, 2006, it was likely just another crash. It wasn't fatal and it got only a small mention in the newspaper.

For the four people involved in the crash -- three in Wybrow's car, one behind the wheel of the truck -- the impact reverberated long after the mangled pieces of Wybrow's Taurus were swept away. There were emergency rooms, traction, surgery, bills to be paid, meals to be made, lost sleep, nightmares. For Wybrow's son, Kemal Koyu, there was a lingering feeling of soaring.

Most truck drivers will be involved in a serious accident eventually. Even if you are not at fault you feel absolutely terrible.