IS IT TIME FOR “RESHORING”?

We did NOT see this coming!  Who on this Earth could have seen a global pandemic AND a three-year trade war with China with NO end in sight?  I don’t think Nostradamus could have foretold this event.  We have been told we are possibly eighteen (18) months away from a vaccine for the COVID-19 virus AND there is no real end in sight for any solution to the trade problems we have with China.  Of course, this is the year 2020.  This MUST serve as a wake-up call for American manufacturers and all manufacturers previously dependent upon the far East for products.  Over the past twenty-five (25) years globalizations, lean-manufacturing, the need for cost-cutting, establishing new markets, and other considerations have been at the fore-front of thinking for many CEOs, CFOs and COOs in the United States.  Make for less, reduce your labor costs, open new markets: all have been considerations for manufacturers.

Let’s take a very quick look at the top ten (10) products China exports to the United States.

The following export product groups categorize the highest dollar value in Chinese global shipments during 2019. Also shown is the percentage share each export category represents in terms of overall exports from China.

1. Electrical machinery, equipment: US $671 billion (26.9% of total exports)
2. Machinery including computers: $417 billion (16.7%)
3. Furniture, bedding, lighting, signs, prefab buildings: $99.5 billion (4%)
4. Plastics, plastic articles: $84.4 billion (3.4%)
5. Vehicles: $74.4 billion (3%)
6. Optical, technical, medical apparatus: $73 billion (2.9%)
7. Knit or crochet clothing, accessories: $71.4 billion (2.9%)
8. Articles of iron or steel: $69.6 billion (2.8%)
9. Clothing, accessories (not knit or crochet): $66.8 billion (2.7%)
10. Toys, games: $62.8 billion (2.5%)

China’s top ten (10) exports accounted for approximately two-thirds (67.6%) of the overall value of its global shipments.

Last month, the U.S.-China Economic and Security Review Commission held a hearing on the United States’ growing reliance on China’s pharmaceutical products. The topic reminded many of a spirited discussion described in Bob Woodward’s book, Fear: Trump in the White House. In the discussion, Gary Cohn, then chief economic advisor to President Trump, argued against a trade war with China by invoking a Department of Commerce study that found that ninety-seven (97) percent of all antibiotics in the United States came from China. “If you’re the Chinese and you want to really just destroy us, just stop sending us antibiotics,” he said.  Imagine ninety-seven percent (97%) of all the antibiotics we purchase and consume come from a country that really does not like us and from a leader, Xi Jinping, who has openly stated that he wishes we would “go away”. 

If we look at several reasons U.S. companies wish to “reshore” we see the following: (NOTE: This list comes from the publication “Logistics Management”.)

• International logistics costs:  69.7%
• Production delays:  63.2%
• Proximity to customers and markets: 55.3%
• Total costs of ownership evaluation: 51.5%
• Risk mitigation: 50.0%
• Quality issues: 48.7%
• Latency in supply chain: 44.7%
• Time to market: 43.4%
• IP theft and other issues:  34.2%
• Currency exchange:  30.3%
• Rising labor costs: 30.3%
• Political instability:  19.7% (I thought this one would be much higher.)
• Communication problems:  18.4%
• Opportunity to automate and redesign factory floor: 14.5%

One other item, according to the New York Times, almost sixty-six thousand (66,000) businesses have closed permanently since March of 2020.  The decision to close has been made by individuals in retail establishments but also many businesses. Now, most of this is due to the COVID-19 virus problems we have right now.  Many of these companies may not return, but many also receive products from China and other countries in the Pacific Rim.  Once again, logistical nightmares.

In my opinion, just from the pharmaceutical issue alone, it’s time to re-think our dependence upon products from the “Rim”.  Let’s once again start looking at a great degree of independence upon others.  Just a thought.

Beijing Daxing International Airport

As a private pilot, it is my opinion that the FAA (Federal Aviation Administration) does a fantastic job.   The “guys and dolls” in the tower have amazing responsibilities for air safety and perform in an extremely admirable fashion. There are approximately fifteen thousand (15,000) federal air traffic controllers on the job every day at three hundred and fifteen (315) FAA air traffic facilities around the country, managing more than eighty-seven thousand (87,000) daily flights across U.S. airspace.  There is an FAA requirement that trainees begin their training at the Academy no later than their thirty-first (31^st) birthday, and face mandatory retirement at age fifty-six (56). However, retired military air traffic controllers may qualify for appointment after reaching thirty-one (31) years of age.  You may ask, why retirement at such an early age? STRESS, that’s the reason.  Also, why the minimum age of thirty-one?  They do NOT want kids in the tower playing around, chasing skirts, popping bubblegum.

 I would ask you to look at the chart below and you will get some idea as to the number of passengers traveling in today’s world. Please note that in this list are four (4) airports in the United States.  Number one—Hartsfield-Jackson in Atlanta with 107.4 million passengers coming and going in 2018.  Can you imagine the number of flights twenty-four (24) hours a day needed to transport this many passengers?  The coordination and attention to detail is staggering.  The people in the tower do it all. 

We want to look at what will be the newest international airport – China’s Beijing Daxing International Airport.  Before we look at the digitals, let’s get background information on the airport itself. (NOTE: Information comes from ChinaDaily.com web site.)

DETAILS:

Construction of Beijing Daxing International Airport has been completed after five years of frenzied activity. When the mega-airport begins operation on September 30 of this year, it will be the world’s largest single-terminal airport at 700,000 square meters – the size of ninety-eight (98) soccer fields. The eighty (80) billion-yuan ($11.7 billion) facility, which is forty-six (46) kilometers south of downtown Beijing, will serve as a second international airport for the capital. It is designed to relieve the pressure of rising demand for air travel on Capital International Airport in northeastern Beijing.

With seven runways planned, including one for military use, the new airport will ultimately handle more than 100 million passengers a year, matching Hartsfield-Jackson Atlanta International Airport in the United States. The US airport is currently the world’s busiest, receiving more than one hundred (100) million passengers per year, but across two terminals.  We see this from the chart above.  For Atlanta, there are two terminals, one domestic and one international.

Guo Yanchi, chief engineer in charge of construction work at the new Beijing facility, said: “The Daxing airport is the world’s largest integrated transportation hub. The terminal building is also the world’s largest built with a seamless steel structure, boasting the world’s first design of double-deck departure and double-deck arrival platforms.” This is a marvelous engineering feat and demonstrates China’s ability to create world-class structures.  We got a glimpse of that from the Olympic Summer Games a few years ago. 

In barely seven decades, China has transformed from a nation with a handful of shabby, makeshift airports to being home to aviation super-hubs – the result of the country’s rapid economic development and greater openness to the outside world.  According to the Civil Aviation Administration of China, there were thirty-six (36) airports in 1949, most of which could handle only small aircraft. The number had soared to two hundred and thirty-six (236) by the end of June, with about seven new airports coming online each year in the past decade.

Beijing Capital International Airport, the first airport for commercial flights after the founding of the People’s Republic of China in 1949, featured just one 2,500-meter runway when it opened in 1958, and had a terminal covering about 100,000 square meters.

“Even during peak time, the airport was only able to handle fewer than two hundred and fifty (250) passengers per hour, most of whom were government officials,” said Liu Zhaolong, a consultant with the China Civil Airports Association, adding that ordinary citizens at that time had to buy tickets to visit the airport.  Last year, the airport, which now has three terminals but is hitting full capacity, handled more than 100 million passengers, making it the second-busiest in the world after Atlanta’s airport. (Again, please take a look at the chart above.)

China has been gearing up to boost its general aviation industry as the country undergoes a huge expansion into the world of flying, with an increasing number of Chinese taking to the skies.

Chinese airports handled 1.26 billion passenger trips in 2018, compared with four hundred and eighty-six (486) million ten (10) years ago, a year-on-year increase of eleven (11) percent, said Zhang Rui, deputy director of the administration’s Airport Department. Thirty-seven of the country’s airports handled more than ten (10) million passengers in just one year, he added.

China has built an international air network with 844 routes, connecting 167 cities in 61 countries. It has also signed intergovernmental civil air transportation agreements or established civil aviation connections with 125 countries and regions, according to the administration’s statistics in September last year.

“Historically, China’s domestic market dwarfed international services, but airlines have been rapidly stretching their wings in the past decade, thanks to the country’s reform and opening-up policy, as well as people’s soaring outbound tourism demands,” said Li Xiaojin, a professor of aviation economics at Civil Aviation University of China in Tianjin.  According to the International Air Transport Association’s forecast, China will become the world’s largest civil aviation market by 2024-25, and the air passenger volume in the Chinese market is expected to reach 1.6 billion by 2037.   Li Xunlei, chief economist for the financial institution Zhongtai Securities, said in a report that about 1 billion Chinese people have never boarded a plane, which serves as strong evidence that the country’s current airports will not be able to meet demand in just a few years. China must step up its efforts to renovate existing facilities and build new airports, the report said.

Beijing Daxing International Airport

Let’s now take a quick look at what will be the newest airport in the world.  As you will see it’s expansive.

Given below shows the basic layout of the terminal with runways on either side to facilitate access to the gates.

The drawing below is a rendition of the internal design showing the various traffic patterns and elevations. 

If you saw any of the Summer Games from China, you will recognize the “bird cage” design.  This design has been adopted for the “super-structure” for the main terminal.

Once again, we see the smooth lines and basic traffic flow internal for the terminal.

You must admit, this is a striking design using the latest engineering and architectural concepts.  I hope to travel to China some day and I certainly will book the tickets to arrive at Daxing.

SCIENCE AND ENGINEERING–GLOBAL TRENDS

I really don’t know who said it first but—“sometimes the only way you know where you are going is to take a look at where you are right now”.   There is a great deal of truth in this statement so I thought we might take a look at where we are relative to S & E (science and engineering).  Since this is not a subject that can be covered quickly, I am writing the first in a series of documents that will cover the following:

• Overview of science and engineering—where we are now with conclusions as to where we need to go.
• Current labor force relative to S & E professions.  This is a fairly broad look, but an important indicator as to where we are falling behind.
• R & D trends (Global)
• Public Attitude towards S & E professions.
• State indicators.  What states within our Unites States provide the majority of trained S & E professionals and offer the greatest number of jobs.

This first effort is a brief overview of where we are now.  The next publications will follow during the month of May.   All of the information for each segment comes from the following publication:

 National Science Board—National Science Foundation, “Science and Engineering Indicators–2012”, required by 42 USC, Paragraph 1863(j) (1)

It is very important to note that—“Science and Engineering Indicators (SEI)” is first and foremost a volume of record comprising the major high-quality quantitative data on the U.S. and international science and engineering enterprise. SEI is factual and policy neutral. It does not offer policy options, and it does not make policy recommendations.  The data are “indicators.” Indicators are quantitative representations that might reasonably be thought to provide summary information bearing on the scope, quality, and vitality of the science and engineering enterprise. The indicators reported in SEI are intended to contribute to an understanding of the current environment and to inform the development of future policies.  All we are after here is to present the basic facts as they exist, without embellishment or fanfare.  Just the facts!   The overview focuses on the trend in the United States and many other parts of the world toward the development of more knowledge-intensive economies in which research, its commercial exploitation, and other intellectual work are of growing importance. Industry and government play key roles in these changes.  We primarily will be looking at knowledge-based economies and other intellectual work of growing importance on a global basis.  There is absolutely no doubt; those economies that have and continue to develop technologies benefiting their populations will progress faster, maybe much faster, than those countries otherwise dormant relative to science and technology.  Even though manufacturing is critical to continued national sovereignty, science, technology and engineering in general drive manufacturing.   We will be looking at trends relative to the United States, China, the European Union, Japan and those eight countries; i.e. India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand, etc. within the east Pacific theatre.  There are several generalities we can state relative to the global progression in question.  These are as follows:

• We definitely live in an interconnected world with intertwining economies.  Those countries continuing to prosper economically offer open markets and willingness to participate in the transfer of technology.   No doubt about it.
• Open markets exist in just about every country on our globe.  One exception is North Korea and even that potential trading partner is beginning to recognize the benefits of world-wide trade.
• Most countries recognize the significant importance of education and dedicated R & D effort relative to global commerce.  It is imperative that a knowledge-based workforce exist to promote technology on a wide scale.
• With Asia’s rapid ascent, China is a major player on a global scale.  A rising superstar on the world stage that must not be taken lightly.  China has made a commitment toward being a world force, thereby promoting science and engineering education.
• The European Union is “holding it’s own” but much of the trade is between members of the “union”.
• Brazil and South Africa show very high rates of growth relative to science, engineering and technology and recognize the great importance of an educated population.
• Israel, Switzerland and Canada are examples of countries with mature growth relative to science and engineering- technology in general.  Continued progress is dependent upon a well-trained work force, and they recognize that fact.
• Global R & D expenditures have grown faster than global GDP with significant efforts to make economies more knowledge and technology based.  An example of this—global R&D efforts in 1996 were $522 billion USD whereas in 2009, that number was $1.3 trillion USD.  This fact is demonstrated by the following graph.  There is a 69.23 percent increase in R & D expenditures in just thirteen (13) years.  A 5.325percent in R & D spending per year for thirteen years.  

 

• The United States is the largest contributor to the R & D effort with $400 billion (2009) USD but with Asian countries, mostly China, a very close second.  Please note, the EU figure represents all expenditures for R & D by the seventeen (17) countries within the “Union”. This is a conglomerate number.

For many countries, there is an R & D target of 3% of GDP.  They recognize the great importance of technology and engineering relative to continued economic improvement.    It is also a recognized fact that industry is the mechanism that fuels this technology growth.  In the USA, industry funds 62% of the R & D effort.  70% for Germany, 45% for the United Kingdom and 60% for China, Singapore and Taiwan respectively.  The chart that follows gives the percentages of GDP for each region.   That percentage being on the ordinate (vertical) axis of the chart. The percentage in the USA is roughly flat over the last thirteen years.   China has grown consistenly.

 

If we look at the annual growth rates for selected countries, we see the following:    China has made significant efforts to invest in R & D whereas the EU, USA and Japan have reduced  R & D funding.   2008 and 2009 exhibit percentages that, in my opinion, are truly alarming.

 

 

There is no doubt that China and the Asia/Pacific countries are giving the US a real “run for the money”.  The chart below will demonstrate that fact quite well.

North America; i.e. USA, Canada and Mexico, etc. traditionally spend more than the rest of the world but Asia/Pacific is catching up.  Figure 0-6 is a fascinating look at how R & D expenditures “travel” across our globe.  This graphic represents the global transfer of technology and further demonstrates how intertwined global commerce is.

The relative importance of global technology is driven home by the following chart, showing graduation rates by region.  This chart represents the importance associated by each country as to what is expected of education.   It also is a very definite indicator as to where the jobs will continue to be in the twenty-first century.

Next, we will look at the current labor force and those professions participating in that labor force.  You may be surprised as to where scientists and engineers work.