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Two types of transportation
In our main story below, we point out that higher international transportation costs are forcing manufacturers to consider adding capacity closer to customers.
However, don’t confuse supplier transportation and last-mile solutions.
You see, international transportation connects the suppliers and distribution centers.
Deliveries directly from distribution centers are known as last-mile solutions.
And that trend is continuing to grow.
Why is this distinction important?
Because international ocean shippers like Star Bulk Carriers (SBLK) eventually lose out while domestic truckers such as JB Hunt (JBHT) continue to flourish.
That’s why investors may be better off owning a few companies within the transport sector rather than a broader ETF.
Corporate Capex Is Set To Explode
Stanley Black & Decker (SWK) had enough.
As ports clogged and freight bills skyrocketed, management accelerated plans for two new factories in Mexico and Fort Worth.
And they aren’t alone.
Come on home
Spurred logistical nightmares with no end in sight, manufacturers have turned to an age-old operations decision: build closer to save on logistics or further away to save on manufacturing costs.
For those who slept through your Ops Management class, a company’s total supply chain costs include procurement (raw materials), manufacturing, transportation, and retail sales.
Companies set up networks based on the total lowest cost overall.
Lower transport costs favor manufacturing in low-cost labor environments (IE overseas).
Higher transport costs (like now) favor locations closer to customers.
Keep in mind, putting production closer to customers introduces a host of additional benefits including time to market, fewer stock outages, and more reliable costs.
Capex set to soar
Normally, this would be great news for labor.
However, wage inflation incentivizes companies to build larger and more automated facilities.
In the last decade, technology costs plummeted as innovation coupled with wider usage created economies of scale.
Just go into a high-volume warehouse to see what we’re talking about.
Here are some key points:
Capital spending isn’t limited to the U.S.
Europe is set for a surge of 16.6% in 2021 according to S&P Global Ratings forecasts, the highest levels since 2006.
Construction and engineering companies stand to do well. Stocks include Fluor (FLR), Jacobs Engineering (J), Aecom (ACM), and the like.
Industrial REITs with warehousing space should see higher tenant rates and better utilization. Stocks include STAG Industrial (STAG), Prologis (PLD), W P Carey (WPC), and others with specific ties to manufacturing, logistics, and industrial parks.
The Bottom Line: As long as logistics and wage costs remain high, manufacturers will want to build more facilities closer to customers and automate them.