Commercial Investment Real Estate January/February 2017 | Page 13

Supporting Roles Companies still have to crunch the numbers when moving manufacturing facilities back to the U.S. Converting raw mate- rials into finished goods, about 50 percent of a manufacturer’s total cost, is difficult to reduce, and cost savings have to be realized elsewhere. Yet the U.S. remains a financially competi- tive choice because of its advanced supply chain, transportation infrastructure, and abundance of affordable energy help close the wage gap. Consider the U.S. supply chain, which is being revitalized by the e-commerce revolution. E-commerce sales were up 14.6 per- cent from 2014, according to the U.S. Commerce Department. Overall retail sales rose just 1.4 percent in 2015, with e-commerce supporting 33 percent of this growth. The shift is forcing retailers to dramatically improve the supply chain. Companies are expected to fill online orders quickly and deliver them in ever-faster timeframes — even same day delivery. The supply chain has become cheaper and more efficient. Companies that move their manufacturing facilities back to the U.S. can seamlessly integrate their production facilities into this supply chain, giving them a significant advantage. Like the supply chain, transportation infrastructure has improved to support the e-commerce revolution. Moving prod- ucts from ports to distribution centers has become cheaper. CCIM.COM This is especially true for the East Coast, which has begun stealing market share from West Coast ports. Its merits reside in the friendlier business environment, the Panama Canal, and enhanced access it provides to the majority of U.S. consumers. About 66 percent of the U.S. population lives east of the Ohio and Mississippi Rivers. Domestic manufacturers now have access to a transportation network that is arguably more efficient. The cost, reliability, and abundance of domestic energy offer similar advantages. The U.S. has been one of the main beneficia- ries of the boom in natural gas production, which has contributed to the decline in energy costs. It also helps that these prices are valued in U.S. dollars. Supply chain improvements, transportation development, and domestic energy have proven their merits in the manufacturing equation and can help compensate for higher labor costs. Much has been written about the reshoring trend. While it may be premature to answer that question decisively, domestic manufacturing will be a likely beneficiary if proprietary technol- ogy continues to dictate which companies succeed in the global marketplace. KC Conway, CRE, MAI, is senior vice president of Credit Risk Management at SunTrust Commercial Real Estate in Atlanta. Contact him at [email protected]. January | February 2017 11