Watch any business programmes on US television or read one of the many business papers and magazines and it is clear what the big stories are these days. Information technology – what is happening at Google and Apple, Facebook and Groupon – dominates coverage, at the expense of most other sectors.
But while it is IT that generates the excitement and the personalities – such as the late Steve Jobs – other significant developments have been reported over recent months, some of which have resonance in Europe and, indeed, in Wales as well.
Earlier this autumn Conoco Phillips, one of the biggest oil companies in the US, announced it was hoping to sell an oil refinery in Pennsylvania, joining two other nearby refineries on the sales block owned by Sunoco, another big US oil group. Together these three refineries account for half of all refining capacity on the East Coast. Yet analysts expect they will prove difficult to sell.
How, it might be asked, can oil refineries be closing in the most populous part of a land that loves its cars and cheap fuel so much? As it happens, we have seen the same phenomenon happening in Wales where the oil refining industry has been cut in size over the years as the big names have moved out of Pembrokeshire. The latest to go is Chevron, which itself took over Texaco’s Pembroke operations and which has now sold the business to Valero Energy of the US. Another oil company, Murco, is hoping to close a deal to sell its Milford Haven refinery – first put up for sale in 2010 – early next year.
In both Europe and the US the recession has cut demand for petrol. Much more importantly, however, refining has become subject to cut-throat competition and very tight margins. In the US the north eastern refineries have lost out to Gulf Coast rivals which have access to cheaper crude oil, including nearby US reserves. In Europe the pressures is on to rationalise refining in bigger centres nearer to the main Continental markets.
Unfortunately for Wales this is where the oil giants have decided to concentrate the bulk of their refining. The slack has been taken up in part in the Milford Haven estuary by gas terminals, one of which has taken over the former Esso oil refinery site. However, these employ fewer people and in associated coastal shipping activities.
Another apparent paradox is that, in a land as wedded to air travel as the US, several big city airports are reporting steep declines in the number of flights they can offer. Cleveland has seen a 23 per cent drop since 2005, Pittsburgh a fall of 49 per cent and St. Louis 36 per cent. Is there not something familiar about this story, with Cardiff’s loss of more than a quarter of its passengers over the past few years?
Once again it is economic pressures brought about by the prolonged downturn in the world economy that is behind the falls, though they are not being spread evenly across all airports. It is a truism that it is airlines rather than airports that fly passengers. No matter how much is invested in infrastructure, no airport will survive without carriers or indeed at the present time without an anchor carrier based at the airport.
Pittsburgh and Cincinnati, another struggling airport, have both suffered from the withdrawal of services by airlines with bigger bases elsewhere and are starting to see wider knock-on effects. One of the latter city’s main companies, fruit importer Chiquita, is reported by the Wall Street Journal to be considering shifting its headquarters because flights have become less frequent and less diverse. Chiquita is concerned because a few years ago the city had 600 flights a day, including services to London, Rome, Frankfurt and Paris. Currently, it is down to 190, following cutbacks by Delta Airlines, and only one of these crosses the Atlantic to Paris. Fewer flights means fewer users to share costs and this has brought an increase in ticket prices.
This of course is not far from the scenario in which Cardiff finds itself. Bristol has secured EasyJet and Ryanair and expanded threefold to 6 million passengers. Cardiff had to make do with bmibaby, which never acquired the critical mass in the city to bring about a step change in the airport’s performance and has now packed its bags (hopefully without losing them) and gone. Attracting headquarters companies to Cardiff – and possibly even retaining those already here – is made that much more difficult. Travel from Cardiff can also be more expensive than from its rivals.
Another development within the US economy offers perhaps more encouraging pointers for Wales. Industry analysts have detected a strong drift of jobs in manufacturing back from China and other once low cost countries, including in some unexpected sectors, such as furniture making and textiles, where Asian countries might be expected to have all the cost advantages.
The Boston Consulting Group has identified five industries apart from furniture where higher labour costs in China, increased shipping costs and long delivery chains, combined with improved domestic productivity, are leading to a re-migration of work back to America. These are transportation goods, computers and electronics, electrical equipment, plastics and rubber products, machinery and fabricated metal products.
Other announcements indicating a return of confidence in American manufacturing over recent weeks include a $500m tyre plant with a capacity of 5 million tyres a year for German group, Continental, in South Carolina. This has come hard on the heels of a Bridgestone $1.1m tyre plant expansion in the same state. These new investments follow a revival in the fortunes of the big US car giants, Ford and General Motors, both of which are taking on thousands of new workers and bringing manufacturing back from outside the US.
According to the Wall Street Journal, US auto plants are now more competitive with other regions of the world. In part this is because the industry, including tyre manufacturing, have moved to two tier wage plants with lower pay for new workers. They have also lightened their balance sheets by removing pension liabilities and have trained workers to build more complex tyres.
Work is even returning to the US from neighbouring Mexico. Otis, the world’s largest manufacturer of lifts is moving production from a factory in Mexico to a new plant in South Carolina and says it will save money by being closer to customers and enjoying lower freight costs. In the case of Mexico drug related violence and the difficulty in getting executives and their partners to move there from the US is another factor.
Nor is this revival confined to traditional industries, such as car manufacture. Computer groups, IBM and Intel, are set to spend $4.4 billion on advanced manufacturing facilities to build new more densely packed and more efficient computer chips on larger 450mm wafers. They are being joined in the project by Samsung and other Asian partners but significantly the work will take place in New York state and not in one of the Asian countries repeatedly tipped to replace the US at the heights of new technology.
On admittedly optimistic estimates, as many as 3 million jobs in manufacturing and services could be on their way back.
As ever, the world is full of threats and opportunities and Wales has to make sure it deals with the former and profits from the latter. Knowing the way the wind is blowing before it overwhelms you or passes you by is the key. If the economics of manufacturing in Western Europe is improving as well as in the US then Wales needs to set out its stall fast to ensure it, too, gets its share or even more than its fair share of returning business.
It would be good to think that as well as planning which sectors to pursue for future economic growth, the Welsh Government’s Department of Economy and Transport also has an intelligence system which is spotting these trends and acting on them. It may even be time to think of reviving interest in inward investment, which conventional wisdom has decreed for a number of years will never return. Can anyone offer any re-assurance issues such as these are on the agenda?
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