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Reshoring, dockworker strike and the US economy · UBS Trending

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  With a U.S.
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  election on the horizon and a dockworker strike just
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  beginning, reshoring has taken the spotlight.
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  Let's face
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  it, reshoring does have its good and bad sides from creating jobs
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  all the way down to the potential costs for goods going up.
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  So how does this all potentially affect the American consumer
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  and the average investor?
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  We're going to break it all down for you right now.
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  On UBS trending.
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  Hi everybody and welcome to UBS.
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  Trending story.
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  Thanks for joining us today.
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  Chris Seminyak is in the studio with me to break down the latest
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  in what's going on with reshoring the strike, etc..
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  Chris, of course is a fund manager from Tamara, ETF manager.
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  Chris, nice to have you in the studio with us.
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  Well, thanks for having me on.
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  It's we didn't even time this, you know,
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  specifically, but as we're sitting here,
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  we're now at the beginning phases of this dockworker
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  strike that's happening
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  on East Coast ports and down in the Gulf of Mexico,
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  not to get in to the specific source of what
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  the workers are fighting for striking for.
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  But we know that the if you look back at what
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  we all experience of the throughout the pandemic,
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  we know what it felt like
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  to have empty shelves
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  and having these container ships sitting offshore
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  because we couldn't
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  get people on the docks who were sick from Covid or,
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  you know, sheltering in place to get the goods on to U.S.
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  soil.
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  This is a different situation,
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  but we may be in a situation where container ships
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  aren't able to get into the ports.
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  Do you what kind of issue do you see this as being right now?
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  Yeah, I think this is,
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  yet again, another example
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  of the challenges
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  that chief procurement officers around the world are facing
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  when it comes to overseeing their global manufacturing footprint.
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  And, you know, whether it's a strike, whether it's a pandemic.
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  Whether it's a global conflict,
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  whether the water simply dries up in one of the major canals
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  in the world, getting goods from 7000 miles away.
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  Has, it seems like more recently become much more of a challenge,
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  on a regular basis.
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  And I think that the current strike
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  is just another one in a long list of reasons why,
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  or at least
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  what is powering the re
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  industrialization and reshoring trend going forward.
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  Yeah.
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  What's the biggest roadblock
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  that's going on right now with reshoring in general?
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  And now, of course, with this strike that
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  who knows how long this is going to last.
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  Yeah, I think,
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  I think the biggest roadblock from kind of a 30,000ft
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  perspective is high interest rates
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  and high interest rates are not a long term roadblock,
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  but they are a short term roadblock in the sense that there are
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  there are examples, and most of the times, higher interest rates
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  cause small
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  and medium sized companies to rethink capital investment.
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  Or at least postpone it.
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  I don't think higher interest rates longer term,
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  are going to stand in the way
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  in terms of the Industrial Revolution trend,
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  I think the train has left the station,
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  but I do think
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  higher interest rates can slow it down to some degree.
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  But I think as we stand here today, with rates
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  tending to move lower,
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  I think we will see a real acceleration in growth going forward.
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  And hence, re acceleration in the re industrial.
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  Right in front.
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  Good point.
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  And the strike notwithstanding,
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  if we kind of take that out of the equation,
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  just the reshoring story itself, which for those of our viewers
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  who are watching, it's
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  essentially the idea of bringing back the manufacturing of goods
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  from where
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  we, companies that sent them overseas to back to the U.S.
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  for U.S.
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  workers, etc.,
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  to produce the goods here, which, of course, in that scenario,
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  you don't have to worry
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  about the shipping containers getting the goods
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  from wherever they originated back to the U.S..
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  So there are, like I said, there are advantages.
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  There's disadvantages. What do.
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  So just when you think about reshoring,
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  it seems like time really is of the essence.
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  What what do we know today again, strike notwithstanding.
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  And what are some of the advantages
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  and disadvantages that you see about reshoring.
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  Yeah.
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  So so reshoring really is happening.
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  Reshoring is really the result of
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  of, of I think what,
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  what our exposures and vulnerabilities that were built up
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  because of 20 years of globalization.
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  So when, when you, when, when you're, when you've spent
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  the last 20 years securing supply chain,
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  taking your suppliers down from 20 to 10 to five
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  and operating them from 7000 miles away.
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  You develop these exposures, vulnerabilities.
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  And I think what's happened now
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  is, is that companies are recognizing this
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  and they're beginning to essentially,
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  I think, unwind some of these exposures.
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  And unwinding some of those exposures involves capital investment
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  closer to home and closer to where they sell their goods.
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  And as I said, I think capital investment, and sort of,
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  you know, reversing course on 20 years of, of globalized
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  zation is going to be a very powerful driver of corporate
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  earnings growth for the next,
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  I have to say, a couple of decades or more. Right.
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  We were just talking before we started
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  that there is sort of a balancing act
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  for all the corporations that have done offshoring,
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  and now we're thinking about bringing goods back
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  or are in the process of it.
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  Certainly it adds to jobs in the U.S..
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  I think there was a statistic that said 350,000 jobs in the U.S.
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  were added in 2022, which is up a little bit from the year before.
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  So we are seeing that as a result.
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  But but the the flip side of it
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  is that potentially the cost
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  to create those goods could be higher, as wages in the U.S.
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  are higher than some of our counterparts overseas.
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  So that seems to be a risk as well.
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  Yeah.
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  So I think when when procurement managers
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  at least that we speak to a
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  of the companies that I, that I, that I have conversations with,
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  the conversations involve direct costs, which were the reason back
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  in 2000 and a companies decided to offshore manufacturing.
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  But as you flash forward today, 20 years later, we're finding that
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  there are a lot of indirect costs
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  that managers have now to take into account.
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  And so it's not just direct labor costs,
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  which have gone up massively in China
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  and are closer to where the U.S. labor costs are.
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  But you
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  then have to layer on indirect costs, such as you have tariffs,
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  you have the cost of transportation, which has gone up markedly.
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  You have the cost of doing customer service,
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  which is much more when you're further away
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  from where you manufacture.
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  These are
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  these indirect costs
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  when you combine them with higher direct
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  labor costs, as I said, put manufacturing here in the US
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  more on par with with where they were
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  in the low cost labor countries.
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  And as I said earlier,
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  this hasn't even taken into account the conversation of
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  what if you just can't get the goods
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  because of a war, because of a pandemic, because of a strike?
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  Exactly.
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  And none of us expected to have a pandemic in 2020.
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  But there it was.
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  And I don't think anybody was really prepared
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  for what the aftermath was and what you were just saying.
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  But sticking with,
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  you know, something that,
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  you know, your, your role at Tama is that you manage a fund that,
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  you know,
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  invest in companies that are connected to the reshoring story.
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  And it's multi industry, which I think people have to
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  it's not just cars and it's not just you know, computer chips.
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  It's it's multi industry.
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  This could potentially affect consumers at every level.
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  Yes.
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  So the way that we view reshoring the reshoring universe of stocks
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  if you will, is through a lens of 3 or 3 lenses.
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  Let's say we have reshoring manufacturers.
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  We have reshoring beneficiaries and we have reshoring enablers.
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  And think of the beneficiaries
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  and enablers
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  as companies that basically sell the picks and shovels
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  to the companies that are bringing production back from abroad,
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  or making a decision
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  to expand production domestically rather than abroad.
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  And in many cases,
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  the companies that sell those picks and shovels, the services,
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  the distributors, the suppliers, those companies
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  in many cases
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  are actually extremely interesting and attractive investments
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  for investors to look at as as adjacencies to the insuring trend.
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  Right.
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  And obviously, since we're in an election year, it's
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  the probably one of the bigger concerns of many of our,
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  clients, investors and advisors that we speak with
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  and certainly everything that's related to jobs,
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  in the US
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  and the overall
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  economy is, you know, fair game when it comes to campaigning.
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  Could
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  if let's see, we have two scenarios, right.
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  It's either going to be VP Harris or former President Trump
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  sitting in the white House in January.
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  How much of an impact
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  does the reshoring team have based on who's sitting there?
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  So shorter term, from the companies,
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  as I said, we speak to companies every week,
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  and get their thoughts
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  on the current environment as well as the reshoring topic itself.
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  Small and medium
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  sized companies have indeed postponed and slowed down spending.
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  Larger companies, though, operate with higher amounts of CapEx,
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  and those companies spend on a more lengthy cycle,
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  so are typically not going to postpone.
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  I think from an investment standpoint,
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  neither candidate is,
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  a bad a bad factor for the reshoring trend.
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  President Trump,
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  promoted U.S.
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  industry by protecting it, if you will, through tariffs.
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  President Biden,
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  promoted US manufacturing by using fiscal policy.
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  So the chips act, the IJA, the Inflation Reduction Act.
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  Right.
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  Both candidates support American manufacturing.
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  President Biden actually adopted President Trump's tariffs.
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  And I think this isn't spoken about too much yet.
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  But I think President Trump,
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  if he gets into office,
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  I think one of the things
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  he didn't achieve when he was in office was a legacy of,
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  of of, of sort of policy support.
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  So he protected he used the tariffs.
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  I think there's a chance
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  that the MAGA nomics will involve actually taking it even a step
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  higher than Biden did with, than Biden did with the IJA,
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  the IRA, the Chips act. So,
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  and there's also talk of that,
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  that that Kamala Harris may actually
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  even layer even additional fiscal support for U.S.
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  manufacturing on top of the three major policies
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  that that President Biden put in place.
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  So it doesn't matter.
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  Reshoring is here to stay. Great.
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  Thank you, Chris.
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  And something I read this morning.
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  Maybe to put, some consumers minds at ease
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  is, that and you mentioned this a lot of the,
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  the companies that get their goods
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  shipped from overseas have already kind of begun.
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  I wouldn't call it stockpiling, but getting goods
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  so that when the holiday season approaches in a couple of weeks,
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  there may be a chance that you're not going to have to worry about
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  not having the goods on the shelf for the holiday season
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  after that, meaning back to the strike after that, it's,
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  anybody's guess.
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  Yeah, I think that the that
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  the strike is, is, as I said again, it's another reason
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  that procurement officers
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  can speak to their board and investigate and discuss
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  whether it makes sense to on short and in not all cases,
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  all of your production,
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  but parts of your production which are critical.
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  There's there are only benefits to
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  selling items closer to your customers.
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  And there are only benefits to, you know,
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  there are costs involved with producing on shore
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  that you don't have to incur
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  when you're producing, as I said, from 7000 miles away.
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  Great. Chris, thank you very much.
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  Great conversation. Perfectly timed.
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  I swear we did not know that this was going to happen
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  as we were sitting here with you today.
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  But, thanks for taking us through.
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  And it's a really compelling story.
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  Just thinking about the reshoring story itself.
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  There's investment opportunities and obviously,
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  something to keep an eye on during the election cycle.
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  So thank you, Chris. Good to see. You.
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  I hope you've got what you have.
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  I hope you.
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  Absolutely know we love I love this is
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  this is great a very unique conversation.
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  I talk about it all the time.
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  Sometimes it's hard to kind up
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  for everything I want to cover in such a short period of time.
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  But anyway, thank you very much for giving me the chance.
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  To do it.
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  Absolutely. Chris.
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  Senator from Tama, thank you very much, Chris,
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  and thank you all for joining us.
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  We're going to conclude here by giving you
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  our website is ubs.com/views.
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  There's lots more information from our chief investment office
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  and our great partners like Tama ETF management.
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  So make sure to check that out.
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• 11:46
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  you're not going to find anywhere else.
• 11:54
  And as always,
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  if you have any questions about what
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  Chris and I spoke about today,
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  make sure that you're having this conversation
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  with your financial advisor.
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  Until next time, I'm Anthony Dory.
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  Have a great day everyone, and remember to keep your eyes on
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  what's trending. We'll see you soon.