U.S. INNOVATION, PRODUCTION AND MANUFACTURING TRENDS AND PRODUCTION PERFORMANCE INDICATORS

U.S. INNOVATION, PRODUCTION AND MANUFACTURING TRENDS AND PRODUCTION PERFORMANCE INDICATORS

2020 Manufacturing Trends

Consumer goods companies in the US are becoming less dependent on China for manufacturing and material sourcing due to the trade war between both countries. The manufacturing industry is moving towards data-driven marketing as consumers demand more personalized goods and services.

1. Low Dependency on Chinese Based Manufacturing and Sourcing

  • Recent surveys have shown that US consumer brands are limiting their dependency on China for manufacturing and sourcing due to the trade war between both countries and the effect of the pandemic.
  • Many US companies have ditched sourcing raw materials from China while moving all their manufacturing activities to the US and Southeast Asia.
  • The pandemic, when it began, limited the supply of raw materials from China for two months due to factory closures. It also put on hold the production activities of US companies in China during the period.
  • According to a report by Kearney, US companies will now be forced to “rethink their sourcing strategies, (and) their entire supply chains.” The pandemic helped solidify the decision of US companies to move their manufacturing processes from China.
  • To aggravate the situation further, more US consumers are less willing to purchase “Made in China” products. In a recent survey by Coresight Research, 40% (two-fifth) of Americans revealed that the pandemic reduced their willingness to purchase products manufactured in China.
  • Apple, a tech giant, and Procter and Gamble, a US multinational consumer goods manufacturer, mentioned the possibility of lower profits due to their reliance on China. P&G relies on 387 Chinese suppliers to provide 9,000 raw materials.
  • Other consumer goods manufacturers, including Nike and Ashley Furniture, have limited their exposure to China.

2. Personalized Manufacturing

  • The manufacturing industry is moving towards personalized manufacturing as consumers demand more personalized goods and services. For companies to personalize their offerings, manufacturers require sales and purchase data.
  • The demand for data-driven marketing is at its peak, with 80% of consumers stating that they are more likely to purchase personalized products. About 41% of customers have switched brands due to poor online customized services and lack of trust. Personalized products cannot be properly designed and marketed without data.
  • Brands are now ensuring that their marketing efforts incorporate their manufacturing process so they can target the right customer segment.
  • The data derived is used to create personalized products/brands, marketing content, and to communicate directly with customers.
  • D2C brands are better positioned to leverage the opportunities that data-driven marketing presents. Because they control their sales process and sell directly to consumers, they can create their own databases and analyze sales data.
  • Brick and mortar brands may find it difficult to tow this path because they do not technically own their sales data.
  • With customization becoming the fad amongst consumers, brands have no choice but to offer personalized products, so that they can stay relevant. Wiiv, a footwear manufacturer, currently produces custom-made insoles and sandals with unique colors, patterns, feet shapes, and the customer’s name engraved in it.
  • P&G is looking to leverage consumer data in order to provide “more personalized experiences for consumers” across their various product segments.

3. Sustainable Manufacturing

  • Consumers, especially Millennials and Gen Z, are becoming increasingly concerned about the impact of products on the environment. According to a report by Accosta, more than 73% of consumers are willing to imbibe purchasing habits that help sustain the environment.
  • In addition to sustainable practices, consumers in the US are also more loyal to brands that showcase authenticity and values. More consumers would rather buy a sustainable product than a cheaper alternative, which would leave carbon footprints.
  • Being recognized as an eco-friendly brand now comes with benefits as millennials are more likely to recommend brands that they trust as sustainable.
  • In the fashion industry, sustainability is one of the important trends. D2C fashion companies are attaching purpose and values to their brands. Be Different, a brand of Bella+Canvas, a California-based apparel company, is an upcoming D2C athleisure wear line dedicated to “high-quality, environmentally friendly domestic manufacturing.”
  • Bella+Canvas is poised towards becoming a carbon-free company by 2021. They are also donating one million face covers across 1,400 cities to help fight the pandemic.
  • Another eco-conscious fashion brand, Reformation, is creating a fashion trend focused on sustainability. Its tagline, “being naked is the #1 sustainable option, we’re #2,” presents the company as an eco-friendly apparel brand.
  • Reformation implements practices across its production chain to ensure that its products are carbon-neutral, ethically sourced, and are contributing to constant ecological progress. The brand became carbon neutral in 2015 and has since then only used sustainable and upcycled raw materials for manufacturing.
  • The company’s sustainability initiatives also include leaving no carbon footprint and saving natural resources. Raw materials used by the brand include repurposed vintage clothing, recycled deadstock fabric, new sustainable materials, and leftover or over-ordered fabric.

4. Premiumization

  • Many consumer goods manufacturers in the US are moving towards the premiumization of their private labels. This premium category has experienced growth in recent years and now represents 19% of private label sales.
  • Premiumization is driving competition and also improving revenue streams for key players. The premium category of the food and beverage industry grew by 8% compared to the industry itself, which only earned a 3% growth.
  • Premium products depict luxury and added value and often come at an extra cost of 20% compared to the original price.
  • In the drinks category, premiumization has grown during the pandemic, with premium and super-premium spirits experiencing the largest growth.
  • Home Chef is a D2C food brand that offers meal kit delivery. They offer premium meals that come at a higher price compared to their standard meals.

Production: Performance Indicators

The US manufacturing industry has shown signs of recovery as the manufacturing index has increased in recent months. However, the current index is lower than the values obtained before the pandemic. The manufacturing industry has seen a steady decline in the last five years at a rate of 4.7% annually. This decline is expected to reach 22.7% by the end of 2020. Air freights in the US made up 17.3% of the total revenue of airlines in 2019.

1. Manufacturing Output

  • As of 2020, the size of the manufacturing industry in the US is $4.7 trillion. By the end of the year, the CAGR of the manufacturing industry is expected to have dropped by 22.7%.
  • Manufacturing output in July rose by 3.4%. The total industrial production index in the US rose by 3% in July to 100.2.
  • In June, industry production reached 97.2, a 5.7% increase from the May index, which was 92.0. Although the industry index has improved in recent months, the current figures are 8.4% below the index achieved before the pandemic.
  • According to the World Bank, the most recent figure for manufacturing output in the US is $2.173 trillion. This was the value added by the industry in 2017. This represents an increase from the 2016 value, which was $2.081 trillion.
  • Since 2015, the manufacturing industry in the US has declined annually by 4.7%, plunging faster than the US economy and other industries.

2. Air Freight

  • According to the US Bureau of Transportation Statistics, the total ton-miles of freight by air in 2018 was 15,969, an increase from 15,140 ton-miles in 2017. This is the most recent obtainable value from the Bureau.
  • In 2019, the value of revenue ton-miles of air cargo in the US was 42.85 billion, representing 17.3% of the combined operating revenue of US airlines.
  • The demand for Freight Tonne Kilometers (FTK)/Cargo Tonne Kilometers (CTK) in the US has been at the least supportive since January 2020, with a value less than 50.

3. Container Port Throughput

  • According to the World Bank, the US container port throughput was at a record high $54.68 million TEU, up from $52.132 million TEU in 2017. The sector has seen a steady increase year-on-year since 2012.

4. Freight Truck

  • According to IBIS World, the current market size of freight trucking (truckload) in the US is $193.2bn. The industry has progressed at an average annual growth rate of 2.60%. This figure is expected to drop to 2.1% by the end of the year.
  • In 2018, truckloads moved 2.033 million ton-miles of freight in the US, up from 2.024 million the previous year.
  • Trucking rates have dropped by 0.1% since the last year, while prices on the trucking spot market have plunged by 20% forcing several companies to go bankrupt and out of business.

5. Warehouse Leasing and Construction

  • The demand for warehouses in the US has been on the rise. As more people embrace eCommerce, the US may need as much as 1 billion square feet of warehouse space by 2025. A 20% growth in eCommerce sales will result in a demand for 400 million more square feet of storage space.
  • In 2019, there were 255 million square feet of warehouse space under construction. The unbalanced ratio of warehouse demand to supply has also resulted in an increase in rent by 19.2%.
  • The vacancy rate for warehouses in the US has been at an all-time low since 2018. In the last three years, vacancy rates averaged 4.8% annually.

6. Shipping

  • The United States is the country with the largest third-party logistics (3PL) market globally. The US 3PL market is currently worth $225.1bn and is projected to experience continued growth.
  • Despite being highly competitive, the market has maintained a 5.2% annual growth rate in the last five years. However, the 2020 growth rate is expected to be only 2.4%.
  • There are currently 22,692 third party logistics companies in the US, with 471,067 employees.

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