Bottlenecks bedevil US investment projects
New and existing investors in the US are facing a challenging environment, as the world’s largest economy battles with persistent supply chain issues, and shortages of skilled labour and industrial land.
These constraints coincide with booming inward investment. In the first half of 2022, more than 960 greenfield projects were announced by foreign companies in the US, the second-highest ever number recorded for a six-month period, according to the latest data from fDi Markets.
Jim Hoffman, a trade expert at Covenant Park who advises multinationals and governments on resilience, says that the continental market of the US, Mexico and Canada makes it very attractive for companies.
“It makes perfect sense to build and assemble here now, given the turmoil in the supply chain,” he says. “But labour is always a challenge anywhere.”
A case in point is the huge $11.4bn investment plan announced in September 2021 by US automaker Ford and its battery partner SK Innovation. Almost 11,000 jobs are expected to be created by the joint venture at two planned US campuses in Kentucky and Tennessee, for the production of electric vehicles (EV) and batteries.
Blue Oval City alone, a vast complex in Western Tennessee set to be completed in 2025, is expected to bring roughly 5800 new jobs. However, Jeff McCord, a commissioner at the Tennessee Department of Labor and Workforce Development who is working with Ford to meet their workforce needs in the state, summarised the challenges faced: “We certainly have a skills gap issue [and] a people gap issue,” he said at a virtual meeting held in mid-May 2022 by the state’s Economic and Community Development team.
Where are all the workers?
Tennessee is not alone. Tightness in the national US labour market, where there continues to be strong job growth and an unemployment rate of 3.6% in June 2022, is making it difficult for companies to find workers for existing operations and expansions.
Takajiro Ishikawa, the CEO of Japanese engineering giant Mitsubishi Heavy Industries (MHI) America, tells fDi it is a “huge challenge” to hire and retain workers at MHI factories and service centres across the US.
“It is very difficult to get skilled labour,” he says. “Even if we are able to find labour, the turnover rate is exceedingly high.”
In May 2022, there were more than 11.25 million job openings across the US — more than double that of two years earlier and outnumbering the 5.95 million unemployed people, according to the US Bureau of Labor Statistics (BLS). The highest numbers were in education and health services (2.17 million); professional and business services (2.00 million); and health care and social assistance (1.98 million).
A combination of factors has contributed to this worker gap. Large numbers of Americans decided to retire during the pandemic, with 3.3 million more retirees as of October 2021 compared with January 2020, according to the Federal Reserve Bank of St Louis (St Louis Fed).
Many workers have also recently decided to quit, in what has been termed the “Great Resignation”, with rates across the US reaching a record high of 3% at the end of 2021. A survey published by Pew Research Center in March 2022 found that low pay, a lack of opportunities for advancement and feeling disrespected at work were the reasons most cited by Americans who had quit their jobs.
Concrete action
“We’re taking concrete action to address these [labour] shortages,” says Arun Venkataraman, the assistant secretary of commerce for global markets, who leads the US federal government’s efforts to promote exports and attract inward investment.
He says that the government is working with industry, universities and labour unions to “beef up the workforce in a number of sectors where we’ve lost a generation of workers” due to retirement during the pandemic.
There are signs this is working. As of March 2022, 3.2% of workers who were retired a year earlier are now employed, according to analysis of data from the Current Population Survey by Nick Bunker, an economist at employment website Indeed.
Despite this, lack of talent remains the biggest challenge facing executives at manufacturing companies, says Hernán Luis y Prado, the CEO of Workshop for Warriors, which helps US veterans, among others, get into advanced manufacturing.
“Manufacturing has advanced much faster than the educational systems that used to provide for it,” he says, adding that he is yet to find one sector that does not need talent.
Despite the number of job openings in manufacturing falling from its high of one million in April 2022, they remained at more than 800,000 in May 2022, according to BLS data.
Reshoring undermined
As companies explore shifting their operations back to the US amid global trade tensions and shipping bottlenecks, experts say that the workforce issue makes this even more challenging.
Charles Gascon, a senior economist at the St Louis Fed, recently wrote that in an environment where “many manufacturers are weighing whether to reshore production; labour shortages may be the greatest long-term obstacle to the sector’s growth”.
Bud Darr, the executive director of maritime policy and government affairs at shipping and logistics giant MSC Group, agrees. “There’s a lot of talk about nearshoring, onshoring and reshoring,” he says.
“Certainly, some of that will occur, but it is much easier to talk about than it is to actually do,” he says, adding that it is more likely there will be diversification of supply chains to enable multiple sources of supply in multiple regions than strictly US reshoring.
While the jury is still out on the extent of reshoring, data belies this lack of clarity. In 2021, reshoring and foreign direct investment job announcements reached 261,000, according to the Reshoring Initiative, marking the highest annual figure since records began in 2010.
Land constraints
Aside from labour challenges, companies are also finding it difficult to find larger plots of land. In the second quarter of 2022, demand for US industrial land outpaced supply, marking the seventh consecutive quarter where this was the case, according to a report by Cushman & Wakefield.
Christine Bustamante, a Naples, Florida-based partner at the site-selection consultancy Think LLP, says that there is an issue with “available sites with contiguous acreage under control, with utilities in place,” that will be ready for when companies are ready to invest.
“If you see a site on Tuesday, by Friday it’s gone unless you put an option on it,” she adds, noting that many investing companies are having to secure several sites before making a decision on final locations.
The lack of suitable sites is particularly relevant for mega-projects — investment worth at least $1bn — which tend to have massive land, utilities and workforce needs. A record 23 mega-projects worth a total of $97bn were announced in 2021 by foreign and domestic companies across the US, according to fDi Markets.
As businesses continue to announce physical expansions in the world’s largest economy, Mr Hoffman cautions that sufficient planning ahead is critical: “It takes a very serious, long-term, strategic plan for companies to do these kinds of market entry.”
