John Huot is starting to like high oil prices.
Earlier this year, the president of St. Paul-based Huot Manufacturing won back a key U.S. customer who abandoned him three years ago for cheaper tool kits made in China.
With oil prices above $100 a barrel -- Friday's close was $106.23 -- oceanic shipping is suddenly painful, which makes the Huots of this country competitive again.
Call it the "oil factor."
Chinese factories may no longer be the cheapest options for some U.S. manufacturers that dashed to embrace globalization more than a decade ago. Today, it costs twice as much to ship a container of goods from Asia to the United States as it did two years ago.
That expense has some domestic manufacturers rethinking outsourcing strategies and bringing production back home. Thomasville Furniture, steel fence and tractor parts maker Behlen MFG, Exxel Outdoors, machine shop operators and others say they are returning some manufacturing stateside and finding other ways to stem transportation costs.
"It's too early to be a big trend. But members are talking about it," said Hank Cox, spokesman for the National Association of Manufacturers, which has more than 10,000 members.
For Huot's customer, "This is one case where the freight [cost] really made a huge difference. It was the killer for this guy. So, we got the business back and they are saving money by going with us in St. Paul instead of China," Huot said. "And they can get their product in four weeks instead of four months."
In addition, it can be harder to manage quality control overseas, said Huot, who went to Beijing in March to find that his customer was unknowingly buying an inferior copy of Huot's product. The Chinese version was made from a cheaper gauge of steel.
The quality problems and shipping costs nudged his customer back to him in March, restoring $75,000 to his books. Huot's 42 employees celebrated by catering in -- what else? -- Chinese food.
Cliff Waldman, an economist with Manufacturers Alliance, said oil costing $100 a barrel or more prompts a reevaluation of whether it's cheaper to produce goods outside of the country. "So North America is getting a second look as a production platform," he said.
But oil isn't the only reason manufacturers are rethinking outsourcing. U.S. manufacturers are struggling with rising global salaries and commodity prices and a weakened dollar to pay for them. And China is phasing out tax breaks for exporters. So international freight costs may be one measure they can control, Waldman said.
Dave Fiedler, president-elect of the Minnesota Precision Manufacturing Association, said his members talk about oil prices all the time. "Container shipping is so expensive. It used be $2,000 to $3,000 to ship one container. Now it's $7,000 to $9,000," Fiedler said. "The energy crunch has hit; that hurts."
Thomasville Furniture dinning-room sets sold in Minnesota normally come from China, Vietnam and Indonesia. But Thomasville just added 100 workers in North Carolina and will mill its newest Thomasville Collection stateside.
"Certainly for this particular collection, we believe it is more economically advantageous to build it domestically," said John Hastings, spokesman for the parent company, Furniture Brands International.
Just three years ago, the company was closing "a lot" of U.S. plants and became one of the nation's top 10 container importers, Hastings said. But that's changing.
"The fully burdened cost of manufacturing in China is going up. One of the big [reasons] would be that the cost of ocean freight has certainly gone up," Hastings said. "And there is the cost of shipping that furniture from Long Beach [Calif.], where it arrives on a container, back to the East Coast or wherever we sell it."
By expanding in North Carolina, "we eliminate that domestic warehousing and shipping logistics cost. It's not just the ocean freight we save," he said. "The weaker U.S. dollar also promotes domestic manufacturing. And there's the time factor of domestic vs. overseas manufacturing."
Others have reached that conclusion.
Exxel Outdoors CEO Harry Kazazian said his company made 70 percent of its sleeping bags in China in 2005. No more. Exxel, which makes 2 million bags annually for Wal-Mart, K-Mart and Target stores, is stalling production in Shanghai and bulking up operations in Haleyville, Ala.
Kazazian spent more than $500,000 installing robotics at a plant there and has added 50 new workers to the 70 already employed there. By year end, he said, 70 percent of Exxel's products will be made by its Haleyville plant.
"Our goal is 90 percent U.S. and 10 percent China," Kazazian said. "As long as oil prices remain over $90 a barrel, I don't see that decision changing."
In two years, Exxel's shipping costs jumped from $1,700 to $3,800 per container, Kazazian said. Add in the devaluation of the U.S. dollar against the yuan and "that is another 10 to 12 percent hit," he said. "You start adding up all the facts of doing business in China and, the next thing you know, it is cheaper making things in America."
By returning production to the United States, Exxel should save about $1.2 million in 2009. The change comes nine years after Kazazian and partner Armen Kouleyan bought the sleeping-bag business from New Jersey-based Brunswick Corp.
"Everyone was running to China in 1999 and 2000," Kazazian said.
Exxel shut a plant in Mexico to set up shop in China, slashing production costs by more than 10 percent. The company had expected to keep its Alabama shop small and available to help with rush orders. But with shipping prices so high, it will be the company's hub, Kazazian said.
While that might make sense for Exxel, many manufacturers still reap greater value from international production facilities, said Cox, with the National Association of Manufacturers.
One of them is 3M Co., which is reducing U.S. production and building plants overseas to be closer to suppliers and customers. The company says an improved distribution strategy could shave $1 billion in transportation and logistics costs over time.
Last year, Bloomington-based Donaldson Co. shifted the production of a U.S.-made filter part to England, where it has a larger factory. To offset fuel costs, it keeps its delivery trucks full and plots more efficient routes.
"It's all incremental cost savings," said Rich Sheffer, the company's assistant treasurer. "Still, you try to reduce the headwind as much as you can."
Dee DePass • 612-673-7725