According to David Simchi-Levi of MIT, it is logistics costs as percent of total and infrastructure costs as the two key drivers. With the dramatic rise in fuel prices and thus transportation costs, there is growing evidence that some companies are relooking at the numbers and, in some cases, deciding to bring back production from Asia to domestic sources or “nearshore” low-cost countries, such as Mexico for the US or Eastern European countries for Europe. In the constant trade-off between transportation and inventory costs, rising fuel costs ultimately mean it is cheaper on the margin to hold more inventory if doing so can reduce other logistics costs.
