Aug. 4, 2008 - After years of siting factories wherever labor happened to be cheapest, companies are now having to factor the rising costs of transportation into their far-flung supply chain models, New York Times reports. High fuel prices are not only pushing pump prices through the roof but also having more unexpected consequences for global supply chains. Large container ships, for example, have cut speeds 20% to save on fuel, slowing shipping routes in an era when the "just in time" inventory model holds particular sway.

Greenhouse gas emissions are another concern for supply chains that rely heavily on factories in developing countries. If lawmakers manage to pull off a post-Kyoto climate agreement in 2012, factories in southeast Asia and Latin America will be subject to much more stringent emissions regulations, further calling their cost-cutting benefits into question.

"Being green is in [companies'] best interests not so much in making money as saving money," says Gary Yohe, an environmental economist at Wesleyan University. "Green companies are likely to be a permanent trend as these vulnerabilities continue."

While most marketwatchers agree that higher transportation costs won't halt the globalization trend, some supply chain models look particularly vulnerable, particularly in the case of heavy or bulky items (think steel or electronics) or products whose shipping costs are far outstripping market value (think avocados in a Minnesota supermarket in winter).

Increasingly, global companies including General Electric, DuPont, Alcoa, and Procter & Gamble are taking a more regionalized approach to supply chain management, siting factories closer to the end markets where their products will be sold. This "neighborhood effect" is bringing manufacturing back to areas that had lost key industries thanks to a relatively high cost of labor.

For example, Virginia, formerly a furniture-making center, has seen its factories close as many companies now ship the area's hardwood to China for milling before shipping back to end markets in the U.S. Notably, Swedish furniture giant IKEA opened its first U.S. manufacturing plant in Virginia in May.

Other cost-saving strategies, particularly for overland shipping, include packing product more efficiently, sharing transport space with other companies, and boosting truck fuel efficiency by driving more slowly or filling tires with nitrogen.