European Manufacturers Seeking Relocation Due To Energy Crisis

A report published Tuesday by the Wall Street Journal indicates that many manufacturing firms facing an uncertain energy future are looking to relocate away from Europe to protect their survivability.

The continuing surge in natural gas and electricity costs due in part to the Russian invasion of Ukraine has caused fashion industry manufacturers to lead the way in leaving the continent. The textile industry is highly dependent on stable energy costs in order to remain viable.

Energy costs typically make up about 5% of the industry’s production costs. That share has risen this year to around 25%, threatening the viability of many long-standing firms that have already priced in increased energy costs as much as possible.

Auto manufacturing is also being affected, as BMW announced this week it is moving electric vehicle production from its U.K. plant to China. The company cited “local inefficiencies” as the reason for the move.

Turkey has been identified as a potential new location for a number of manufacturing interests. Production costs there are lower due in large part to lower labor costs when compared to much of western Europe. Russia has not discontinued the supply of natural gas and oil to Turkey to the extent it has to much of Europe.

Italian wool producer Enrico Gatti told the Wall Street Journal that orders from textile makers in his region have dropped off by around 50% so far this year. He typically provides wool to fashion brand manufacturers like Zara and H&M.

An H&M spokesperson said the firm is “continuously developing our sourcing to mitigate increased energy, raw material, and freight costs as well as currency.”

Italy is the largest textile-producing nation in Europe, and many of its major manufacturers now say they are finding it impossible to form long-term energy purchasing agreements that have traditionally allowed them to avoid shorter-term price fluctuations.

The European Union is now discussing the possibility of mandatory rationing of energy during peak daytime hours in order to protect the industrial supply.

The continuing global supply chain crunch is adversely affecting European manufacturing as well. Products that have typically taken 25 days on average to transport are now running at averages of over 60 days to move from plants to retail warehouses.

Increased fuel costs are also placing extreme pressure on transportation expenses, further threatening European employment and gross domestic production.