Germany's Days as an Industrial Power are Coming to an End

The decoupling of Germany from Russia's oil and gas has hastened something that was happening slowly anyway: Germany's industrial sector cannot compete with the rest of the world because of energy costs. Merkel put one nail in the coffin with her emphasis on alternative energy at all costs, installing wind turbines and solar panels at a rapid pace while driving up the cost of electricity to force conservation. Industry in Germany pays about $0.22/kW-h, while consumers pay as much as $0.61/kW-h (industry in the U.S. may pay as little as $0.07/kW-h in some states, while the most expensive states for power charge consumers $0.30/kW-h or so). Other countries have improved their industrial technology to become competitive with Germany.

Germany's industry will die a slow death, of course, as there are some things that Germany can make that the rest of the world cannot make, and they can command large prices on these items.

Germany’s Days as an Industrial Superpower Are Coming to an End

 

We work with a German manufacturer of large, high-temperature chemical reactors. They aren't going anywhere. The only other manufacturer that can come close to competing with them is in India, and their designs have some limitations. We also work with a chemical factory in Germany that makes very basic commodity chemicals. With high energy costs, high labor costs, and fairly high levels of government regulations, plus some processing equipment from the 1930's, they just can't compete with the rest of the world. I don't think they will last long.

Germany is not as friendly to industry as it used to be. One example: industrial trucks cannot be on the road on weekends. The Germans want to make sure that the roads are safe for families on the weekends, and that everyone has enough time off. That means your 24-7 factory has to have additional storage to store raw materials going into the weekend, and products made throughout the weekend. Your product tanks need to be reduced to minimal levels on Friday, and not over-filled by Monday morning. It adds cost to the company's bottom line. Other countries do not have this limitation.

One thing that surprised me on my last vacation in Germany: parts of the autobahn (especially south of Frankfurt) are severely over-crowded by trucks. I think the trucks are forced to pull over in these areas during certain times of the day, because there were lines of trucks pulled over that stretched for tens of miles in some areas.

 

Not really, no. They do have freight rail, yes, but many products only go out in trucks. Their passenger rail system (including HSR) is more developed than the U.S., but their freight rail cannot compete with the U.S. in capacity or efficiency. And freight rail transport is generally reduced on the weekend, and greatly reduced on Sundays. And, with a lot of products, a business will need to select one form of transportation and not change back and forth (it adds cost if they don't do enough business with each transportation company). A railcar loading/unloading facility is typically slightly different than a truck facility, so you typically can't have them both in the same place--so that adds cost.

German freight on weekends?

 

Germany has a lot of strengths in manufacturing and engineering, but it also has some weaknesses. Only 19% of the population of Germany has access to high-speed internet (fiber-optic cable), compared to 56% of the rest of the EU. Germany was busy spending money on windmills and solar panels (in a country that does not get much sunlight). Cars are their biggest export item, but Chinese cars, especially BVD electric cars, are taking over market share right now. China's auto exports passed Germany's in 2022.

Analysis: Europe’s growth engine is sputtering. Can Germany’s economy be revived? | CNN Business

 

The energy situation has gotten so serious for German manufacturers that they have opened many factories in the U.S. in the last 20 years, investing billions of dollars here. When you buy a BMW here, it is probably made in South Carolina.

BMW Group Plant Spartanburg

BMW Group Breaks Ground on New High-Voltage Battery Assembly Factory in South Carolina.

 

Germany was scared after the Japanese nuclear meltdown in 2011, ignoring the fact that none of Germany's nuclear power plant were in danger from a tsunami. Sadly, Germany continued to use nuclear power, by importing it from the Czechs, who had a lower standard of operation for their nuclear plants and were MORE likely to have a nuclear accident.

Germany was also affected by the Chernobyl incident in 1986.