After years of a lot more talk than action relative to reshoring and nearshoring, we may be nearing a tipping point that could see growth in reshoring/nearshoring finally takeoff.
Supply Chain Digest Says... |
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| In parallel, the US government has in the past few years enacted a number of trade policies beyond the Trump era tariffs (maintained by the Biden administration). |
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That is the conclusion of a short research report released this summer by the consultants from AlixPartners, titled “Shifts in the Global Supply Chain and the Impact on Nearshoring.”
“The case for rethinking manufacturing footprints has become impossible to ignore,” the report notes, adding that “The geopolitical climate, coupled with several years of sourcing and logistics challenges exacerbated by COVID-induced global disruptions, has exposed cracks in the global supply chain and put a spotlight on associated risks.”
Notably, changes in trade policies, and related government subsidies (legislation driven by technological competition), and automation are combing to driving seismic shifts in global supply chains, Alix Partners notes.
Of course from a US economic perspective, there is a big difference between onshoring, in which manufacturing is returned by companies to US soil, and nearshoring, in which that production is moved to nearby countries such as Mexico or nations on the Caribbean area.
The report seems to consider the two as one thing.
Low labor costs that were a small fraction of those in the US and many countries in Europe of course started a rapid move by many companies to source from Asia generally and China specifically starting in the late 1990s.
However, sharply rising wages in China, much greater use of manufacturing automation, and new trade policies have reduced the total cost gap between Asian production and nearshoring to almost zero, as shown in the graphic below from the report.
Source: AlixPartners
That even without specific linkage of extra costs or loss of revenue companies have experienced consistently since the pandemic from supply chain disruptions, the key factor in companies increasingly looking at regional manufacturing strategies.
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In parallel, the US government has in the past few years enacted a number of trade policies beyond the Trump era tariffs (maintained by the Biden administration). These include the Infrastructure Investment and Job Act (IIJA), the Inflation Reduction Act (IRA), and Creating Helpful Incentives to Produce TOTAL Semiconductors and Science Act (CHIPS) act together will provide $1.1 trillion in spending and subsidies – most of it tied to US production.
This has set off something of a gold rush mindset among manufacturers in segments such as semiconductors and green technologies.
“These incentives and policies should be viewed as strategic funding support, which, when coupled with automation, can bring down the cost of procurement and reductions in tariff and freight expenses,” the report says.
Netting it all out, the US “may be at the beginning of a nearshoring revolution as the total-cost-and-risks-of-ownership (TCRO) equation in a disaggregated supply chain is being re-written by technological advancements (AI/Generative-AI and automation) along with policies and regulations,” the report concludes.
It adds this “has the potential to leave permanent marks on the global supply chain across many sectors.”
The full report is available here: Shifts in the Global Supply Chain and the Impact on Nearshoring
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