‘Almost all’ firms nearshoring supply chains amid geopolitical tensions
Russia’s war in Ukraine, soaring inflation and protectionist trade policies are forcing firms to reconfigure supply chains, a report has said. Almost all (96%) executives are reshoring or nearshoring their supply chains in response to geopolitical events – nearly double the figure from a year ago, a survey has found. Companies are shifting supply chains closer to home in reaction to events such as lockdowns, the Ukraine war, inflation, rising energy prices and protectionist trade policies, according to the Trade in Transition 2023 report. The report , by the Economist Impact research programme and sponsored by DP World, found in 12 months the number of companies shifting their manufacturing and suppliers – either to their home markets or nearby – has doubled on 2021 figures. Researchers surveyed 3,000 company executives and found respondents in North America and Europe were most likely to outsource more than half of their services within their region. Almost three in 10 (27%) companies said they were shortening the length of their supply chains due to geopolitical events. A third (33%) said they were planning to shift supply chains into more stable and transparent markets. Researchers also found that attempts by the US government to reshore tech supply chains through restrictive trade policies appeared to be working. Legislation including the US CHIPS and Science Act, which looks to boost semiconductor production capacity, has incentivised companies to reshore production, the report noted. This was reflected in the fact that 31% of respondents who opted to reshore their supply chains said they were doing so to take advantage of government local content requirements or government financial incentives. The most commonly cited goal for companies when reconfiguring their supply chain strategies is cost reduction – cited by 60% of respondents. Over half (56%) said they were looking to reduce risk of supply chain disruption, and 35% said they were primarily driven by “local mandates”. A third (33%) of respondents said they were responding to geopolitical events by expanding into more stable and transparent markets, while 30% said they were increasing the length of supply chains to hedge against risks. Three in 10 (29%) said they were responding to greater risk by undertaking greater due diligence. The report found companies were attempting to reduce costs and increase efficiency by adopting technology, with 35% of respondents implementing internet of things (IoT) solutions to facilitate the tracking and monitoring of cargo. A further 32% of companies are adopting digital platforms to enable direct business with customers or suppliers. John Ferguson, practice lead for new globalisation at Economist Impact, said: “The shift to regionalisation and reshoring has been sharp but unsurprising given the triple threat of higher costs, increased risks and government incentives or requirements to do so. “Furthermore, businesses in previous decades have only had to focus on the economic aspects of trade, being price, quality and delivery. Now they have to account for other non-economic factors such as resilience and sustainability.” Sultan Ahmed Bin Sulayem, chairman and CEO at DP World Group, said: “By bringing production closer to the final customer, firms can reduce the number of touch points involved in the supply chain and build greater resilience into the flow of cargo around the world. “The next challenge that will alter these trends is an economic slowdown looming over regional markets. Agility, real-time visibility and end-to-end supply chain capabilities will be critical to ensuring companies can continue to find new efficiencies.” NOW READ
