Interest in reshoring and near-shoring has more than tripled since 2010 as manufacturers scramble to adapt to shifting demand and supply patterns across the globe, according to a recent survey by the Boston Consulting Group. With China’s cost advantage eroding in many industrial sectors, many companies are reconsidering their initial business case for offshoring their manufacturing and are taking a hard look at evolving demand markets, supplier and R&D platforms and technology solutions which are driving significant changes in their supply chains. The potential for shifting manufacturing back to the US also presents tremendous opportunities, once thought to be forever lost, for logistics providers seeking growth in a slowly recovering economy.
Key drivers for Reshoring
Most proponents of Reshoring focus heavily on rising production costs in China and “economic patriotism” in their arguments to bring manufacturing back to the US. The reality, however, is far more complex. Costs are a major factor, to be sure. Wage inflation, averaging close to 35% per year, has been a substantial concern across all industries in China, particularly in the key manufacturing regions of Shanghai and Guangzhou.
At the same time, actual labor cost remains lower relative to the US, and not all industries or individual companies will see the same benefits for reducing their China presence. There are, however, other factors in play that can help identify those particular industries that may benefit most by reconsidering their reliance on China for low cost production.
- Incentives to many manufacturers in China have significantly eroded or have disappeared altogether, impacting margins for companies that once relied on them.
- The adoption of LEAN methodology and the technology to rapidly apply product design changes have made many companies more agile and responsive to their US consumer base by being closer to home.
- Energy intensive industries are paying close attention to low energy costs in the US which have contributed heavily to closing its competitive gap with China.
- With cost differentials narrowing, US advantages in infrastructure, productivity and quality, as well as intellectual property and regulatory protections, are becoming more pronounced for higher end manufacturers.
The Opportunity for Logistics Providers and Their Customers
As manufacturers begin to assess their geographic strategy, significant opportunities will present themselves for US logistics providers. Unlike many major strategy shifts, this one is focused almost exclusively on the supply chain itself, giving providers the opportunity to take center stage in the discussion. A proactive,