COVID-19, Trade War Drive Increased Interest in Nearshoring
Supply chain disruptions that occurred throughout 2020 could lead companies to increase localization and redundancy in the supply chain as they look to mitigate risk, according to several recent logistics studies.
Michael Zimmerman, a partner with Kearney and lead author of the 31st Annual State of Logistics Report®, said trade policy has been driving reshoring. “2019 was the height of the U.S.-China trade war. Yet 2020’s COVID-19 impacts, which demonstrated the value of resilient supply chains, are likely to accelerate reshoring and nearshoring trends,” he said.
U.S. Ambassador Robert Lighthizer said 2020 has shown the need to increase domestic manufacturing capabilities. “The crisis and recovery from the COVID-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America,” he said.
To improve agility and help minimize the risk of a disruption, shippers are expected to increasingly overlap distribution and omnichannel networks while also increasing the number of suppliers and the inventory of raw materials, sub-components and finished products within the supply chain, according to the 2021 25th Annual Third-Party Logistics Study, which is produced by Infosys and was presented by Penske during the the Council of Supply Chain Management Professionals’ (CSCMP) virtual conference.
“There has been a lot of disruption in terms of getting various types of supplies. This has sent some shock waves in procurement circles,” said Andy Moses, senior vice president of sales and solutions for Penske Logistics. “Nearshoring is making more sense for many businesses so they can spread their spend around a bit and make sure they have access to critical components.”
Moses spoke in a panel discussion as part of the study’s release.
The annual Kearney Reshoring Index revealed a meaningful shift in import flows in 2019, Zimmerman said. “Bucking a five-year trend, imports of manufactured goods from 14 Asian low-cost-countries fell by 7.2 percent. Meanwhile, domestic U.S. manufacturing remained unchanged. China, accounting for 18 percent of U.S. imports, registered a particularly sharp decline,” he said.
Zimmerman said the new United States-Mexico-Canada Agreement will create additional expansions in North American manufacturing.
If the trend of moving manufacturing from China to Mexico persists in a big way, and there are indications it will at least in certain product categories, it will change traffic flows, Zimmerman said. As a result, warehouse footprints will need to change, lane utilization will change, and deadheading risk will increase—unless exports to Mexico increase.
As supply chains shift, logistics providers will play an essential role in helping shippers source new transportation providers and warehousing or distribution center space, according to the Annual Third-Party Logistics Study. When considering nearshoring, companies have to consider labor markets and cross-border operations. Plus, 3PLs will need to be more informed about various global regions, including Vietnam and Mexico.
However, shifts in the supply chain take time, so shippers will need to identify ways to address disruptions if they occur. “It varies based on the type of business, but generally it does not happen fast enough to avoid market impact to your customers,” Moses said.
October 2020