Subscribe to our free, weekly email newsletter!


Nearshoring is on shippers’ radar but LM survey finds few are taking action

By Jeff Berman, Group News Editor
March 12, 2012

When the price per gallon of diesel was closer to $5 per gallon and oil barrel prices were nearly touching $150 during the summer of 2008, much was made about the possibility of North American shippers moving manufacturing operations closer to home, also known as nearshoring.

Now, nearly four years later, diesel prices are again heading up. But unlike back then there has been speculation that some shippers want to look closer to home again for many reasons other than high energy prices. These reasons vary, but to a large degree they are come back to the same thing—costs. That was evident in the findings of a Logistics Management reader survey.

The survey, which polled 157 LM readers, found that 62 percent are not focused on nearshoring at the moment, with 38 percent indicating it is something they are actively doing.

Those opposed to bringing manufacturing operations closer to home uniformly cited costs at the biggest deterrent to nearshoring. Other concerns were a lack of quality, finding available suppliers, and balancing production and transportation costs. 

“We have not found comparable costs closer to home,” said a chemical shipper. “Also we’ve built a large sourcing team in Asia, there is a lot of internal resistance to looking for suppliers in the Americas.”

But those in favor of nearshoring painted an optimistic picture of why it made good business and logistics sense for them.

One shipper said leveraging nearshoring provides his company “with much more responsiveness to customers along with reducing inventory levels.” Others pointed out things like reduced lead times which in turn provider for more manufacturing flexibility, coupled with the ability to be more responsive to customers and reduce coordination costs.

A shorter supply chain can react more quickly to variation in customer demand, noted various respondents. They added that this can then lead to shorter lead times, increased flexibility, and quicker troubleshooting and problem fixes.

While the disparity between those survey respondents currently not leveraging near shoring to those that are was roughly 60-40, that gap narrowed slightly for those not currently doing it to consider it in the future, with 56 percent saying they would not consider it and another 44 percent indicating they would consider it.

But even with more respondents indicating nearshoring is not in the cards for them—nor in their future plans—the topic of bringing manufacturing back home continues to pick up steam.

This was demonstrated a report on the subject in the past year by Alix Partners.

The Alix study, which surveyed 80 C-level executives, found that 63 percent consider Mexico as the best option for nearshoring, with 19 percent leaning to the U.S. It added that 9 percent are already taking efforts to nearshore manufacturing operations, with another 33 percent planning to do so within the next three years. And while safety and security issues in Mexico have been prevalent, the survey found that less than 20 percent of respondents have had supply chain disruptions in Mexico because of security problems.

Much like the LM survey, the Alix study had similar perceived benefits of nearshoring, including lower freight costs, improved speed-to-market times, and lower inventory costs.

“There at one point was a rush for companies to set up manufacturing operations in Asia, but many companies started to realize that may not be the ideal way to operate,” said Ed Leamer, director of the UCLA Anderson Forecast and professor of economics and statistics. “There are also issues with regards to quality and control in Asia, but to make nearshoring work in the Americas you need a weaker-valued dollar. Asia has been a winner in the manufacturing race, but that is not so clear going forward.”

One of the main reasons for this, he said, is that long supply chains are not necessarily ideal, explaining that if the bulk of a company’s supply chains were based in Asia, that could be viewed as a concern going forward. This is because that model is based on a very high growth rate of exports to the U.S. and Europe, which is not occurring as much any more.

While nearshoring may be on shippers’ radar, it will be a while before it truly takes hold, said Josh Green, CEO of Panjiva, an online search engine with detailed information on global suppliers and manufacturers.

“I think there is more talk than action on that front right now,” said Green. “As wages began to rise in China, [shippers] began looking around for the ‘next’ China, and that drove a lot of discussion about moving manufacturing operations to new places. I think what a lot of people found very quickly was this notion that ‘next’ China would provide low-cost production was not realistic. People are now coming around to a more balanced view that China is still going to be important, but they can still tip their toes into other geographies. There is no reason to expect or anticipate a wholesale move out of China-based manufacturing.”

In his Logistics Viewpoints blog, lead contributor Adrian Gonzalez observed that nearshoring truly only makes sense after carefully analyzing all of the different factors at play.

“The key takeaway is that if you haven’t already, you should revisit your supply chain strategy and network design,” he wrote. “The decisions you made several years ago, perhaps driven by a single factor like low labor costs, are probably outdated and misaligned with today’s economic and competitive business environment.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

For May, which is the most recent month for which data is available, the SCI is -7.5, following April’s -7.5. FTR said this reading represents a still-tight capacity environment, as utilization rates hover between 98 percent and 99 percent.

With a 1.1 cent drop to $3.858 per gallon, this follows declines of 2.5 cents, 1.9 cents, and 0.7 cents over the previous three weeks, with the cumulative four-week decline at 6.2 cents.

Second quarter revenue for transportation and logistics titan UPS headed up 5.6 percent annually at $14.3 billion, while operating profit sank 57.1 percent to $747 million. Quarterly net income fell 57.6 percent to $454 million.

Panjiva, an online search engine with detailed information on global suppliers and manufacturers, recently said it is opening up the “vault,” so to speak. The vault in this case is making its copious amount of trade data accessible through an Application Programming Interface (API), which enables customers to extract Panjiva’s trade data into their own database.

Freight transportation and logistics services provider Averitt Express recently announced it has rolled out improved transit times for less-than-truckload (LTL) service from the Midwest to Toronto and other cities.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA