Near Shoring May Be Gaining Traction With Some Supply Chain Managers
November 27, 2012 - SCMR Editorial
Bringing sourcing closer to home—also commonly referred to as near shoring—a practice used by shippers to reduce distance, production, and delivery of their products, may be again gaining some momentum. What’s more global trade flows from manufacturers in the East to consumers in the West are subsequently experiencing a shift towards shorter inter-regional routes, too.
This was a chief finding of a survey comprised of feedback from more than 200 shippers conducted by third-party logistics services provider BDP International in conjunction with Centrix, BDP’s consulting unit and Temple University’s Fox School of Business found. Shippers participating in this survey were supply chain, logistics, and transportation stakeholders in the America’s, Africa, Asia-Pacific, Europe, the Indian subcontinent, and the Middle East. Company revenues for survey participants were: 27.4 percent at $1 billion to $10 billion; 26.9 percent at $10 million to $100 million; 19.9 percent at more than $10 billion; 14.5 percent at $100 million to $500 million; and 11.3 percent at $500 million to $1 billion.
BDP officials said that the survey found that 87 percent of its respondents note that their companies are considering or have already started to move their production closer to end markets and source and sell their goods within the same hemisphere. Reasons for this, according to BDP, include: 1-emerging nations starting to trade with one another and shortening trade flows; 2-growing middle classes in Asia, Latin America, and the Middle East that are driving demand for consumer goods; and 3-the fact that it makes economical and operational sense to have shorter supply chains in which goods are produced within the same part of the world.
“When we put this survey together, we offered our respondents a variety of factors to consider, including shifting from a more traditional east-west supply chain to what we refer to as hemispheric or inter-regional supply chains,” said Arnie Bornstein, BDP executive director of corporate communications, in an interview.
When it comes to companies vetting the possibility of bringing sourcing and manufacturing operations closer to the end consumers, BDP noted that it is smaller and medium-sized shippers that appear to have greater flexibility to pursue an inter-regional approach. And even though there is an overall trend toward shorter, hemispheric trade flows, the survey explained that 18.9 percent of its respondents—representing companies with revenues of more than $10 billion maintain they are not seeing this shift.
One of the main reasons for this, according to BDP, is that small-to-mid size shippers are more aggressive in this approach, because they have less capital allocated in sourcing infrastructure and have not been in the global trade arena as long as shippers on the higher revenue end.
“Nations, industries, and individual companies are very involved in the expansion of international trade and have invested trillions of dollars into that over the last three decades on an east-west axis in the northern hemisphere,” said Bornstein. “That is not going to change or go away any time soon. But we are seeing that some of the traditional consumer markets in the west are shifting from growth markets to either low growth or no growth markets and companies are beginning to migrate their sourcing and manufacturing closer to markets where their goods are being sold and consumed. This in some ways is the new normal and has global traders looking at where the growth is.”
But even with larger, well-capitalized companies typically not looking to change supply chain patterns, Bornstein cited a large multinational shipper that has an initiative underway in which it is looking at various factors, including demographics, socioeconomics, financial, cost of labor, trade compliance, and total landed costs in evaluating where to locate production in the coming years.
For companies looking to shift from longer supply chains to shorter inter-regional supply chains, the top three primary factors in doing this, according to survey respondents were total landed costs, transit times (cited by BDP as a key component in inventory carrying costs), and rising wages in traditional sourcing nations.
The bottom three—or least influential factors—were natural disasters, environmental sustainability and protectionist policies.
When asked what they viewed as the main benefits of inter-regional trade, survey respondents pointed to lower freight costs, faster transit times, and closer proximity to end markets.
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