LM reader survey points to interest in nearshoring while challenges remain

One of the biggest supply chain takeaways and lessons from the COVID-19 pandemic could very well be focused on the need to source goods closer to home in North America, for a whole host of reasons related to things like reducing costs and transit times, and supply chain resiliency, among others.

Those were some of the key themes in a recent Logistics Management reader survey of 100 freight transportation, logistics, and supply chain stakeholders. These findings do not come a huge surprise, given the myriad supply chain and logistics challenges and issues that the pandemic brought to light, including things like port congestion, limited product availability, a decreased labor pool, and capacity availability, among others.

The survey’s respondents emphatically drove home the point that that they are focused on finding and using suppliers located closer to North America, with 85% indicating that is the case.

Among the reasons for this cited by respondents were: tariffs, logistics costs out of Asia, lead times from overseas suppliers, ocean container backlog, not wanting to be as dependent on China, keeping inventory closer to the markets they serve, and reducing delays and creating better partnerships with suppliers, among others.

For those respondents in the minority not looking for suppliers closer to home, among the reasons cited were already having local suppliers, taking the fastest steps to get product, a significant costs differential, and only having sourcing availability from specific regions.

What’s more, the survey found that despite seeing that 85% of its respondents are focused on working closer to home, in terms of finding and using suppliers, less than 50%—46%—are actually considering taking steps to leverage nearshoring their manufacturing operations.

And when asked what was viewed as more important for their companies—removing supply chain costs or supply chain resiliency—68% of respondents to the latter. Reasons for this included a need for limited disruptions, network flexibility that can lead to cost savings and not the other way around, having a better handle on when products will be readily available, and having raw materials arrive on time and at a fixed cost.

John Haber, Chief Strategy Officer, for Atlanta-based Transportation Insight, explained that shippers are now realizing the importance of risk management plans and are using these plans to focus on costs, capacity, visibility, and service.

“Diversifying manufacturing and supplier locations is becoming increasingly important,” he said. “Relying on manufacturing in only one location such as China is risky and as such, some manufacturing will likely return to the U.S. as well as to countries in closer proximity to the U.S. such as Mexico and Canada. It is also a similar situation for suppliers, in that shippers and manufacturers will need to diversify suppliers from just one or two locations to multiple locations. This strategy is also needed for those businesses that are manufacturing in the U.S. – parts, such as semiconductors—need to be sourced from multiple countries.”

On a longer-term basis, James Gagne, president and CEO of Chicago-based 3PL and global freight forwarder SEKO Logistics, said that there are a lot of questions regarding global trade flow and international relations, as seen in continued trade tensions between the U.S. and China, which he said will lead companies to reshape their supply chains.

“If you want to get into nearshoring and sourcing 3.0, where you are looking at manufacturing capacity, the reality is many companies will not be completely moving away from China in the short-term,” he said. “And even when we see Mexico ramping up, which I think is likely down the road, we are definitely going to see a need for components to support that nearshoring manufacturing. A lot of those components will still be coming out of China as we know.”

Dave Ross, Executive Vice President for Roadrunner Freight, a Downers Grove, Ill.-based, national less-than-truckload (LTL) services provider, with a focus on long-haul metro-to-metro shipping, explained that there remains a lot of uncertainty in China and that over to the next five-to-10 years, in a crowded and competitive global marketplace, it is likely that decisions related to sourcing and nearshoring will ultimately have to be justified by cheaper labor costs in Asia, coupled with total landed supply chain costs needing to be competitive.

“If a company goes all-in on nearshoring, but its competitors are still global, that company will be at an advantage or a disadvantage,” he said. “If it is a disadvantage, that company is not going to stay there. That is something that takes time and comes with related labor force and infrastructure issues.”