It’s no secret that many companies are looking to shorten their supply chain by moving production from China and other overseas production hubs nearer to the countries where their goods are sold.
Mentions alone of “reshoring” during S&P 500 earnings calls in the first quarter of 2023 were up 128% compared to the same quarter last year, according to a CNBC report which referenced analysis of earnings call transcripts by the Bank of America.
UBS bank also surveyed 1,600 executives and found 70% of U.S. executives intend to move parts of the supply chain closer to their customers, CNBC reported.
“This is in stark contrast to the lack of mentions throughout the 2010s as low growth/inflation, global supply chains and ultimately globalization were in full swing,” wrote Strategas Securities Managing Director Ryan Grabinski, according to CNBC.
So, what’s driving the reshoring and nearshoring conversation?
3 Key Factors Driving an Uptick in Reshoring and Nearshoring
1. Desire for a More Resilient Supply Chain
The COVID-19 global pandemic and the supply chain disruptions that followed suit jump-started the move of production from overseas to North America as companies struggled to keep a handle on supply. Pandemic-related shutdowns in the production hubs like China further exasperated the problem.
Now, distributors and manufacturers look to rework their network to create a more resilient supply chain that can withstand future shocks.
2. Customer Demand Fulfillment
In the world of next- and same-day shipping, U.S. consumers are more accustomed to fast fulfillment. To meet customer demand, companies eye relocation of manufacturing and distribution operations to keep their production closer to the consumer.
3. Labor Cost Increases
As labor rates increase, companies re-evaluate overseas production hubs, such as China, which may no longer be the lowest-cost provider.
In 2022, U.S. reshoring and foreign direct investment job announcements were at the highest rate ever recorded, according to a March 24 announcement from the Reshoring Initiative.
In an MDM podcast late last year, James Dorn, CEO of Dorn Group, a strategic advisory for manufacturers and distributors, speculated that the reshoring trend would help revive the rural communities in the U.S. which were “devastated decades ago, when manufacturing went overseas.”
In August of 2022, Baird’s Equity Research unit released a report which forecasted that industrial distributors have a $15 billion incremental revenue opportunity over the next decade via the benefits of manufacturing reshoring impacts.
Don’t miss MDM’s two-part series which dives deeper into the factors and benefits of nearshoring: