07 Mar A Meteoric Rise in Supply Chain Reshoring & Nearshoring is Apparent
Supply chain managers are swiftly moving to implement reshoring and nearshoring strategies. 88% of U.S.-based small and medium-sized business (SMBs) are reconfiguring supply chains this year in order to use suppliers in the U.S. or Mexico, according to a recent survey by Capterra, a Gartner-owned consultancy.
Remarkably, 45% of those surveyed plan to move ALL sourcing closer to home.
This seminal pivot to reshoring and nearshoring is occurring much faster than experts predicted.
The supply chain leaders surveyed shared four top reasons for making the rapid transition.
- Shorter supply chains
- The United States-Mexico-Canada Agreement (USMCA) trade deal
- Lower labor costs in Mexico
- North American transportation infrastructure 1
SSI FREIGHT AUDITS EASILY ADAPT TO CURRENT SUPPLY CHAIN DEVELOPMENTS
In this time of fast-paced change, SSI freight audits easily adapt or scale to meet your evolving supply chain needs. So, you’ll enjoy robust savings no matter how your shipping patterns change.
Plus, the treasure-trove of transportation data we gather yields actionable data insights that enable you to make continuous supply chain improvements.
Even if you are already working with another provider, contact SSI to see how our best-in-class freight audit solution compares.
LARGE CORPORATIONS ARE ALSO RESHORING & NEARSHORING SUPPLY CHAINS
Like their SMB counterparts, leaders at large businesses are moving fast to shorten their supply chains. Of note, multinationals that market goods in North America are shifting a bevy of production to Mexico.
Primarily, these businesses are seeking to mitigate the risk of global supply chain and transportation disruptions by placing a manufacturing hub close to the U.S.
Mexico provides a manufacturing-based economy and a helpful free-trade agreement. Currently, more than 400 companies have expressed interest in moving production from Asia to Mexico, according to sources in the Mexican government.
As an example, HiSense, an electronics and appliance manufacturer headquartered in China, is investing $260 million in Monterrey to produce refrigerators, washing machines, air conditioners and kitchen appliances. The company has had a presence in Mexico since 2015, producing televisions in Tijuana.
In fact, Tijuana has now grown to be one of the world’s largest production hubs for TVs and electronics. 2
BIG INCENTIVES ARE ATTRACTING NEW MANUFACTURING PROJECTS TO THE U.S.
Federal government appropriations are also advancing U.S. reshoring activities. For example, the Chips Act provides $53 billion in semiconductor-industry subsidies to attract new U.S. production.
In addition, a separate tax-incentive program provides a 25% advanced investment tax credit for chip manufacturing and processing equipment.
The incentives are working, with more than 40 semiconductor projects already announced. Pledged investments of nearly $200 billion in new manufacturing facilities has been reported by the Semiconductor Industry Association.
U.S. stalwarts such as Intel, Micron and Texas Instruments plan to expand existing production facilities.
Plus, some of Asia’s top chip manufacturers have massive plans. Taiwan Semiconductor Manufacturing Company is investing $40 billion in a project in Arizona. Samsung is investing more than $17 billion in a new facility in Texas. 3
THE INFLATION REDUCTION ACT IS ALSO SPURRING U.S. MANUFACTURING
You may have seen recently that Ford is investing $3.5 billion to build a battery plant in Michigan. In part, the $430 billion Inflation Reduction Act (IRA) is to thank, as a provision in the law restructures how EV tax credits to consumers are appropriated.
Consumers can receive varying tax credits for new EVs depending on whether the vehicle, the batteries and battery components and the battery minerals were extracted in the U.S. 4
Already, 40 new battery manufacturing sites are being planned in the U.S and 22 companies have announced plans for new or expanded electric-vehicle manufacturing.
An additional 24 companies have unveiled plans to expand wind and solar manufacturing.
In all, the IRA provides $369 billion in funding for initiatives that reduce emissions or produce clean-energy products.
Collectively, the federal subsidies available via the Chips Act and the IRA may hasten a U.S. manufacturing boom, especially in the clean-energy and technology sectors. 5
EUROPEAN COMMISSION UNVEILS GREEN DEAL INDUSTRIAL PLAN
Not to be outdone by their American counterparts, the European Commission will allocate more than €250 billion ($270 billion) in existing funds towards reducing bureaucracy and providing tax breaks for net-zero investments.
In a statement, EU leaders said Europe will work “to allow for targeted, temporary and proportionate support to be deployed speedily, including via tax credits, in those sectors that are strategic for the green transition and are adversely impacted by foreign subsidies or high energy prices.” 6
With a keen eye on cutting carbon emissions and reducing future dependence on Russian energy sources, the European Commission has paired the investment in clean-technology companies with moving up the target for doubling the EU’s installed solar capacity to 2025, from 2030. 7
SUPPLY CHAIN RESHORING & NEARSHORING ARE GLOBAL PHENOMENONS
Even without government incentives, supply chains are being reshaped as business leaders respond to the agonizing disruptions of recent years.
According to a global supply chain leader survey by McKinsey & Company, a management consulting firm, 97% of respondents applied some combination of inventory increases, dual-sourcing strategies, and regionalization to boost supply chain resilience.
83% reported that ‘footprint resilience measures’ are already helping to minimize the impact of supply chain disturbances. 8
Supply Chain Digital recently reported on the prevalence of near-sourcing, nearshoring and reshoring. Industry research reveals how companies around the world are looking to rebalance supply chains to reduce risk, increase visibility and improve sustainability.
Factors fueling plans to reshore and nearshore manufacturing and sourcing are disruptions to raw materials (70%); shipping (68%), and components or finished goods (63%).
Per the research, these are the primary reasons business leaders are looking to shorten their supply chains.
- Increased flexibility (65%)
- Limit reliance on a single-source of materials (57%)
- Limit operational risk (56%)
- Reduce transit time (48%)
- Increase control over operations (45%) 9
Around the world, the meteoric rise in supply chain reshoring and nearshoring may meaningfully reduce future supply chain disruptions, which is beneficial to businesses and the customers they serve.
FREIGHT AUDIT, FREIGHT PAYMENT & MORE
As supply chains evolve to improve resiliency, SSI remains committed to helping new and existing customers save money and improve transportation, logistics, and supply chain efficiencies. Ask about these beneficial services.
- Freight audit services
- Global freight payment services
- Parcel audit services
- Freight rate benchmarking services
- Managed analytics with data visualization dashboards
- Post-audit verification services
- LTL cost management
- Transportation management services
- Service-level optimization analysis
- Claims management
Contact SSI to learn more.
1. Noi Mahoney, “Survey: Nearshoring to Mexico happening ‘faster than expected’”, February 20, 2023, as published by FreightWaves.
2. Anthony Harrup and Juan Montes, “Mexico’s Industrial Hubs Grow as Part of Trade Shift Toward Nearshoring”, February 1, 2023, as published by The Wall Street Journal.
3. Yuka Hayashi, “Chips Act Will Test Whether U.S. Can Reverse Semiconductor Exodus”, February 22, 2023, as published by The Wall Street Journal.
4. Peter Valdes-Dapena, “Ford to build battery plant in Michigan to tap into EV tax credits”, February 13, 2023, as published by CNN Business.
5. Emma Newburger,”Inflation Reduction Act has spurred 100,000 new green jobs so far: Here’s where they are”, February 7, 2023, as published by CNBC.
6. Julia Horowitz, “A subsidy arms race is kicking off between Europe and America”, February 10, 2023, as published by CNN Business.
7. “War and subsidies have turbocharged the green transition”, February 13, 2023, as published by The Economist.
8. “Taking the pulse of shifting supply chains”, August 26, 2022, as published by McKinsey & Company.
9. Sean Ashcroft, “Reshoring on rise as supply chain pressures ramp up”, February 6, 2023, as published by Supply Chain Digital.