The past few years have not been kind to supply chain professionals. From the pandemic to weather emergencies to port slowdowns to—of all things—a 1,300-foot container ship blocking one of the world’s busiest trade routes, the far-flung, highly complex supply chain networks feeding the global economy appear to have finally reached their limits.
How else can one explain the shutdowns of North American auto manufacturing plants, as well as numerous tier supplier facilities, due to a shortage of a $5 computer chip? Or that a winter storm could leave the continent’s plastics processors, paint and coatings manufacturers and other businesses starved of their most basic raw materials?
While each crisis has been temporary, their combined effects will likely be felt for years to come. In fact, one probable result will be a broad rethinking of supply chain strategies by the world’s leading manufacturers and retailers, with a focus on right-sizing networks by repatriating, or “reshoring,” operations to North America.
And who will be the prime beneficiaries of this process? Consumers, of course, but also the transportation industry.
Reshoring: A Distant Dream
Reshoring is hardly a new idea: Politicians, trade representatives and chambers of commerce have long promoted the benefits of investing in domestic manufacturing. But in spite of political promises, tax incentives and aggressive, ongoing outreach to offshore manufacturers, the flow of incoming jobs has never grown beyond a trickle.
“Two things happened under the Trump administration that were intended to drive manufacturing back to the US,” said Rosemary Coates, executive director of the Reshoring Institute, a non-profit organization providing research and consulting to companies interested in investing in US jobs. “The first was the 2017 tax reform bill, which reduced the tax rate for manufacturers. But, unfortunately, nothing happened. It helped level the playing field, but I don'’'t know of any examples where that was the cause for reshoring.”
The second initiative, beginning in 2018, involved tariffs and quotas on steel and aluminum imports, followed by an escalating series of tariffs on hundreds of categories of goods imported from China. This, too, proved ineffective.
“Most companies figured out a way to absorb those additional costs, to pass them on to their customers or find alternative suppliers in another low-cost country,” Coates added.
But then came COVID-19. Suddenly, instead of simple economics, the pandemic introduced an element of risk to global supply chains. “Executives are saying, ‘I have all these cost challenges, plus now I have potential supply chain instability, lost production, late deliveries and an almost doubling of transportation costs,” she said. “That really got everyone’s attention.”
Indeed, the net cost of pandemic-related supply chain disruptions is expected to climb as high as $4 trillion, according to a recent survey of global CFOs. The long-term damage could be even greater as the reputations of many of the world’s premier brands have been hammered by late or missed shipments and empty shelves. The shortage of shipping containers, backups at US ports and the nearly weeklong blockage of the Suez Canal, which handles an estimated $9.6 billion in containerized goods per day, have only compounded the pain.
Perhaps if these crises occurred 10 or 15 years ago, their impact would have been far less profound. But thanks to Amazon, eCommerce and Omnichannel retailing, even a minor hiccup in a company’s supply chain can have lasting effects.
“Everybody wants something yesterday thanks to eCommerce,” said Dan Clark, Kuebix Founder and Vice President of Product Innovation & Strategy for Trimble Transportation. “You can’t compete if you don’t have a delivery infrastructure that gets your product from Point A to Point B in half the time it takes today.”
Different This Time?
Many industry analysts insist the reshoring story is overplayed. ATA Chief Economist Bob Costello cautions, “It took decades to expand supply chains to China; we are not going to reshore overnight.”
Yet others insist current supply chain strategies are not sustainable given geopolitical pressures, climate change, the threat of terrorism, rising customer expectations and the inevitability of periodic, unpleasant surprises such as a pandemic. Based on these and other concerns, nearly one-quarter of US-based CFOs surveyed by BDO USA indicated plans to relocate portions of their supply chains in 2021.
Contributing to this trend is the fact that supply chain executives have risen to the C-suite at many of the world’s largest businesses. Whereas the tidal wave of offshoring was driven primarily by CEOs and CFOs looking for low-cost manufacturing, supply chain executives understand that the greatest competitive advantage today can come through faster availability.
“What do companies need to focus on to make sure they meet customer demand while not going broke? Supply chain is one of the top items and areas of opportunity today,” said Dan Clark of Kuebix. “That whole process will determine whether a company makes money or not.”
While reshoring is on the rise, trade experts and consultants such as Rosemary Coates caution that the jobs returning to the US and Canada will be smaller in number and far different in nature than those that left more than 20 years ago. “You’re not going to see a return of low-tech jobs,” she said. “It makes no sense to bring back jobs that don’t pay a livable wage for a worker in the US.”
Rather, the emphasis is now on attracting producers of hightech products with built-in demand among North American businesses and consumers. A shining example can be seen at the iconic GE Appliance Park complex in Louisville, KY, which suffered thousands of job losses in the 1990s as General Electric shifted appliance production to China. Under a new CEO, the company in 2012 began to reshore jobs in support of a new offering of high-tech appliances manufactured using highly automated processes. Now owned, ironically, by a Chinese firm, Appliance Park has regained more than 5,000 production jobs.
Computer chips and lithium-ion batteries are also prime candidates for North American production, as automakers try to shorten their supply chains during the industry’s historic shift to electric vehicles.
Jobs vs. Loads
While the number of new jobs might not be game-changing, the incremental demands on the North American trucking industry almost assuredly will be. Whereas a shipping container entering a US port might represent one or two freight moves, products originating at North American manufacturing facilities could require more than a dozen truck moves. At the same time, reshored production operations will likely be positioned closer to key markets, making many of these freight moves shorter.
Regardless of the number of additional loads, of course, there will need to be drivers. “The driver shortage is real and will only get worse as time goes on,” said Eric Fuller, president and CEO of U.S. Xpress, one of the nation’s largest asset-based truckload carriers. “However, nearshoring takes years so I doubt driver limitations or anything else related to the shipping side will slow this movement back to North America.”
Another constraint—obvious to anyone who has driven a US highway or traveled through one of the nation’s aging airports—is infrastructure. It has been estimated that China’s Belt and Road Initiative will include between $4 and $8 trillion in investments in new roads, port facilities and other trade-related infrastructure. The Biden administration recently introduced a $2 trillion infrastructure plan which, if passed, could play a role in manufacturers’ future supply chain decision making.
But, as with any business strategy, customer needs are paramount, and North American businesses and consumers show no signs of increased patience when it comes to receiving products and services. “Shippers have taught us to expect immediate gratification,” Coates said. “Our behavior has changed not only as individual consumers but as commercial consumers."
Clark agrees that velocity is everything in today’s industrial and retail sectors—great news for transportation providers. “Where you’ve delivered once a week, you now need to deliver once a day,” he said. “Trucking is going to be one of the primary beneficiaries of reshoring and the whole idea of how we purchase things in the future.”
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Each quarter, Trimble’s Outbound magazine explores topics like these to help transportation professionals like you stay in the know. Check out this edition to discover educational content to ensure you understand the key macro trends influencing your business and the industry.