Nearshoring: What You Need to Know About This Supply Chain Trend

nearshoring reshoring

Around 400K offshored jobs are projected to return by the end of this year

If the nearshoring trend was going strong pre-2020, the COVID-19 pandemic put the redesign of global supply chain networks into overdrive. Multiple reports and statistics now show nearshoring or reshoring — the practice of relocating manufacturing closer to the product’s final destination — is poised to gain even more momentum as companies seek to patch the vulnerabilities that the pandemic exposed. And companies are using supply chain design solutions to help them define their strategy and balance the tradeoffs and possible scenarios.

Rather than chasing greater efficiencies overseas, a goal that for years drove decision-making, supply chain designers try to reduce redundancy in sourcing and optimize inventory and service. Nearshoring has quickly emerged as a critical area where supply chain design solutions provide significant value by boosting agility and reducing risk.

Here’s what the figures show. 

Reshoring Surge

In 2019, 160,000 jobs were reshored to the United States, the highest level in a decade, according to The Reshoring Initiative. That year also saw reshoring exceed foreign direct investment (FDI) by nearly 100% while a record number of companies — 1,484 — reported new reshoring and FDI. Since that time, the reshoring numbers have continued to reach new highs.  

The latest report from the nonprofit organization, which is on a mission to bring good and well-paying manufacturing jobs back to the United States, shows that reshoring and FDI manufacturing job announcements continue to outpace recent records, adding 101,500 jobs in 2023 Q3. If the rate holds, the number of new jobs will reach 400,000 by the end of the year and bring the cumulative number of jobs brought back since the manufacturing low in 2010 to two million, 40% of the total lost to offshoring. 

Nearshoring as a Supply Chain Priority

In a recent article, Supply Chain Brain reports, “Global reshoring and nearshoring efforts have become so commercially successful that companies are reportedly ‘scrambling’ to find facilities in the United States and Mexico rather than taking a wait-and-see approach.”

This notable shift is illustrated by the results of two extensive market studies. According to a Kearney survey released this spring, 96% of CEOs either considered reshoring their operations, have already made the decision, or have successfully reshored their operations. This statistic represents a significant surge from 78% the previous year, highlighting the growing interest in bringing operations closer to home. 

A Kearney partner noted, “We finally seem to be heading toward a sustained reshoring movement. Reshoring is becoming both a cause and an effect of companies significantly rethinking how they construct and operate a supply chain that will carry them forward into the next decade.”

Two years earlier, the 2021 Thomas State of North American Manufacturing Report revealed that 83% of manufacturers planned to incorporate North American suppliers into their supply chains within the next year, a notable increase from 54% in March 2020. 

Mexico as a Top Nearshoring Destination

The Kearney survey also ranked Mexico as the top nearshoring destination in its 2021 Reshoring Index, a barometer for tracking how America is reshoring manufacturing back from low-cost countries and regions (LCCs) in Asia. Mexico’s score was bolstered by its proximity to the United States, robust logistics infrastructure, low-cost talent, and manufacturing capabilities. 

In 2021 alone, U.S. manufacturers bought chemicals, produce, construction materials, and other goods from six times as many Mexican suppliers as in 2020, the Wall Street Journal reports. Demand for industrial space in Mexico is now so strong that construction reached a record high of 43 million square feet in the first three quarters of 2022, according to Datoz, a leading Mexican provider of commercial real estate data. This change is a 60% increase from the same period in 2021. 

Positive Economic Impact

Reshoring continued to outpace FDI by 62% to 38% in the first quarter of 2023 — the most extreme rate in recent history, according to the Reshoring Initiative.  Q1 data shows that most jobs are returning from Germany, China, Korea, and Japan. “Automatic reshoring” currently makes up the bulk of the reshoring cases; in other words, new investments and production offset high rates of imports. 

The impact is felt in billions of dollars. The Inter-American Development Bank (IDB) has estimated that nearshoring could generate an additional $78 billion in exports of goods and services from Latin America and the Caribbean annually. The IDB’s estimate is based on a study that looked at the potential impact of nearshoring on 12 Latin American and Caribbean economic sectors, including manufacturing, automotive, and pharmaceuticals. 

The study found that nearshoring could create up to 1.5 million new jobs in the region and boost economic growth by an additional 0.5% per year. In the United States, Thomas’ research suggests that U.S.-based manufacturers could inject $443 billion into the American economy if they follow through on their plan to add more North American suppliers to their rosters. 

Technology’s Role in Nearshoring 

Finally, the success of nearshoring hinges on the use of technology; according to the World Economic Forum’s new whitepaper, “A Global Rewiring: Redefining Global Value Chains for the Future.” 

To stay cost-competitive, WEF maintains automation and digitalization technologies can enable companies to drive efficiency, ensure business continuity, and reduce labor costs in new, higher-wage markets. This technological integration enhances the value proposition of nearshoring, offsetting potential cost differentials and labor shortages. Supply chain design empowers companies to analyze their options, looking at cost, service, risk, sustainability, and much more, to optimize their network to align with business goals.

Summing Up

The nearshoring trend has gained significant traction as companies seek to build more resilient, agile, and cost-effective supply chains in a post-pandemic world. The statistics and figures discussed in this blog post indicate a strong movement towards nearshoring and reshoring, with a notable shift in perspectives among industry leaders. By embracing nearshoring strategies and leveraging technological advancements, companies can optimize their supply chains, reduce risks, and position themselves for long-term success. And supply chain design solutions can provide data analytics to make the best decision possible for their business.

At GAINS, we back up our supply chain design expertise with the latest performance optimization technology. Contact us today to learn more. 

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