#154 – Inside Our Industry – Reshoring isn’t the only change taking place in supply chains

Decreasing dependence on China is reflected in their slowing export numbers. Reshoring and near-shoring are helping manufacturers secure their supply chains.

Reshoring isn’t the only change taking place in supply chains
By Brian Straight, Editor in Chief of Supply Chain Management Review, June 12, 2023

While many companies are moving supply lines closer to home, Asian countries are also benefitting.

Research from consultancy Kearney has found that 96% of CEOs are evaluating reshoring their operations, have already done so, or are considering it. That is up from 78% in 2022. That same report also found that American imports of Mexico-manufactured goods have increased from $320 billion pre-pandemic to $402 billion today.

But it’s not just reshoring that is shaking supply chains today. U.S. companies are increasingly looking to areas other than China for goods—in large part of a supply chain diversification effort to avoid the product shortages that occurred at the height of the COVID-19 pandemic.

Manufacturing lingers in Asia

“Many U.S. companies are reacting to global challenges like sanctions, tech security and pandemic-related disruptions by decreasing their supply chains’ dependence on China and many countries are following suit,” explains Michael Farlekas, CEO of networked supply chain provider e2open. “Amid growing geopolitical tensions, businesses have turned to India, Southeast Asia, South America and Mexico for sourcing, supply and production for labor comparable to China with less supply chain risk.”

Some of that evidence is being seen in declining Chinese exports. In May, China reported a 7.5% decline in exports, partly due to slowing global demand, but also due to more companies moving manufacturing to additional countries, many in Asia. According to many experts, Chinese exports to the U.S. is expected to be below 50% of all exports from “low-cost Asian countries excluding Japan and South Korea.”

That number was almost 70% in 2013, according to Kearney.

“Many companies are diversifying to reduce dependence on China or any one country or region, and nearshoring is part of that trend causing a shift of some goods off the ocean and a decrease in ocean freight,” Farlekas says. “If nearshoring and onshoring efforts continue, we’re likely to see less movement of finished goods from China to the U.S. and more movement of components and raw materials.”

Long-term planning

Beyond the reshoring impact, Farlekas is seeing other changes to the global supply chain, with less demand, softer pricing and normalization after the pandemic impacting ocean shipments. Descartes’ June Global Shipping Report showed that U.S. import volumes are now on par with pre-pandemic levels.

“Now is a good time for companies to pursue long-term contracts, as well as plan ahead and move ocean freight as costs are lower, keeping in mind that while booking-to-receipt times are down notably, ocean freight still has the longest transit time for shipments,” he said.

Ocean shipments are now taking an average of 59 days to get from Asia to North America, down from 69 days a quarter earlier, Farlekas notes. East Coast ports have also seen an uptick in business in recent years, but Farlekas doesn’t believe that is a long-term trend.

West to east and back again

“We’ve seen some temporary shifts to East Coast ports and Canada to avoid hassles at the West Coast ports due to recent labor strikes and companies being hesitant about additional disruptions occurring,” he says. “[But] the shift from West Coast ports to East Coast ports will be a short-term solution for companies since it is not a feasible long-term solution and it’s in the best interest of West Coast ports to make it their issue to resolve and return to the norm.”

One lasting change from the pandemic is the desire of businesses to diversify their supply chains. Farlekas says this approach is needed, but it does come with some risk.

“With the Covid-19 pandemic and recent sanctions from the Russia-Ukraine war, we have seen first-hand the risks that go along with centralizing production in one region,” he says. “Diversifying your supply chain disperses the risk, so for example if one supplier is faced with a disruption, whether it be a geopolitical conflict, weather, or shortages, you are better positioned to pivot to another supplier or rely on alternate options, and this resiliency helps make sure demand is still met.”

Full report.