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Can US cash in on reshoring manufacturing opportunities?

Can US cash in on reshoring manufacturing opportunities?
Written by publishing team

In the face of an increasingly vulnerable global supply chain, experts said, manufacturers are building greater logistical resilience through re-supply and closer operations.

Bringing manufacturing back into the United States from foreign and foreign direct investment (FDI) created 16649 manufacturing jobs during 2020, according to Harry Moser, head of the Resupply Initiative, which tracks the return of manufacturing jobs to the United States.

“In 2020, a lot of jobs have returned due to the need to fill the supply chain for items such as gloves, gowns and gas masks. [due mostly to the COVID pandemic]Moser said FreightWaves. “We see a continued return of more manufacturing jobs — job redistribution could reach more than 200,000. [in 2022]. “

The Reshoring Initiative is a non-profit organization founded in 2010 that is a consulting firm that aims to bring American manufacturers back to the United States

Re-supply involves the re-production and manufacture of goods back to the company’s home country. It is the opposite of offshoring, which is the process of making goods overseas to try to reduce labor and manufacturing cost.

About 60% of companies that decide to base their decisions overseas on comparing wage rates between the United States and other countries, along with factors such as free-on-board (FOB) rates or costs associated with shipping, according to data from the Resupply Initiative.

The cost of shipping a standard container from Asia to the West Coast of the United States was $20,000 in September. The Freightos Baltic Daily Index – which measures daily price movements of 40-foot containers over 12 sea lanes – put the West Asian coast spot price at $14,487 per forty-foot equivalent unit as of Tuesday.

Data: Daily Baltic Fritos Index. Graph: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

The cost of shipping a truckload of goods from Mexico to the United States varies greatly depending on the item (product, electronics, auto parts), type of truck (dry truck, refrigerated), origin and destination, but typically starts at $1,600 to $1,800.

“Now thinking about moving that freight is just as important as FOB or more,” Moser said. “Now companies have to consider the availability of shipping, about sourcing their products. Increasingly, companies also have to think about geopolitical risks with Taiwan, Hong Kong, etc. Supply chains closer to home can save money and reduce risk.”

Taiwan, an island off the coast of China, considers itself a separate country from the Republic of China. The Chinese government considers the island as part of its territory. US officials have rejected any use of force by China to settle its dispute with Taiwan. Similarly, Hong Kong, a city in southern China, has seen waves of demonstrations against the Chinese government over the past several years.

Reallocating manufacturing operations to the United States could inject as much as $443 billion into the economy over the next several years, according to Thomas, the supplier, supplier selection and digital marketing firm.

Thomas’ findings were part of the company’s 2021 North American Manufacturing report, which said 83% of manufacturers surveyed indicated they were “likely” to “highly likely” repatriation, up from 54% in the survey. year 2020.

Manufacturers add an average of 11 suppliers to their supply chains on a yearly basis. If 83% of 579,811 U.S. manufacturers bring in a single new resource — even one decade — at an average of $921,247 per decade, that represents a potential injection of $443 billion into the U.S. economy, according to the report.

Soft-Tex International, based in Waterford, New York, recently undertook a relocation initiative that moved manufacturing operations from China to Texas. The company, which makes luxury pillows, mattresses, and mattress toppers, opened a 170,000-square-foot manufacturing facility in the Houston area in 2021. The new factory created 150 jobs.

Ben Johnston, chief operating officer of Kapitus, said his company has heard from companies considering bringing manufacturing operations back to the United States.

New York-based Kapitus Corporation is a small business finance and industrial equipment company. Provides financing for everything from construction companies to health care providers to small manufacturers in the United States

“Manufacturing demand for funding — sort of fits with our thesis at Kapitus about bringing manufacturing back to the United States,” Johnston said. “Given weak supply chains, with backups at ports, and with many factories offshore, it makes sense that many retailers and other end-product users are looking to source products locally to shorten the supply chain and give them more efficiencies in the ability to buy The products they need.

One of the things companies considering relocation should keep in mind is the complexity and cost of opening a new plant, Johnston said.

“It all depends on what you’re manufacturing, but most factories today are very automated and have very specific equipment designed to manufacture their specific product,” Johnston said. “The really logical way to manufacture in the United States is to have a highly automated manufacturing facility. This limits the amount of work and human labor that has to happen there.”

One other thing companies are considering bringing operations back to the United States, Johnston said, is competition for the best spots.

“If you’re building a new facility, I would imagine the lead time to build a major manufacturing facility is longer,” Johnston said.

“If you are looking to retrofit an existing building, some of these areas may have already been taken over by companies like Amazon, which have done so much in almost every major metropolitan area that they have sucked up all the excess storage facilities and built new ones. The right location and finding affordable property is a challenge.”

Watch: Anthony Smith and Zach Strickland of FreightWaves explain how close relocation will affect shipping costs in the future.

It’s not only the United States that is attracting manufacturers looking for more stable supply chains but Mexico as well, according to David Eaton, vice president of sales and marketing for southern Kansas City.

“We’ve recently seen an increase in the number of global manufacturers starting site selection processes to establish operations in Mexico,” Eaton told FreightWaves. “Recent delays in supply chains across the Pacific are encouraging global manufacturers to look to Mexico.”

Eaton said geography, demographics, and renewable protection measures under the US-Mexico-Canada Agreement are creating interest from foreign manufacturers for near-selling in Mexico.

Sourcing occurs when an organization decides to outsource work to companies that are less expensive and geographically closer to their end markets.

An example of US companies with nearby grounding operations in Mexico is Boeing Co. and Whirlpool Corp. and Ford Motor Co. and General Motors.

Detroit-based General Motors (NYSE:GM) announced in April that it plans to invest more than $1 billion in a plant in the Mexican city of Ramos Arizpe that will produce electric cars.

Michigan-based Whirlpool Corporation (NYSE: WHR) announced in July that it is investing $120 million to expand its Ramos Arespi plant, adding 1,000 jobs by 2024. The plant currently employs about 3,000.

“Mexico and the United States share an integrated 2,000-mile border that provides a unique geographic advantage for manufacturers located in Mexico,” Eaton said. “Locating production close to the US market reduces transit times and reduces stress on supply chains.”

Eaton said KCS has seen interest in Mexico from auto, hardware and steel manufacturers.

“We are also seeing growth in sectors such as food processing, mining, chemical inputs and refined products,” Eaton said. “Global manufacturers are attracted to Mexico’s young and competitive workforce.”

Moser said he would prefer US companies to bring factories and jobs back to the US, but close supply is a better alternative than outsourcing manufacturing to Asia or other overseas markets.

“The best solution for the United States is to be self-sufficient, and if it’s not self-sufficient, North America is to be self-sufficient, with Canada and Mexico,” Moser said.

Johnston said 2022 could be a good year for manufacturers relocating to North America.

“We expect even more growth in applications next year, as some aspects of this code are fully realized,” Johnston said. “I think as the supply chain disruption continues, people are starting to realize that this is not as temporary as they initially assumed. As this takes longer and longer, you will see more and more people start to shift, and fund local opportunities.”

Not everyone is optimistic that convergence and resettlement will occur in the near future.

According to London-based group The Economist, companies are unlikely to reconnect their supply chains from Asia to North America between now and 2025 due to rising production costs and concerns about the business climate in Mexico.

The report was released in June by the Economic Information Unit (EIU), the business intelligence operation of The Economist Group.

Most multinationals with long-term Asian operations will revert to their pre-pandemic behavior of making supply chain decisions based on operational cost-effectiveness and maximum revenue opportunities, said Andrew Veteretti, head of commerce and regulations at the Economist Intelligence Unit.

“This means, for the most part, continued reliance on low-cost Asian production,” Veteretti said.

Moser said that when supply chain disruptions eventually subside, he may lose some momentum to resupply, but that political tensions between the United States and China will not develop soon.

“I think the geopolitical situation between China and the United States will not subside, it is causing a lot of tension,” Moser said. “We can’t allow China to get Taiwan because of [semiconductor] Chip reasons, because our promises to Taiwan. So that would be a huge stumbling block to a return to normality, and returning to normality would be accepting the United States’ lack of self-sufficiency, or trade deficits, or budget deficits, all these other things that go along with that. Our country and the companies here understand that we have to be self-sufficient.”

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