Reshoring, nearshoring trends making North American manufacturing competitive
Automation advances, along with other changes brought on by the COVID-19 pandemic, have made reshoring and nearshoring more appealing.
Reshoring and nearshoring insights
- Reshoring and nearshoring are surging, with new U.S. jobs from these trends jumping from 11,000 in 2010 to over 300,000 in 2022, boosted by automation.
- The COVID-19 pandemic and recent U.S. legislation have accelerated reshoring, driven by supply chain disruptions, reduced costs, and automation advancements.
Reshoring is gaining a lot of momentum. Manufacturers are bringing production back to the United States from overseas or closer to home in a related move called nearshoring. Reshoring and foreign direct investment have grown, from generating 11,000 new U.S.-based jobs per year in 2010 to more than 300,000 in 2022, and another 180,000 jobs recorded in just the first half of 2023. Automation advances are playing a big role in this phenomenon by helping domestic producers to overcome many of the challenges that drove production offshore in the past.
For decades, low factory prices available from offshore manufacturers led U.S. companies to send work overseas. However, the COVID-19 pandemic in 2020 brought global supply chains to a halt and sent workers home. The business response to the public health catastrophe accelerated deployment of automation in North American factories. U.S. legislation further incentivized domestic manufacturing. As a result, many companies are rethinking the location of their manufacturing footprints.
What is reshoring?
The Reshoring Initiative defines reshoring as “the practice of bringing manufacturing and services back to the U.S. from overseas.” The organization’s website said that in addition to strengthening the U.S. economy, reshoring benefits domestic companies by reducing the total cost of products and spurring product innovation.
What is nearshoring?
Nearshoring is a similar concept to reshoring. The difference is it brings manufacturing closer to the United States, but not actually in it. A top factory automation trend of 2024, nearshoring is the relocation of foreign manufacturing or business operations, usually from Asia, to nearby countries or regions, typically close to the company’s base of operations. For U.S. companies, North American countries — Canada, Mexico and Caribbean nations — are popular nearshoring locations.
Reshoring trends
Mentions by U.S. firms of reshoring, nearshoring, and onshoring — a synonym for reshoring — doubled year over year since the start of 2022, according to data compiled by Bloomberg.
“The first 15 years of my career were more about consolidation: moving manufacturing to Mexico or Asia or to Eastern Europe,” said Joe Cutillo, CEO of Sterling Infrastructure — a provider of e-infrastructure, building, and transportation solutions in Fortune. “It is truly the first time in my life I’ve seen stuff coming back.”
“Mexico is also booming and has the advantages of an available and enthusiastic workforce,” said Harry Moser, president of Reshoring Initiative, a company that assists manufacturers and suppliers in making sourcing decisions by offering a wealth of data about reshoring as well as free analytical tools and resources. Mexico has exceeded China as the source of the most imports to the United States. In addition, Canada posted moderate increases in manufacturing sales and inventories in 2023.
BBC reporter Faisal Islam likens the growth in U.S. domestic manufacturing to developments in China when the country was the fastest growing economy in the world. Based on a recent visit to the U.S. state of Georgia, he writes, “The boom is visible on the ground…. In 20 years of reporting around the world, what I have seen in the U.S. over the past year can only compare to what I saw in China in the mid-2000s.”
U.S. government economic policies in the early 2020s leveled the playing field in some industries. The result is a modern-day gold rush, says Moser. He said investments in U.S. manufacturing shifted into overdrive after Congress passed the Chips and Science Act, the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law. The three bills incentivized a variety of domestic production and infrastructure development, ranging from silicon chips and clean energy to railways and ports.
Why businesses bring manufacturing home or near home
Supply chain concerns, consumer demand, and total cost of goods are some of the reasons U.S. companies choose to manufacture products at home or closer to home. Moser said lower total cost of ownership (TCO) is a key reason why companies now choose domestic manufacturing. Reshoring and nearshoring often pencil out even when the price leaving a factory in Asia is 30% lower than in the U.S., as demonstrated by the Total Cost of Ownership Estimator, a free calculator provided by the Reshoring Initiative.
“Sharply rising wages in China, much greater use of manufacturing automation, and new trade policies have reduced the total cost gap between Asian production and nearshoring to almost zero,” reports Supply Chain Digest. Trade policies include tariffs and tax incentives.
A study by Reshoring Initiative revealed decision-making based on TCO results in U.S.-based manufacturing locales winning against offshoring to China in 32% of the cases, up from 8% when only factory price is considered. The addition of 15% Section 301 tariffs raises the win ratio to 46%.
– The Association for Advancing Automation (A3) is a content partner.
Original content can be found at Association for Advancing Automation (A3).
Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our WTWH Media editorial team and getting the recognition you and your company deserve. Click here to start this process.
