They say absence makes the heart grow fonder. For U.S. manufacturing that seems to be the case.
The industry that once propped up the U.S. economy has fallen by 25% in its number of manufacturing firms and plants since 1997. The production capacity and jobs did not disappear completely. Most relocated overseas as companies jumped on the benefits of inexpensive labor and fewer international regulations.
Now fast forward 25 years and the benefits of manufacturing abroad aren’t what they once were. As a result, today’s data paints a much different picture—one that shows a renaissance in American manufacturing thanks to reshoring.
Many upsides exist for bringing production back to U.S. soil, but the move is not without challenges. For the more than 75% of companies looking to accelerate their reshoring efforts, they likely cannot go it alone. Third-party logistics providers may be the linchpin for American reshoring success.
What Is Reshoring?
Reshoring, also known as onshoring, is the process of bringing goods production and manufacturing back to a company’s original country. Reshoring’s economic benefits include helping balance trade and budget deficits, as well as reducing unemployment. Manufacturing companies win by decreasing costs, improving balance sheets, and accelerating product innovations.
Deloitte reports that 62% of surveyed manufacturers have started reshoring or nearshoring production capacities. That includes about 350,000 jobs in 2022, up 25% from 2021. The firm anticipates a 20% reduction in Asia-originating shipments to the U.S. by 2025. The number is projected to jump to 40% by 2030.
Colliers International reports that six companies—Walmart, Intel, General Motors, Boeing, MP Material, and Siemens—are responsible for investments of nearly $400 billion in American manufacturing reshoring. They are far from the only ones.
What Are the Advantages of Reshoring?
The reasons many manufacturers left are now the same reasons they are coming back.
Labor
When the offshoring trend took hold, most companies turned to China for its significantly lower labor costs. However, wages paid to China’s laborers have nearly doubled in the last few years making it no longer the “low-cost” country. Balancing decreasing labor savings with increasing supply chain risks makes American labor a more competitive option again.
Supply Chain Disruptions
Nothing exposed the challenges of operating a global supply chain like the pandemic. A survey of global analysts found that more than 80% of industries experienced supply chain disruptions in August 2020. Some have not yet fully recovered more than two years later. The crisis highlighted the many weaknesses of an offshored supply chain model favoring lean inventories, low costs, and forecasting that are no match for natural disasters, geopolitical issues, and pandemics. While the United States is not immune to these issues, domestic facilities certainly have better control in managing them. Plus, subsidies from the Inflation Reduction Act and CHIPS Act now offer major financial incentives to bring production back to the U.S., as well as Mexico and Canada.
Proximity to the Customer
Relocating operations closer to home reduces transportation costs, which have been rising over the last decade. Improved proximity also creates shorter lead times and better service delivery. Reshoring paired with localization strategies allow manufacturers to better tailor products to regional preferences. Plus, 65% of customers like to buy within the borders of their own country. The “Made In” label matters.
What Are the Challenges of Reshoring?
The biggest challenges U.S. firms face with reshoring are time and money.
Standing up a new facility can take years. Slowing down the process is a lack of shovel-ready land. Large, contiguous plots with water, gas, and sewers already in place are in high demand and low supply. Plus, five rate hikes in 2022, with more expected in 2023, have interest rates at their highest in years.
Construction materials costs were up 12% in 2022 and expected to rise another 7% in 2023. Longer lead times to procure materials also are delaying construction projects.
Retrofitting existing buildings does not offer a quick fix because of the time and investment needed to modernize facilities to meet today’s technology and sustainability demands.
And while the price of American labor now is more competitive, the quantity remains a challenge. The nation’s unemployment rate sits below 4%, making it a 50-year low. Indeed currently has more than 250,000 manufacturing job openings posted across the country.
Despite the challenges, companies are not stuck overseas. Third-party logistics providers with existing warehouses and distribution networks can help expedite manufacturers’ reshoring efforts.
How 3PLs Like Langham Can Help
Companies that moved most of their manufacturing overseas cannot reconstruct production, warehouse, and distribution networks inside the U.S. overnight. When it comes to investing capital, these companies must focus on their core business strength: manufacturing. Warehousing and distribution solutions can come through partnerships with a third-party logistics provider like Langham.
Langham Logistics offers state-of-the-art warehouses strategically located across the United States. The facilities are within a day’s drive of more than 90% of the U.S. population and within minutes of international airports. Each facility manages a distribution network pairing partner carriers with Langham’s dedicated fleets. Langham’s services include assembly, kitting, quality inspections, and order processing—and the highly skilled labor force already exists.
Between location, services, and the distribution network, Langham makes the ideal partner for reshored operations. Companies can produce materials and ship them to Langham for storage with full visibility. Langham then processes orders directly and handles distribution domestically and internationally. The partnership allows manufacturers to expedite and expand their reshoring efforts without incurring unnecessary costs.
Companies focus on manufacturing. Langham Logistics manages the rest. The setup makes saying “Welcome Home” that much easier.
