The Growing Need To Reshore Manufacturing Activities | Barita Insights | March 29, 2021

The Coronavirus has highlighted a chink in the global supply chain’s armor and businesses around the globe have been forced to reconsider what has been considered an expensive way to make products, a process known as reshoring. Reshoring is when businesses move production and labor back to their home countries or where the actual demand for a product lies. One of the big issues that came up during the pandemic is when key sources of supply chains closed. For instance, China shut down, then India, which left many companies in a vulnerable position. The automotive industry was particularly affected by the shutdown of international manufacturing capacity Automobile sales tanked during the lockdown and even after the factories and showrooms reopened, supply was hit hard by months of delays for deliverables ranging from raw materials to completed products. Some industries in Europe are deploying digital technology to replace factory man hours in an effort to solve the higher labor costs that are a disadvantage from reshoring.

Recently, the vulnerability in global supply chains has been exposed again. Last week, a 220 000 ton, 400 metre ship operated by Taiwan based firm, Evergreen, became jammed diagonally across a southern end of the Suez Canal. The Suez Canal Authority said it had lost the ability to steer amid high winds and a dust storm. The vessel is still blocking a key lane to Asia Europe trade through which about 50 ships a day passed in 2019 According to the Egyptian government statistics. Currently, at least 369 boats are waiting to transit the canal, including container ships, bulk carriers, oil tankers and liquefied natural gas vessels, costing the canal
approximately US 14 15 million daily. The Suez Canal is one of the most critical passages in the world economy, cutting voyages between Asia and Europe by 3000 miles Its importance has long been recognized by world commerce as one of the top chokepoints, at risk from disruption by either war or terrorism. The Suez Canal has become an important route for giant container ships carrying all kinds of goods and its disruption will further stress the need for more reshoring initiatives. The UK became one of many nations urgently calling upon its domestic manufacturers to design and produce essential equipment. This was a direct result of the public health consequences of making goods thousands of miles from where they are needed, this became clear in the rush for ventilators in the UK last spring as COVID 19 infection rates spiraled out of control.

Companies that can source and make their products locally might therefore be the ones to emerge from the pandemic less scathed than those that favor sourcing from overseas. However, going forward the idea of sourcing from home and abroad could be the answer, that is, the idea of parallel supply chains. Under this concept, reshoring initiatives would not aim to dismantle existing global chains but instead set up multiple supply chains. The reality is that companies cannot so readily adapt to reshoring in a short period of time but by considering a mix between reshoring and the traditional global supply chains, will give them sustainability should the need arise.

For several years reshoring efforts have been gaining momentum and manufacturing interest has increased in the face of the trade war and the global pandemic. According to Thomas Industrial Survey data, 69 of companies across the manufacturing and industrial sectors” are likely to bring manufacturing and sourcing back to North America. This creates selling opportunities for North American Manufacturers who may have been overlooked in the past as buyers’ preferred suppliers. Also, this increases the demand for manufacturing real estate space as some companies would prefer to develop their own manufacturing capacity. The push towards reshoring can also benefit companies by creating diverse supplier portfolios that allows them to be more resilient in acquiring raw material or individual components and ultimately come out of this crisis even stronger than they were before.