The COVID-19 pandemic didn’t just cause supply chain disruptions but highlighted existing weaknesses and exacerbated existing problems. In the three years since the pandemic began, the number of US companies making substantial investments in reshoring operations has started to unwind over four decades of globalization, reducing overseas dependence on raw materials and manufacturing capacity.
To be clear, the world is just as interconnected as ever. However, more suppliers and manufacturers are realizing the benefits of reshoring critical elements of production to provide agility when it’s needed most.
What Is Reshoring?
Reshoring, also known as onshoring, is a trend that predates the pandemic by at least two decades but has recently grown more pronounced. It’s driven by several factors, including increasing costs and geopolitical turmoil.
The term itself has been labeled the “undoing of globalization.” This deserves some additional context.
Globalization In Brief
There’s a scholarly argument to be made that globalization began with the discovery of the Americas in 1492. While Columbus’s discovery did open up overseas trade and introduce new products (and crippling inflation), overland trade routes like the Silk Road and Mediterranean trade predate the Age of Discovery by centuries.
The age of globalization accelerated in the 199h century due to British and European colonial expansion and the industrial revolution. For the previous 100 years, trade grew at about 3% annually. Through the 1800s and until the start of the First World War, trade exploded to 14% CAGR.
The short history lesson is worth examining to stress the long-term investment and success of globalization, which also puts the rate of reshoring over the past 3 years into context. The past reshoring acceleration of the past decade will not undo more than nearly two centuries of economic interconnection but has illustrated a new perspective on what it means to diversify.
Read More: Outsourcing R&D: Pros and Cons
Reshoring Is Accelerating in the US
Substantial onshoring initiatives don’t happen overnight. Companies are taking a relatively long-term approach to reshoring that includes significant capital investment best evaluated over the next 10 years, not 10 months. There is substantial evidence that these initiatives are having an immediate impact on industry and trade, especially where it concerns labor. Reshoring operations added an estimated 350,000 jobs in the US in 2022, surpassing the previous high of 265,000 the year before. That accounts for 38% of the total 1.6 million jobs added to the US economy from reshoring since 2010, indicating a notable acceleration in the process.
What’s Driving the Trend?
Every industry and every company has unique incentives to explore reshoring opportunities, but several universal factors have pushed thousands of companies to make the move.
Mitigating Geopolitical Risk
The fighting in Ukraine has radically impacted energy prices and grain deliveries and caused other supply chain shortages as Russian imports were sanctioned and Ukraine switched domestic factories to wartime defense production. Escalating tensions with China have pushed the US government to extend trade tariffs and invest billions in domestic manufacturing capacity, notably in microchip technology.
The China +1 Strategy
The time-intensive task of decoupling with China involves both the acquisition or construction of new US facilities and the ambiguous (and litigious) process of establishing ownership of assets in China. Companies much balance continuing operations in China as other facilities get up to speed. This is often accomplished with third-party partners in distribution, packaging or production.
Dubbed the “China Plus One” approach, companies are looking to expand production to other Asian nations to limit the risks associated with doing business in China. Many of these organizations are always investing in domestic manufacturing capacity as well, which provides a degree of insulation from volatile energy and shipping costs.
The realistic approach is more complex than moving operations from China to the US. Instead, most brands are exploring other Asian countries along with domestic production. Expect India, Vietnam and other proven manufacturing nations to benefit on the production side, coupled with much-needed investment in US manufacturing and warehousing capacity.
What Industries Are Reshoring?
Thousands of American companies have announced renewed investments in domestic manufacturing operations, materials sourcing or labor.
- Technology companies, many benefitting from the CHiPs Act of 2022, are bringing tech manufacturing home, led by corporations like Intel, Micron, Rockwell Automation, Eaton and Nextracker.
- Renewable energy manufacturing, including producers of PV solar panels and wind turbines, continue to see substantial investment.
- Specialty chemical companies like RPM International are also ramping up domestic production to support pharmaceutical, food and energy sector clients.
- More than a third of manufacturers plan to add capacity in the US, while retail giant Walmart has committed to spending $350 million over the next decade to source supplies domestically.
Explore More Ways to Diversify Your Supply Chain
Working with a motivated, solutions-first distribution partner like Tilley provides an added degree of agility to your operations. Our value-added services enable Tilley to serve as an extension of your organization’s production, quality control, product development, warehousing and distribution processes, all backed by exceptional customer service. Speak with a Tilley representative today to get started.