Over the past 30 years, an unprecedented amount of manufacturing moved offshore, the bulk of it to China. Now, the global shipping crisis combined with a number of additional geopolitical and economic factors are combining to create a new set of forces that are poised to bring the manufacturing of goods closer to the people who use them.
Now, however, multiple forces are aligned to meaningfully push back the wave of globalization. Over the next decade, thanks to a combination of geopolitics, economics, and concern about supply chains, more manufacturing will be closer to more consumers than ever before. This trend started prior to 2020, but the global pandemic exacerbated it.
We all saw firsthand what happens when the supply of goods exceeds the ability to move them through ports. Onshoring and nearshoring diversifies pathways into a country.
Unsurprisingly, in the wake of the port bottlenecks, container shipping costs rose sharply, peaking in late 2021 at around 8x baseline costs. Though they have receded from that peak, they remain elevated.
What is nearshoring, onshoring, and friendshoring?
Undoubtedly, you’ve heard the terms nearshoring, onshoring, and friendshoring used in the news recently. A shifting global labor market has manufacturers reevaluating where their next capital investment will be, which has ignited a conversation about bringing manufacturing closer to the end consumer.
Large capital investments into multi-billion dollar manufacturing operations take years to come to fruition, but the drumbeat of investment in domestic manufacturing is becoming undeniable.
“People have been talking about onshoring in the abstract as a political matter for a long time, but this is very different,” says Jeffrey Bergstrand, professor of finance and economics at University of Notre Dame’s Mendoza School of Business. “This is a structural change in the global supply chain driven by economics, technology, and a global public health crisis.”
The American Trucking Associations’ chief economist, Bob Costello, notes it took 25 years to move manufacturing to China, so bringing it back home in three years is not going to happen. These changes will take time to take effect and will not be extreme. Still, the changes will be enough to have significant reverberations across the shipping and logistics field.
The bottom line: Manufacturers, retailers and carriers must remain nimble and ready to adjust as conditions on the ground shift.