Is nearshoring moving past the “hype” stage…finally?

At the eyefortransport 3PL Summit held in Chicago last week, a wide variety of topics were covered and addressed, including 3PL consolidation, the slow-to-develop role of Uber as a logistics delivery provider, and, of course, the increasing role e-commerce is playing in seemingly nearly all facets of logistics and supply chain management these days.

While all these topics, as well as many others, were interesting and relevant to be sure, the final session on the middle day of the event offered some perspective on a topic that was not a part of the 3PL Summit’s itinerary. That topic was nearshoring.

Nearshoring, whether it is truly happening or not in earnest, is a subject that always gets a lot of traction and attention at events like the 3PL Summit. The reasons for it are obvious at times and not so much at others.

From a North American perspective, a global manufacturer shifting some of its operations, say in the automotive industry for example, to Mexico, makes sense on a whole host of levels. One being the close proximity to U.S. markets, where automotive sales are doing very well of late.

Of course, not everyone is sold on nearshoring either. A 2012 LM survey of nearly 160 shippers found that roughly 60 percent of them at that time were not focused on nearshoring, with the remaining 40 percent indicating they are already active on the nearshoring front.

Those opposed to bringing manufacturing operations closer to home uniformly cited costs at the biggest deterrent to nearshoring. Other concerns were a lack of quality, finding available suppliers, and balancing production and transportation costs.
But those in favor of nearshoring painted an optimistic picture of why it made good business and logistics sense for them.

One shipper said leveraging nearshoring provides his company “with much more responsiveness to customers along with reducing inventory levels.” Others pointed out things like reduced lead times which in turn provider for more manufacturing flexibility, coupled with the ability to be more responsive to customers and reduce coordination costs.

A shorter supply chain can react more quickly to variation in customer demand, noted various respondents. They added that this can then lead to shorter lead times, increased flexibility, and quicker troubleshooting and problem fixes.

In the aforementioned session in Chicago at the 3PL Summit last week, panelists offered up interesting takes on nearshoring, relative to their respective industries.

Juan Nava, head of supply chain at Triumph, a German-based clothing manufacturer, explained that most of his company’s manufacturing operations are currently in Asia and Africa, with plans to relocate that closer to key markets in Canada and the United States.

The main reason for the shift, he explained was lengthy transportation lead times and being too far away from the market, with a switch closer to North America would help it grow far more effectively in the U.S. market.

Another panelist, Larry Hartley, SVP Supply Chain, for Office Depot, had some keen insight on nearshoring, even though his company does not do it.

“The biggest supply chain impact on us were we to do it would be a reduction in transit times and being more responsive to changes in demand,” he explained. “That is probably the biggest challenge in sourcing from Asia, and nearshoring can help in that way.”

Perhaps the biggest believer in nearshoring on the panel was XPO Logistics CEO and Chairman Brad Jacobs, whom made it clear that nearshoring is “definitely” for real.

Citing automotive titans like Ford, Chrysler, GM, and BMW, among others, Jacobs said the one thing they all have in common is investing tens of millions of dollars into building or expanding production facilities and infrastructure in Mexico very recently. And with that infrastructure in place in Mexico, he said the supply chains there are poised to see subsequent gains in increased supply chain productivity there, due to the various advantages it brings.

Jacobs likened the presence of automotive manufacturers in Mexico today to around 2005-2006, when large, big box retailers like Wal-mart, Lowes, and Home Depot were building large facilities in Mexico seemingly everywhere there, and he simply stated “Mexico is on fire right now, with nearshoring there a very real phenomenon.”

While Jacobs was easily the most enthusiastic about nearshoring on the panel, his sentiment regarding nearshoring rings true. What remains to be seen is where things go from here on the nearshoring front.