Soaring crude oil prices and the explosion in globalisation (and corresponding reduction in transport availability) over the last decade or so, have together kiboshed some of the factors which once fueled a steady growth in offshore manufacture and procurement.
Added to the transportation issues, is the fact that labor is no longer as cheap in some popular offshore manufacturing locations as it used to be. The result of this changing climate is that some companies are choosing to bring their manufacturing home, while others are turning to nearshoring as a way to combat rising international transportation costs.
Offshoring and Nearshoring: What’s the Difference?
Actually, the difference between offshoring and nearshoring is merely a question of distance. In Australia for example, many of the countries that would be classed as offshore to an American company, such as China, might more accurately be described as nearshore. This means that Australian supply chain organisations are well-placed to continue benefiting from the cheaper costs of procurement from these countries.
In the United States and Western Europe, on the other hand, rising labor and transportation costs are resulting in brand-owners looking to countries closer to home for low-cost manufacturing and procurement opportunities. While they may not be able to benefit from the best procurement prices, sourcing products and materials closer to the end-market helps offset the rising transportation costs that make offshore resources less attractive than they used to be.
How American Companies Benefit from Nearshoring
By switching procurement focus from Asia to developing countries nearer to home, American producers in particular, gain a number of benefits. Indirectly, the rest of the world benefits too.
For the North American companies, importing from South American neighbours involves greatly reduced overall transportation distances and in many cases, less driven kilometres as well, making transportation a less expensive activity.
In addition to reduced transportation costs, nearshoring companies are also able to reduce lead times and hold lower levels of inventory; since there is less of the uncertainty associated with long-distance ocean-transportation.
The Global Impact of a Changing Trend
Also beneficial for America generally and to some extent, for the rest of the world, routing more goods through American East-coast ports helps to ease the congestion on those ports in the west, which struggle to handle the massive quantities of shipments from Asia.
Reducing bottlenecks in U.S. ports can help worldwide shipping to move more fluidly. Less driven distance for goods transiting in the U.S. means less depletion of fossil fuel reserves, which can only be good news for the environment as well as for global fuel costs over the longer term.
While it’s kind of hard for Australian operators to benefit from bringing procurement/manufacture closer to home, without actually bringing it home, the nearshoring trend in the west illustrates quite nicely how globalisation is shrinking our world—making issues such as rising transportation costs in far-flung nations more and more relevant to local supply chain enterprises. That’s why it’s never been more important for supply chain specialists everywhere to stay in the loop when it comes to international affairs.