Reshoring involves a company moving its manufacturing assets out of China to the U.S. and often includes sourcing alternative suppliers in the United States or North America instead of Asia. COVID-19 continues to cripple international supply chains, delaying shipments from suppliers overseas. In addition, hostile trade relations between the United States and China accelerated a reshoring trend even pre-pandemic.

The reshoring concept has been gaining in popularity for a number of years, and interest from manufacturers has spiked in the face of the trade war and global pandemic; 69 percent of American companies said they were very likely to bring manufacturing and sourcing back to North America, according to a recent study. This article discusses some of the major factors currently facing reshoring efforts.

Technology Availability

Advances in technology and connectivity, such as 5G and Wi-Fi 6, have made automating processes on the manufacturing floor more feasible than ever. Implementing automation technologies, however, can be disruptive for manufacturers, as they require significant testing to see which solutions work best with existing protocols and capabilities.

Any manufacturer interested in a Lights Out manufacturing environment, however, may consider reshoring. Facilities can be renovated or built with automated production in mind for reshoring businesses; production can continue with little need for input from operators and technicians once the new facility is up and running, largely mitigating the labor shortage in the manufacturing sector.

Tight Industrial Real Estate Capacity

Manufacturers often use the same types of real estate as transportation, warehousing, and other industrial sectors. The ongoing e-commerce boom has created an increasing demand on industrial real estate by retailers and e-commerce businesses seeking to expand their distribution capacity, which presents challenges for manufacturers seeking to lease new production facilities near key markets. This leaves reshoring manufacturers with the choice of waiting out the capacity crunch before leasing new space or building a new facility from the ground up—either of which can take years.

Manufacturing Labor Shortage

The American manufacturing sector has been experiencing a labor shortage for some time. The situation is a Catch 22—outsourcing manufacturing overseas discouraged people from pursuing manufacturing jobs, and now there aren’t enough skilled laborers to fill key manufacturing roles in the event of a manufacturing renaissance. With more than 500,000 manufacturing jobs currently left unfilled, the prospect of staffing a new U.S.-based facility can be intimidating for any business. While some of these problems can be addressed with automation, a successful reshoring effort will likely involve targeted and aggressive recruiting, partnerships with technical schools and/or colleges, and comprehensive internal training and growth opportunities.

Sustainability Initiatives

For eco-minded companies, reshoring to the United States presents significant opportunities to build more sustainable production. Overseas manufacturers aren’t subject to the same environmental regulations as U.S. businesses, so they often shirk their responsibilities in this area. Irresponsible or wasteful practices ultimately harm the company’s global carbon footprint, which can cause brand damage by contributing to a negative perception of the organization. Moving production and sourcing to the United States makes it much easier to source and produce responsibility.

Moving Costs

The costs tied to reshoring a manufacturing operation are perhaps the greatest obstacle a company may face. Equipment assets must be disassembled and moved or sold and replaced using domestic suppliers. New facilities must be leased or constructed. A new workforce must be hired and trained. While there are numerous benefits associated with reshoring, the upfront cost of the endeavor causes companies of all sizes to hesitate. To control costs, many reshoring businesses have turned to various logistics partners, consultants, real estate firms, and other specialists for help with efficiently moving operations while keeping spending as low as possible.

About Phoenix Investors

Founded in 1994 by Frank P. Crivello, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations, and public stakeholders, Phoenix has developed a proven track record of generating superior risk-adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves, currently encompassing over 32 million square feet.  Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.