More and more U.S. manufacturers are intensifying their exploration of reshoring operations to reduce reliance on China, according to Rosemary Coates, founder and executive director of the Reshoring Institute.
“Up until the pandemic, there was kind of a slow build of companies that were considering reshoring, but when the pandemic hit, so many companies experienced shortages and parts because they were unable to get products from China,” Coates said Thursday during her keynote presentation to open the third day of the FreightWaves F3: Future of Freight Festival in Chattanooga, Tennessee.
“I have a client in Chicago who told me they’re paying 17 times more for their freight than they were before the pandemic. The shortage of parts was one thing, then there’s the risk in terms of being able to serve your customers was another. All these variables really made executives sit up and take notice. Instead of a slow build of reshoring, now we’re seeing a significant amount of activity.”
The Reshoring Institute, founded in 2014, is a nonprofit and nonpartisan organization dedicated to helping companies in deciding where they should manufacture, with a focus on bringing production back to the United States.
Coates boasts more than 25 years of experience in supply chain management and consulting, working for extended periods in Asia and Europe. Her background includes a broad range of industries, including high tech, consumer products, transportation, retail and oil and gas.
Before she founded the Reshoring Institute, Coates was actually helping U.S. companies explore offshoring their factories to China.
“I spent lots and lots of time in China, helping companies source and manufacture there, then in the 2012 presidential election, both Mitt Romney and Barack Obama were China bashing like crazy, and I thought, ‘I can’t tell anybody what I do for a living. This is awful,’” Coates said jokingly. “But what happened was it really started to spark conversations between my clients, who said, ‘Would it be possible to bring manufacturing back [to the U.S.]?’ That then resulted in us putting together a methodology and approach on how to determine whether or not to reshore, and out of that came the birth of the Reshoring Institute.”
Some of the ways the Reshoring Institute helps clients is through site selection, identifying possible tax credits and other incentives, cost comparisons and finding strategic partnerships.
Coates said while global supply chain disruptions made a lot of companies look at where they source their factories, cost remains the biggest factor for most firms.
“Businesses are economic animals, and they’re looking at profit and loss all the time,” she said. “You have to look at the total cost, including the labor costs, the ability to automate, the proximity to markets and certainly sustainably.”
Coates said they are seeing all kinds of U.S. manufacturers investigate reshoring factories back to North America, including industries such as plastics, fast-fashion brands (including Zara, H&M Group, UNIQLO and GAP) and semiconductors.
“We’re really excited about what’s happening in semiconductors, with all these new plants that are opening in places like Ohio, and last week another was announced in upstate New York and the Phoenix area,” she said. “Companies are investing in semiconductor production in the U.S., which is essential because of the geopolitical situation with China.”
Different regions of America are seeing the benefit of reshoring, including states in the Southeast, Southwest and Mountain West.
“The Southeast is very attractive because of the low wages, and it’s not as unionized as other places and there is the availability of labor,” Coates said.
Mexico has also become more attractive for automotive manufacturers looking to nearshore their operations from Asia to North America because of the United States-Mexico-Canada Agreement (USMCA), she said.
“In terms of automotive, a lot has moved to Mexico to take advantage of USMCA under the automotive regulations in the agreement, so there’s quite a bit of activity coming there too,” Coates said.
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