COVID-19 crippled international supply chains for months in early 2020 and continues to cause frequent delays from international suppliers. Even before the pandemic, hostile trade relations between the United States and China had accelerated a reshoring trend. Reshoring typically refers to a company moving manufacturing assets out of China to the United States, and more broadly may also refer to sourcing alternative suppliers in the United States or North America instead of Asia.
While the reshoring concept has been gaining traction for a number of years, interest from manufacturers has spiked in the face of the trade war and global pandemic. In fact, 69 percent of American companies said they were very likely to bring manufacturing and sourcing back to North America, according to research from Thomas. This article will discuss some of the major factors currently influencing reshoring efforts.
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 a rush 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 could take several years.
Manufacturing Labor Shortage
The American manufacturing sector has been experiencing a labor shortage for quite some time. The situation is a Catch 22 — outsourcing manufacturing overseas turned the public away from manufacturing jobs, but 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.
With the launch of new connectivity technologies such as 5G and Wi-Fi 6, automating processes on the manufacturing floor has become more feasible than ever before. For many manufacturers, implementing automation technologies is often disruptive to production operations and may require significant trial and error to see what meshes with existing capabilities and processes.
For any manufacturer ready to make the move into a Lights Out manufacturing environment, reshoring presents a prime opportunity to pursue that goal. For reshoring businesses, a facility can be renovated or built with automated production in mind. Once the new facility is up and running, production can move forward with little need for input from operators and technicians, which largely circumvents the manufacturing labor shortage problem.
For green-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 global carbon footprint of the American company, which can build a negative consumer perception of the organization and cause brand damage. Moving production and sourcing to the United States makes it much easier to source and produce responsibility.
The costs tied to reshoring a manufacturing operation are perhaps the largest obstacle. 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 by Frank P. Crivello, Phoenix Investors is a national commercial real estate firm based in Milwaukee, Wisconsin. Phoenix’s affiliate companies hold interests in approximately 30 million square feet of industrial, retail, office, and single tenant net-leased properties across 21 states. Our highly trained staff is adept at helping industrial businesses find the space they need for reshoring, expansion, and more. To see how our team can help with your real estate challenges, please contact us.