Eric Baker, partner in FBT Gibbons’s Private Equity & Venture Practice, and head of the firm’s Supply Chain Group, discusses whether reshoring and nearshoring efforts are in limbo due to current geopolitical strife.
With all of the chaos that’s currently plaguing international commerce, it would be understandable if manufacturers that had previously decided to move sourcing closer to end markets were to put at least some of those plans on hold.
To be sure, manufacturers are being extra-cautious about reshoring, nearshoring and “split-shoring,” says Baker. But they were already well aware of the risks of making major changes in their sourcing strategies, given several years of constantly changing tariffs and other sources of trade tension.
In fact, Baker says, several studies reveal that, of the manufacturers that are openly considering some form of reshoring or nearshoring, only around 2% are fully implementing those strategies so far.
Keep in mind, Baker notes, that any shift of major suppliers typically requires a transition period of up to five years. For that reason, such decisions don’t change from one day to the next.
One the biggest challenges in any manufacturing supply chain is obtaining timely and accurate data from suppliers beyond Tier 1. In theory, bringing suppliers closer to the plant could alleviate that problem, but not completely solve it, given the ongoing need for offshore suppliers of components and raw materials. “It’s very rare that we see a 100% reshoring or nearshoring of a supply chain,” Baker says. “Usually it’s more of a split-shoring.”
“I don’t know that manufacturers are necessarily pulling back [from reshoring],” he says, “but they’re certainly paying attention to the issues that are happening now, and on a more frequent basis.”