As published in NREI

The global pandemic has been incapacitating international supply chains since early 2020 and continues to cause frequent delays from international suppliers. Hostile trade relations between the United States and China had been brewing even before COVID-19 hit, accelerating a reshoring trend. Reshoring involves relocating manufacturing assets to the United States from China; more universally, it can include sourcing alternative suppliers in the United States or North America instead of Asia.

For several years, reshoring efforts have been gaining momentum and manufacturing interests, especially, have surged in the face of the trade war and global pandemic. In fact, a recent study by Thomas found that  69% of American companies said they were very likely to bring manufacturing and sourcing back to North America. This article explores some of the major factors currently influencing reshoring efforts.

Tight Industrial Real Estate Capacity

Warehousing, transportation, and other industrial types of real estate can often be utilized as manufacturing spaces. As the booming e-commerce sector has created an overwhelming demand for industrial real estate, especially distribution centers, manufacturers are facing new challenges as they seek to lease new production facilities near key markets. Reshoring manufacturers are thereby left with the choice of building a facility from scratch or waiting until the capacity crunch passes before leasing new space. Either option can take years.

Manufacturing Labor Shortage

A labor shortage has been plaguing the American manufacturing sector for some time now. The dilemma lies in the fact that manufacturing has been outsourced overseas, which has discouraged the American public from pursuing manufacturing jobs—and now there aren’t enough skilled laborers to fill key manufacturing roles in the event of a manufacturing renaissance. The prospect of staffing a new U.S.-based facility can be intimidating for any business, especially in the face of more than 500,000 manufacturing jobs currently left unfilled. Some of these challenges can be remedied with automation, but targeted partnerships with technical schools and colleges, aggressive recruiting, comprehensive training, and opportunities for growth play large roles in a successful reshoring effort.

Technology Availability

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

Reshoring presents a prime opportunity for any manufacturer pursuing a Lights Out manufacturing environment.  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 circumventing the labor shortage in the manufacturing sector.

Sustainability Initiatives

Reshoring to the United States presents significant opportunities for eco-conscious companies to create more sustainable production. Manufacturers overseas aren’t held to the same environmental regulations as U.S. businesses; they often shirk their ecological responsibilities. Irresponsible and wasteful practices can ultimately harm a company’s global footprint, creating a negative perception of the organization and causing brand damage. Reshoring production and sourcing to the U.S. makes responsible sourcing and production an easier task.

Moving Costs

Reshoring costs are perhaps the largest obstacle manufacturers have to face. Equipment and other assets must be disassembled and transported or sold and replaced by domestic suppliers. Premises have to be built or leased and a new staff hired and trained. While reshoring comes with its benefits, the initial cost is often enough to give companies pause. Many reshoring businesses have turned to logistics partners, consultants, real estate firms, and other specialists to help minimize costs and facilitate easier, more efficient moves.

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.