Near-shoring: Trouble for air cargo?

Historically, inexpensive fuel, lenient trade agreements and cheap labor drove globalization and allowed companies to seek cost-effective production throughout the world. But with fuel costs expected to remain high indefinitely and labor costs in third-world countries increasing, companies are now recalculating the benefits of global outsourcing.

These combined variables are putting cost pressure on practice of manufacturing of goods in Asia for air export to the United States, lending additional credence toward the development of more manufacturing centers throughout Central and South America. The search is on for manufacturing partners closer to home.

A recent survey conducted by global business advisory firm AlixPartners found that 63 percent of senior manufacturing-orientated executives selected Mexico as the most attractive country for “near-shoring,” the practice of developing manufacturing spaces near the country of import. Though security risks were a clear concern among respondents, relatively few said they had actually experienced supply-chain disruption in the country. What’s more, overall sentiment appears moderately optimistic about the future of the Mexico’s security problems, with 50 percent expecting at least modest improvement in safety and security issues; this indicates that while safety and security in Mexico must be taken very seriously, many companies believe the risk of theft can be reduced.

More than 40 percent of the survey’s respondents indicated they are currently near-shoring or will be within the next three years. The top reasons given were lower freight costs, lower inventory (in-transit) costs and improved speed-to-market. Other reasons included “time-zone advantages” (easier management coordination, etc.) and improved “cultural alignment” with North American managers.

All is not lost for air cargo, however, as manufacturers will institute hybrid strategies within the foreseeable future — more agile and “lighter” industries like high-tech and pharmaceuticals can remain in Asia, while “heavier” industries (machinery, automotive,etc.) reposition themselves within the North American hemisphere. Time will only tell exactly when and where global manufacturing hubs are developed, but freight providers throughout all modes need to pay careful attention to this trend and adjust their businesses accordingly.

Posted in Nearshoring/Offshoring