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Retracing The Road to an Offshoring Economy

Looking in The Rear View Mirror

Growing up around my uncles who were second-generation scrap metal merchants, I watched as they shipped railcar loads of steel and motor cast destined for export to multiple locations. It was the mid 70s and the idea of offshoring and the panoramic view of globalization to the Pacific Rim for finished steel and motor cast was rapidly growing. During this period, finished steel and motor cast through smelting and fabrication was costing our country an average of $300 per ton to produce. Meanwhile, exporting raw materials, processing abroad, and importing back to the U.S. yielded a cost closer to $100 per ton — a stark contrast per ton with diminutive awareness of the strategy’s long-lasting impact.

By the early 80s, the American rustbelt was starting to sense the detrimental effects of offshoring. Industries such as textiles, automotive, steel and aluminum factories had on-boarded offshoring as the new norm to compete in an evolving marketplace. Shortly after, the electronics industry became deeply entrenched in the Pacific Rim and third world countries. Looking back at the statistics, we can see a decline of our manufacturing workforce in America of almost 33 percent from 1969-1996. It was in the later 70s when we started hearing the word “trade deficits.”

Understanding the Equation

Our country has battled through the trenches of COVID-induced supply chain shortages, the historic rise of shipping costs, along with China’s strict regulations of lockdowns and closures of major trading ports. In the aftermath, C-Level executives of hundreds of small and mid-sized corporations not only had difficulties accruing transportation charges but needed to reconsider their entire supply sources of raw and finished goods on a global scale.

While the implementation of higher taxes on steel, aluminum and hundreds of other articles seemed to be a counterbalance, it ended up as a hypothesis that sacrificed over 300,000 jobs in America. What took a generation to produce in globalization could not be unfastened in one or two presidential administrations. It was time for our country’s businesses to confront this challenge head-on.

Reshoring & Onshoring Ingenuity

After World War II, our country made a commitment to Japan to teach them to build assembly line automobile manufacturing. By 1986, Japan introduced the word Kaizen (lean supply chain methodology) and Toyota partnered with General Motors to create New United Motor Manufacturing in a closed GM Facility in Fremont California. During this time, I worked for one of the largest international freight forwarding companies in the world. We were the chosen freight forwarder to handle the charter vessels and inbound cargo to complete this project. Much to my surprise, the plant was assembled in 1/3 of the area of the old GM building with a higher-level of productivity. Consequently, it is paramount to understand “lean supply chain methodology” to encompass the true essence of reshoring to another country, or onshoring in our own country. COVID certainly underscored this importance.

Reshoring is certainly not a new term. In 2011, there were several significant bills introduced and passed in Congress to bring manufacturing back to the United States that was augmented by using what was then called NAFTA (North American Free Trade Agreement). Many larger companies took advantage of NAFTA and built plants in Mexico with a high level of efficiency and quicker turn-around times inbound to their U.S. plants. Nevertheless, integrated circuitry was still offshored to the Pacific Rim, and all of us who own an appliance, computer or automobile with an IC chip found impassable wait times due to COVID and congestion.

Where Do We Go from Here

It is interesting to note, labor costs in Mexico are 20% less than labor in China. The technology and workforce are highly skilled. A recent study estimated over 400 small to medium sized companies were reshoring their raw material or finished goods to a facility in Mexico in 2023. With the increased activity coming northbound into the U.S., it will be equally important to choose a vendor who has a strong presence on both sides of the border.

Both the KCS & BNSF are completing major land-bridge projects in Mexico which will be instrumental in the movement of goods via rail. Moreover, the decreased transit times via rail or truck will certainly be a major advantage in running a lean supply chain, with stronger KPIs for PO Fulfillment.

I personally believe that we as Americans want to onshore as much manufacturing and business in our own country as possible. However, what took a generation to unfold on a global scale will take all our efforts in the coming years to turn the ship around.

Geoff Chambers

Director, 3PL Solutions

Scarbrough Group

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