Offshore. Near-shore. Which shore?

   Rising transportation fuel costs, increasing overseas labor challenges, quality control concerns, political pressures, and heightened regulatory requirements have many American shippers pondering whether to bring manufacturing back to the United States or at least geographically closer to home.
   Terms, such as near-shore or re-shore, have crept into the supply chain management discussion with more frequency. Consultants and analysts have jumped on board with an abundance of related surveys and studies.
   However, is a return of even some formerly outsourced manufacturing to North America realistic, or just wishful thinking? It depends on who you talk to. Putting a clear and concise definition to near-shoring is equally difficult.
   What often goes missing in the emotionally charged debate about U.S. manufacturing jobs is that there are still plenty of American firms — both large and small — making products on U.S. soil. The United States undoubtedly has skilled workers, a good business climate, a legal system that protects the rights of businesses, and financial markets that make it relatively easy to raise capital. The U.S. dollar’s decreased value against other industrialized nations’ currencies has also helped to boost the country’s export prowess for the first time in many years. New drilling techniques have opened up vast fields of natural gas and oil giving manufacturers access to lower-cost and stable energy supplies to run their plants at a time when energy prices are rapidly rising in other parts of the world.
   Business lost to offshoring often involves those products where labor is the most cost-sensitive component, such as clothing and shoes, and electronics assembly. U.S. companies simply struggle to compete with overseas wage levels for this type of work, especially in Asia. These products may move from source country to source country based on lowest labor costs, but they won’t be coming back to the United States.
   However, as American Shipper explores in this issue (pages 8-15), some U.S. companies are relocating formerly off-shored production, or considering it at least, closer to home to gain better control through physically shortened supply chains. This doesn’t necessarily equate to U.S. jobs, and may mean setting up manufacturing in low-cost centers in Central and South America and the Caribbean — near-shoring.
   President Obama is now appealing to the patriotism of companies to invest in domestic manufacturing.
   That’s fine. But each company is different. Sourcing decisions must factor in all the secondary and tertiary costs that go into production, transportation and customer service, not just the obvious ones.
   Either way you look at it, for a U.S. company to return manufacturing from across the Pacific is a significant and risky undertaking. Logisticians have an obligation to their companies, when faced with this question, to offer a thorough and honest cost analysis, even if that means it’s not feasible. – Chris Gillis