Reshoring causing a run on space in Mexico and US as companies seek to relocate operations

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by Emily Atkins

Reshoring and nearshoring have become so popular there has been a run on industrial space in Mexico and the US.

Kearney’s 10th Annual Reshoring Index Report finds that reshoring initiatives have become so successful that companies that have taken a wait-and-see approach to locating manufacturing operations in the past are now scrambling to find facilities in Mexico and the United States.

However, the report also cautions that the road to reshoring is harder than most companies had expected and requires thorough preparation and strategic planning.

The Reshoring Index is a barometer for tracking the extent to which American companies are reshoring manufacturing back from low-cost countries and regions (LCCs) in Asia. The Reshoring Index is determined by dividing the import of manufactured goods from the 14 Asian LCCs by the US domestic gross manufacturing output to calculate the manufacturing import ratio (MIR). The Reshoring Index reflects the year-on-year change in the MIR.

Since 2013 Kearney has noted a slow shift in commercial production away from China to other low-cost Asia Pacific countries and regions (now known as “Altasia”) and Mexico.

In Asia this shift has primarily benefited Vietnam, Taiwan, and India, but Mexico has also accounted for a larger share of US imports in the past few years. Since the onset of the COVID-19 pandemic, American imports of Mexican manufactured goods has grown from US$320 billion to $402 billion (+26 percent). That number includes many Chinese companies, which have commenced manufacturing operations in Mexico, building and expanding capacity closer to the US domestic market.

As for reshoring, what 10 years ago was merely a promise is now a fact. Kearney’s latest CEO survey indicated that 96 percent of CEOs are, at a minimum, evaluating the potential to reshore their operations, an increase from 78 percent in 2022, with most already having decided to reshore, or already reshored.

Much of this activity is, directly and indirectly, consumer-driven with US consumers becoming far more comfortable with paying a premium for American-made products and increasingly concerned about companies’ ESG stances, reducing carbon emissions, and countering human rights violations. Other factors boosting reshoring include new policies from Washington, D.C., and access to increasingly more affordable automation.

US imports of manufactured goods from the 14 Asian LCCs and regions tracked totaled 14.1 percent of US domestic gross manufacturing output, down from 14.49 percent in 2021, said Patrick Van den Bossche, partner and lead author of the annual Reshoring Index report.

“This significant trend shift marks the first time that domestic manufacturing growth outpaced Asian LCC imports growth since 2019, resulting in a positive 2022 Reshoring Index of 39.

Omar Troncoso, partner in Kearney’s consumer and retail practice, believes reshoring is now a sustaining trend. “Reshoring is becoming both a cause and an effect of companies significantly rethinking how they construct and operate a supply chain that will carry them forward into the next decade,” he said.