Updated November 26, 2024
As global trade and consumer demands continue to grow, supply chains are facing a range of challenges, from rising labor costs to geopolitical instability. Because of this, nearshoring has emerged as a popular strategy for companies looking to optimize their supply chains.
Additionally, tariffs are a critical consideration for nearshoring, as shifting trade policies between nearshore countries can elevate costs and complicate operations. To navigate these challenges, businesses must stay agile by regularly assessing tariff changes and renegotiated trade agreements, partnering with third-party logistics providers (3PLs) that specialize in customs and regulatory compliance, and adopting flexible sourcing strategies to diversify supplier bases and mitigate tariff-related risks.
A survey conducted by Deloitte found that 54% of companies plan to nearshore some of their operations in the next two years. In this article, we explore what nearshoring is, how it can optimize your supply chain, and how working with a 3PL can help with your nearshoring strategy.
What is Nearshoring?
Nearshoring involves moving supply chain operations closer to the finished product’s place of consumptions. Most times, this means moving operations in Asia and Europe to North America. The goal is to reduce costs, increase speed to market, and improve efficiency by taking advantage of lower labor costs, shorter transit times, and closer proximity to your end consumer.
Another form of nearshoring is reshoring. Reshoring is when a company that once operated in a country but moved overseas, bring their operations back to their original country of origin. According to a study by Bank of America, mentions of nearshoring and reshoring were up 128% in earnings calls during over the past year.
Research conducted by the Boston Consulting Group found nearshoring can help companies to reduce lead times by up to 50% and cut logistics costs by up to 30%. These studies suggest nearshoring can be an effective strategy for companies looking to optimize their supply chains.
Optimizing Supply Chains from Port to Door
In the past few years, many companies realized just how dependent they are on manufacturing and products in Asia and around the globe. Roadblocks, port delays, and factory closures meant empty shelves inside warehouses and distribution centers, and disgruntled customers.
The need for nearshoring isn’t a secret. However, until recently, many companies ignored the benefits of nearshoring products or, at the very least, diversifying their vendor portfolio with a multi-shoring strategy.
Today, supply chain executives recognize the fragility of operating in a single global region, and have the opportunity to create resiliency in their operation now, and for the future. Ultimately, companies want the flexibility to react to different demands of the end consumer, and nearshoring is one strategy that lets them.
Let’s say a product from a consumer goods manufacturer isn’t selling because it’s not trendy among celebrities and influencers on social media channels. Or you need to entice the sale with additional gifts, such as free accessories. Nearshoring gives you the flexibility to react to changing demand. Inventory can be easily transitioned and delivered because it is closer to the point of sale.
The overall goal is to create a more responsive supply chain that adjusts to meet consumer expectations and is resilient amidst disruption. By nearshoring, companies can customize, change or amplify any order and meet greater demand.
What are the Benefits of Nearshoring?
Nearshoring offers several advantages:
1. Cost Savings: Nearshoring to countries with lower labor costs can lead to significant cost savings in terms of wages and benefits for workers. Nearshoring can result in reduced overhead costs, such as office space and utilities, compared to operating in high-cost areas.
2. Proximity: Nearshoring can lead to faster product development and launch cycles, as well as reduces transportation distances, allowing you to bring products to market quicker. Closer geographic proximity also makes it easier to maintain regular communication with suppliers, leading to better collaboration and issue resolution. Shorter transportation distances in a nearshore supply chain contribute to reduced greenhouse gas emissions, promoting environmental sustainability.
3. Supply Chain Resilience: Nearshoring can mitigate the risks associated with long-distance supply chains, such as transportation disruptions, geopolitical tensions, and natural disasters. You can also respond more rapidly to changes in customer demand or market conditions when their supply chain is nearby. On-site audits and inspections can be more easily conducted, ensuring that suppliers meet quality and compliance standards.
4. Regulatory and Compliance Benefits: Nearshoring to countries with similar regulatory frameworks can simplify compliance with local and international standards. You may also face fewer legal and regulatory risks when operating in regions with well-defined rules and regulations.
5. Talent and Skill Availability: Nearshoring to countries with a strong talent pool in the desired industry can provide access to skilled workers and specialized expertise. You can benefit from knowledge transfer and skill development within the local workforce. Additionally, common language and cultural similarities can enhance communication and understanding.
The Challenges with Nearshoring
Though lower in cost and closer to home, nearshoring supply chain operations is not without its challenges. Among some areas of concern are:
Educating a young workforce. Finding and retaining skilled and qualified talent in nearshore locations can be a challenge. Some regions may have a shortage of specialized professionals, leading to increased competition for the available talent pool. In some countries, a young, relatively untrained population means many manufacturers must invest in training programs to create or improve labor skills. Additionally, the driver shortage that continues to challenge the U.S. market exists for cross-border operations as well.
Weak infrastructure and need for government investment. Suitable roads, telecommunications and other infrastructure are in short supply, especially outside established sourcing communities or in emerging, rural or less developed markets. The level of technology infrastructure and connectivity can vary between nearshore locations. You must ensure that the technology stack and infrastructure in the chosen location are up to par with their requirements. Data security and privacy regulations may differ from the home country, potentially exposing sensitive data to risks. Ensuring compliance with data protection laws and maintaining data security is crucial.
Border crossing delays and capacity issues. Border crossings historically have been fraught with compliance issues that create long transit times and delays. Southbound shippers in North America need a Mexican customs broker for all freight imported into Mexico. Northbound shippers need a U.S. broker, a mastery of Mexico’s Customs for exportation, as well as Customs- Trade Partnership against Terrorism (C-TPAT) certification to help expedite border crossings. Additionally, for every three loaded trailers headed north from Mexico, only one loaded trailer heads south. This ongoing equipment and LTL network capacity unbalance and resulting crunch leaves both trailers and LTL networks in short supply.
Partnering with a 3PL for Nearshoring
When nearshoring their supply chain, companies often choose to partner with a third-party logistics provider (3PL) to help with their logistics needs.
3PL providers have economies of scale and can leverage their existing infrastructure, technology, and resources to optimize logistics costs. They can negotiate favorable rates with carriers, warehouses, and other service providers, passing on some of those savings to you.
3PL providers have extensive experience, knowledge, and established networks in managing logistics operations. A 3PL, like Ryder, can also have a vast footprint, giving you a single-source for end-to-end supply chain and transportation solutions. They possess the necessary expertise to handle transportation logistics, warehousing and distribution, customs clearance, and other related tasks efficiently.
At Ryder, the depth and breadth of our end-to-end supply chain solutions allow you to overcome the disruption that is challenging operations, and build a resilient operation that is flexible and efficient. The strength of our operations in Canada, Mexico, and the U.S., and Canada put Ryder in a leading position to help companies that want to nearshore their operations.
Our end-to-end network is driven by innovative technology, one of North America’s largest fleets of trucks, an expansive infrastructure of maintenance facilities and warehouses, and some of the most talented people in the industry. We develop relationships with local authorities and have one of the strongest supply chain networks across North America, enabling us to deliver comprehensive, safe, secure, and fast cross-border solutions. We recruit, train, and manage drivers, warehouse workers, and technicians, invest in the latest and most efficient vehicles, excel in safety, and comply with associated regulations.
Through a strong security organization focused on safety, we have developed proprietary procedures to secure facilities and freight while in transit. Additionally, with the use of innovative technology, you gain end-to-end visibility of your freight and ensure it is secure at all times.
Because of these capabilities, we are able to provide multi-client border crossing services to lower security risks and improve efficiencies. In fact, we facilitate over 30,000 North American border crossings every month—with an average border crossing time between 2 and 4 hours in Mexico and under 20 minutes in Canada. These solutions help improve speed to market, get you closer to customers, and allow you to gain access to new markets by leveraging an established infrastructure and geographic footprint.
