Nearshoring vs Offshoring
12 August 2022
Nearshoring versus offshoring. It’s a discussion that’s been going on for a long time. While offshoring appeared to have been the preferred solution for the supply chains of many multinational companies, more recently we are seeing a move towards nearshoring – particularly during the supply chain disruptions brought about during the COVID-19 pandemic. This is having major implications for the logistics industry.
First off, what is nearshoring and offshoring exactly?
Offshoring is when a business decides to relocate its business processes – such as manufacturing activities – to a foreign nation.
In the past, this has generally been European and North American companies shifting their production activities to cheaper locations such as China or Southeast Asia. Clearly, this has been a boon for the logistics industry, which would be responsible for transporting products from these markets to customers around the globe.
Nearshoring is somewhat related. It is still all about companies looking to save costs by locating business activities outside of their home markets. But rather than relocate these to far-flung places such as Asia, companies will opt to move to locations that are closer to their final customers. For instance, Western European businesses could decide to shift the production of clothing to Eastern Europe – where the costs of labour are still cheaper and it is quicker to transport finished goods.
Why has nearshoring become popular?
During the COVID-19 pandemic, supply chains have become severely disrupted as manufacturing activities have been hampered by lockdowns, while the shipping industry has struggled to cope with surging demand as economies are recovering.
As a result of these problems, companies are looking to shorten their supply chains to make them more resilient. An added advantage of these shorter supply chains is also that they are more responsive and can help quicken the speed to market. A company looking to take advantage of a recent consumer trend is able to get a new product much more quickly into the hands of shoppers.
Trend looks set to strengthen
While many businesses have been forced to rejig their supply chains during the pandemic, there are several developments that will continue to drive the move toward nearshoring.
In some industries, fuel costs are a significant factor and reducing those can have a major impact on profit margins. Additionally, rising attention to carbon footprints and the ESG credentials of organisations means that longer transport routes have come under the spotlight.
Resilience has become a buzzword in the logistics industry and many companies are actively looking at nearshoring as a viable strategy to prevent supply chain disruption from happening in the future again. Expect logistics professionals to take on a much more strategic role over the coming years.