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Reshoring U.S. Supply Chain Will be Limited by Costs

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January 13, 2023

By Kevin Varley (Bloomberg) —

A mass exodus out of East Asia seems unlikely for US manufacturers in 2023, with any decision to diversify supply chains away from the region dictated by costs, as well as logistics considerations, according to separate reports. 

“The ultimate extent of how much production will be reshored or moved closer to home remains an open issue and will depend heavily on the relative costs of production in various parts of the world,” according to a Citigroup Inc. report on supply chain finance.

Reshoring, or friend-shoring, are terms being used to describe US manufacturers’ strategies to pivot away from China to secure supply chains either close to home or in nations with which America has a better relationship, like Mexico or India.

East Asia has traditionally housed a significant share of global manufacturing because it was a cheaper option. China has invested billions of dollars in port infrastructure and new container ships over the past two decades to create efficiencies that have served to protect manufacturers’ bottom-lines.

But its Covid lockdowns, frosty relations with the West, and Russia’s invasion of Ukraine created a new equation for some manufacturers in 2022, including Apple Inc., which switched some Iphone assembly to India.

Supply chain congestion and port infrastructure will likely limit how much manufacturers can actually change strategy this year. That’s the takeaway from a study by supply-chain data provider project44.

Consider the US, which played whack-a-mole with its supply chain issues over the past two years. When Southern California port snarls required White House intervention in 2021, exporters sent their containers to the East Coast in 2022.

This led to median container dwell times of 10.39 days for Charleston, and 8.85 days for Savannah, which was the highest among major ports globally, according to project44.

Health of the economy will ultimately remain the leading issue on how supply chains pan out this year.

A survey of over 2,600 industry professionals by logistics services platform Container xChange said that 88% believe that inflation and recessionary fears would be the biggest factor impeding businesses in 2023.

Chinese New Year holidays, as well as a buildup of new ships and equipment last year are likely to keep shipping rates low to start the year as supply outweighs demand, all while headwinds buffet the global economy.

© 2023 Bloomberg L.P.

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