The Shipping Backlog Is Costing Companies So Much, They're Considering Bringing Production Back West

The logistical nightmare caused by the pandemic and subsequent high costs of shipping goods from Asia is making companies reconsider local production. At the very least, companies are thinking about “shortening supply chains” by bringing production back West, as Bloomberg reports. We may be seeing the start of a reshoring and near-shoring movement, with some companies already restarting production in the EU, the U.S. and Mexico.

Usually, I’d say “nah.” Cheap labor is the last thing companies will give up, but the viability of local production is increasing because those same companies are always looking for cheaper ways to do business. It’s ironic, but the same thing that drove production to Asia and elsewhere in the East, cost-savings, could see production brought closer to home!

KTM and Husqvarna’s parent company, Pierer Mobility, is opening a factory in Bulgaria that’ll reportedly make almost 500,000 e-bikes per year, to be sold in Pierer’s biggest bike market, Europe. The company’s CEO, Stefan Pierer, told Bloomberg it’s all because of the high costs of shipping:

“The logistics costs, to ship stuff from China to Europe, currently are 10 times what they were before the pandemic, and they won’t fully come down again. To ship products around the globe, given those costs, it only works for high-end bikes. For entry-level bicycles, you need a continental supply chain. We will change the system.” Pierer said many of his rivals are looking at doing the same, as requirements for working capital and logistics issues no longer make it sustainable to just source parts and bikes from countries like Vietnam and Taiwan while 70% of end products are expected to be sold in Europe.

Specialized and Giant were among the rival bike makers that Pierer claimed are also considering EU production. And Bloomberg says that Stanley Black & Decker is opening three new manufacturing plants in the U.S., while a handful of clothing companies are moving from Asia to Turkey and Portugal.

Many companies are not just worried about shipping costs, either. The time goods are taking to reach their target markets is another issue that near-shoring could help solve. In the case of goods sold in the U.S., that means moving production from China to Mexico. From Bloomberg:

Zipfox, an online platform that links businesses up with factories in Mexico, launched this week, enabling near-shoring of production and the chance to get goods into the U.S. more quickly than if businesses were sourcing from manufacturing hubs in China. [...] It’s now taking 110 days for freight to move from Asia to North America, still near the all-time high despite being a three-day improvement from the previous week. [...] That compares with an average of five to 10 days of shipping time from Mexico, Mahdi said, adding that the Zipfox platform includes about 200 vetted factories, and that facilities in other nations will be added.

Time is money, after all. So welcome back to the greedy bastards that moved production out of the U.S. and elsewhere in order to goose profits. I’ll try and be cautious about all this, because local production comes with its own difficulties.

Remember when Motorola tried to make phones in Texas, and it ended up shuttering that plant? I remember. Still, the irony of companies possibly bringing production back West to save money is just too good to pass up.