Morai-Logistics-Blog-north-america-outsourcing-manufacturing

Dongguan Win Win Industrial, a Chinese shoe factory that makes high-quality shoes for large American chains, is looking to the U.S to source its manufacturing. Wall Street journal writer Andrew Brown wrote about the story on Tuesday as the growing trend of nearshoring for outsourcing solutions develops.

The case Brown looks at isn’t isolated. Other Chinese manufacturers have also built factories in the U.S. In November of last year, clothing manufacturer Tianyuan Garments Co. acquired a metal fabrications plant in Arkansas. Even Hasbro Inc. has decided to source from the U.S. Play-Doh products are again being manufactured locally; something that hasn’t happened since 2004.

Over the last decade, an increasing number of manufacturing jobs having been returning from abroad back to North America. While the political climate plays a part, other factors are driving the change.

Looking at the Numbers

To say that offshoring producer jobs has been popular over the last few decades, would be an understatement. Just between 2000 to 2003, around 220,000 American jobs were shipped overseas annually according to the Reshoring Initiative.

2014 was a turning point. For the first time in over 20 years, there was a net gain of 10,000 jobs brought back to American shores. Combine that with the fact in 2016 alone, Chinese companies invested over $20 billion into the U.S. That figure was practically non-existent just a decade earlier.

The trend is set to continue. The 2016 Global Manufacturing Competitiveness Index predicts that the U.S will be the most competitive manufacturing economy in the world by 2020.

Factors Contributing to Reshoring

There are several contributing factors that is changing global supply-chain economics:

Rising Wages in China

Rising labour costs in China shouldn’t come as a surprise, especially with some years seeing a 15%-20% annual increase.

“In 2004, the cost of manufacturing on the east coast of China was approximately 15 percentage points cheaper, on average, than in the United States. In 2016, that gap was down to about 1 percentage point” report Justin Rose and Martine Reeves in this Harvard Business Review article.

Automation Technology

The rise in robotics technology has led to greater automation of tasks, further reducing the cost advantage of offshoring. It’s estimated that up to 50% of the work done in a plant today could be replaced through robotics technology.

Changing Customer Expectations

We’re now in the age of e-commerce. Industry giants such as Amazon are already cutting deep into their profit margins to keep up with competitors. The only advantage left is speed. Customers want their items arriving the same day or even hour as when they order. This means it’s becoming more practical for items to be manufactured in-country rather than ship it overseas.

It’s too early to say how the growing trend of nearshoring will affect the American job market. Companies like Walmart have already pledged themselves to investing in more local sources. However, that doesn’t mean all the jobs lost will be returning. Customer expectations are pushing supply chains toward greater automation at home, not necessarily more jobs. What is certain, is that as global supply chains grow in complexity and cost, more companies will be looking closer to home to manufacture their items.

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news.

Outsourcing is business strategy of contracting work out to a third-party. Companies use outsourcing to gain access to cheaper labour, larger specialized labour pools, and/or obtain other benefits through an economy of scale. The term encompasses both the setup of a subsidiary, and the off-site activities of a company.

For decades, companies used outsourcing strategies to meet the needs of their business, but it was not formally identified as business strategy until 1989.

The three main types of outsourcing are: offshoring, nearshoring, and reshoring in the logistics and supply chain industry. The main difference between them is the location of the third-party. Each has its own benefits and costs, but because of the dynamic nature of global political-economy these are always changing.

We created this eBook to kick off 2017 to clarify why companies choose a particular offshoring option over another. This way, you can see how manufacturers think about these strategies.

What is the Difference Between Logistics Oursourcing Options

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Choosing Shoring Options

There are many advantages to outsourcing certain jobs and functions—cost advantage, access to bigger pools of skilled labour, increased efficiency, and saving on infrastructure and technology. However, the biggest advantage is that it allows your business to focus on core areas. Your business will be able to spend more time on building its brand, R&D, and providing higher value added services.

Offshoring, nearshoring and reshoring each have their own distinct advantages and disadvantages. Though, what will work best for your business will depend on its goals and core competencies. Talking to a third-party logistics provider is a very useful way to learn more about sourcing options.

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news.

RMS Inc., a risk-modeling firm, recently released a report that looks at the top ports at risk of a disaster. The predictions are primarily based on cargo type (e.g. autos, bulk grains, electronics, etc.), precise location, storage infrastructure and the dwell time.

The report was released a year after the Tianjin port explosion in China, a man-made disaster that led to more than $3 billion in claims after damaging property, disrupting supply chains and killing more than 170 people.

This month we decided to focus on the most at-risk international ports.

8 Interesting Facts about the Most At-Risk International Ports

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That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news.

Morai-Logistics-Blog-US-Manufacturing

Earlier this month, Deloitte Touche Tohmatsu Limited (Deloitte Global) and the Council on Competitiveness (Council) release the 2016 Global Manufacturing Competitiveness Index report. The most interesting highlight from the report is that by 2020, the U.S is expected to the most competitive manufacturing nation with China moving to the number two spot.

The study used an in-depth analysis of survey responses from over 500 chief executive officers and senior leaders at manufacturing companies around the world. Respondents were asked to rank nations in terms of current and future manufacturing competitiveness.

Other major highlights of the 2016 Global Manufacturing Competitiveness Index (GMCI) include:

  • The U.S is highly competitive in terms of the share of high skill and technology contribution to exports and labor productivity as measured to gross domestic product (GDP) due to continued heavy investment in talent and technology.
  • Among the BRIC nations, manufacturing executives expressed optimism for only China and India by 2020. The other three – Brazil, Russia and India – have seen continuous declines in the study’s rankings over the past six years, despite aspirations that they may emerge as manufacturing goliaths.
  • Brazil’s political uncertainty, Russia’s geopolitical activities and impact from the slide in global crude oil prices, matched with India’s challenged economic and policy actions around infrastructure and investments, have likely triggered the decline from the BRIC’s manufacturing competitiveness peak.
  • The U.S. stands out as the anchor for the North American region with the highest level of manufacturing investments, a strong energy profile, and high-quality talent, infrastructure and innovation. Canada’s low trade barriers, tariff-free zone and investments in sectors key to its growing high-tech manufacturing future, along with Mexico’s 40 free trade agreements, low labor costs and close proximity to the U.S. round out the region.

China moving to the number two spot for manufacturing isn’t surprising given the meteoric rise of worker wages which has increased at a 13.7 percent annual rate, or close to six times the overall inflation rate according to the U.S Department of Commerce:

While China’s rapid wage growth is not the norm in many other countries, manufacturing wage growth in a number of countries has easily outpaced wage growth in the United States—and may well surprise manufacturers who are not expecting such growth. Between 2000 and 2013, annualized manufacturing wage gains were, for example, 6.5 percent in Brazil, 5.4 percent in the Philippines, 6.7 percent in South Korea, and 7.9 percent in Poland

“Made in the USA is making a big comeback,” says Deborah L. Wince-Smith, president and CEO of the Council on Competitiveness. “Contrary to the view that manufacturing is dirty, dumb, dangerous and disappearing, our study points to a manufacturing future characterized by innovation-driven growth…The manufacturing rebound in America is all about advanced manufacturing, not bringing low-wage, low-level manufacturing back. That will make us competitive at the high-end of advanced manufacturing where jobs are fewer and require a high level of skill.”

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news.

The current shortage of truck drivers is estimated at roughly 25,000. The turnover rate, which hit 96% by the end of 2014 is due to a multitude of reasons, including demographic, regulatory, and the fact that drivers are away from home for a period of time, among other factors.

This month, we thought it would be a great idea to take a look at these facts and figures!

12 Key Facts About the Driver Shortage and the Future of the Trucking Industry

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That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news.

Morai-Logistics-Blog-Labour-Dispute

It was around this time last year when the West Coast Port labour dispute was in full swing and many different businesses both in North America and abroad were feeling the effects. What had started as tensions between the International Longshore and Warehouse Union and the Pacific Maritime Association, led to negotiations failing over wage and labour conditions. From October 2014 to March 2015, the port’s ability to effectively and efficiently process cargo was severely impacted as several cargo-laden ships were not unloaded and instead left stranded up and down the coast.

Several companies were unable to ship their products in a timely manner leading to the accumulation of more and more extra supplies and products. This inventory glut crowded warehouses, eventually forcing companies to cut back on their new orders to clear out their backed-up storage facilities, costing several different businesses in the short and long-term. A new study by the Washington Council on International Trade came out this week and it analyzes the costs and impact of the labour dispute across multiple industries and sectors, including agriculture and food processing, retail, and transportation and manufacturing.

Several different estimates were forecasted at the time as to the cost of the slowdown. “Kurt Salmon consulting firm previously estimated the slowdown would cost U.S. retailers $7 billion. The Manhattan Institute conservative think tank projected apple farmers alone lost $19 million during each week of the slowdown. The North American Meat Institute estimated their losses to be more than $40 million each week” cites this article on USNews.com reflecting on the topic.

The study gives a breakdown as to the actual price tag for the slowdown which ended up being very significant for both the U.S economy, trade, and several different industries:

  • U.S. exports dropped by more than $11 billion (nearly 6 percent) between May 2014 and February 2015.
  • An estimated $558.8 million in exports were not shipped by water during those months. Some exporters diverted to air cargo, increasing shipments by air a total of $152.6 million.
  • The value of goods that were not shipped during the period was $403.2 million.
  • Importers racked up an additional $345.1 million in additional costs through reductions in inventory incurred by retailers, delayed delivery of components to manufacturers and so forth.
  • Demurrage (storage) fees that would not have occurred if there were no port congestion totaled $7 million, and truck-idling costs of $14.2 million resulted.
  • Fruit and meat rotted aboard idle West Coast ships, many of which were anchored off relatively warm ports like Los Angeles.
  • Shipping companies rolled out surcharges upward of $1,000 per container on some ships to help cover expenses related to failed deliveries.

The total cost the study determined, is $769.5 million, however the council is very clear that this is only the short term cost. Long-term costs will be more far reaching. “Future costs, such as damaged client relations resulting in the loss of business or sole source contracts, can have long-lasting impacts on Washington businesses,” said the study. “While these impacts are not quantified in this report, they are real and potentially much greater than the near-term costs presented above.”

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news!

Morai-Logistics-Blog-Mexico-Rail

Last Friday, a new international rail bridge between the United States and Mexico was finally operational. The project took 15 years to complete, and had a price tag that ran over $120 million according to an article in the San Antonio Express news.

This new international bridge, of a sort not built in over one hundred years, is impressive but it is only a small part of Mexico’s rapidly developing rail ways and intermodal capabilities.

The combination of recent labor disputes at the U.S. West Coast, and rising costs on goods shipped to the U.S. from China (due to high oil prices and rising wages) has made Mexico very popular for international trade and companies seeking to convert to nearshoring as their logistics strategy.

It should be no surprise then that the aforementioned article quoting census data, writes that in the first six months of 2015, Mexico topped $262 billion in trade.

An excellent InboundLogistics.com article on the topic covers Ferrocarril Mexicano’s success, the country’s largest railroad, as a case study for the growing demand for rail transportation both domestically and between Mexico and the United States. This railroad had its carload volume increase by 6.6 percent in 2011 compared with 2010, and revenues increase by 13.9 percent.

Mexico’s central location, and the country’s commitment to improving security across its entire rail system are the other reasons InboundLogisitcs attributes to the railroad renaissance.

A similar article on LogisticsViewpoints.com emphasizes that Mexico has received a lot of investment from private companies to improve the Mexican rail system (over 5 billion U.S in fact).

This, according to the article, has created a system that is compatible with those of both its northern neighbours: “rail transportation, including bulk, general cargo and intermodal, has been a key factor in the expansion of trade between the U.S. and Mexico”.

Bringing it all back home

Stronger, more secure, and better supported rail ways are not the only things Mexico has to offer. Along the Mexico-Texan border, an area traditionally filled with warehouses, a home for “reshoring” is being created. U.S manufacturing companies are moving back home.

CoStar.com gives the example of the $8.1 billion purchase by IndCor Properties of 18 buildings with a combined 2.13 million square feet in El Paso, TX, as evidence of this. The article also discusses why goods shipped to West Coast ports have declined by 30% thanks in large part to the ongoing labor disputes there (which is because of ongoing labor disputes there).

The best way to conclude this blog post, is to again quote from the InboundLogistics article:

Investments in better processes, connectivity and operations will continue to increase capacity, expand intermodal ramp operations, improve service and increase train speed within the growing Mexican railroad network. This, combined with the improvements made over the past 20 years, are making rail and intermodal a sustainable, viable and long-term transportation solution for both cross border and intra-Mexico supply chains

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news!

In recent years, the growing trend with many U.S. companies has been to relocate some or even all of their off-shore production back to North America. China no longer holds the sway that it used to, but countries such as Mexico are quickly becoming the much more attractive option. Here are 12 reasons why you should consider near shoring in Mexico.

The Right Time to Consider Nearshoring Strategies to Mexico

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As foreign investment in China stalls, Mexico’s foreign investment continues to grow. As a result, demand for facilities and land is beginning to drive up. Thus, the best time to invest in Mexico for your manufacturing or sourcing potential for your organization is now.

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news!

Morai-Logistics-Blog-Nearshoring-vs-Reshoring

In the past, we’ve written about the benefits of near-shoring over off-shoring. However, something we haven’t discussed in much detail is re-shoring.

A recent article on EBN discussed the findings of Cushman & Wakefield’s 2015-2017 North American Industrial Forecast. In the article, writer Jennifer Baljko highlights the differences between the praise reshoring has gotten in the media versus Cushman & Wakefield’s findings and in doing so, asks an important practical question of manufacturing and logistics companies: “Where will you put your factory?”.

Before going any further, it’s important to properly define the terms re-shoring and near-shoring as they are sometimes used interchangeably despite them having very different meanings.

According to a Forbes article on the topic,

Re-shoring refers to manufacturing that was previous done outside of America and has been moved back to America. Near-shoring refers to manufacturing work that has returned closer to America in countries such as Mexico.

Cushman & Wakefield’s findings, as Baljko points out, makes fining quality and affordable space for factories and warehouses one of the biggest challenges for companies who decide to move back home.
“A lack of quality space remains one of the biggest challenges facing manufacturers in the U.S. Emerging technological advances, such as improved measuring/process control, advanced digital technologies and sustainable manufacturing, have made many older facilities functionally obsolete, opening the door for more speculative construction to take place within the next few years,” the report noted.

How Does Near-shoring compare?

Although Cushman & Wakefield’s study advised caution for companies considering re-shoring their manufacturing, their findings did indicate that near-shoring to Mexico might be a more prudent long-term strategy.

“Major drivers of industrial real estate activity continue to reflect the prominent role of distribution and logistics sectors. They include large renovations, like Kuehne+Nagel’s 341,000 sf at O’Donnell Logistics Park, or expansions, like Walmart’s 132,000 sf at Parque Industrial El Convento” they write.

The reason for this is that is because of the competitive land prices the country offers. “Average industrial land costs range from $638.08 psf to $231.85 psf for private industrial parks sites and raw land respectively” they write in their report.

Manufacotring in Mexico also has other advantages that we’ve written about elsewhere, but according to Cushman & Wakefield’s, “Generally, Mexico is increasingly developing a pool of high-skilled workers and rapidly integrating its manufacturing industries with global production lines. Also, in addition to a successful macroeconomic reform agenda, an ambitious investment program by the federal government is expected to bring further improvements to Mexico’s transport and logistics infrastructure” they highlight in their findings. “Given such factors, Mexico’s industrial real estate market is forecast to continue growing and benefiting from increased demand from a diversified range of industries” they conclude.

That’s it for us this week! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news!