On-Shoring and Near Shoring Explained
We will start with what is the difference between Near-shoring and On-shoring since the two terms are often (and mistakenly) used interchangeably. Near-shoring refers to the practice of relocating manufacturing or service options closer to North America. On-shoring refers to bringing operations fully back to the home country. The difference comes down to being literally ON domestic soil, or just NEAR it, and not requiring larger air/ocean moves. Both options can provide supply chain pros and cons.
Many manufacturing sectors shifted to near-shoring about 15 years ago. The supply chain strategy was particularly popular with automotive, electronics, and fashion shippers. Some of the advantages of making this change were/are:
- Reaching target markets fasters
- Decreased lead time
- More options and flexibility in choosing modes of transportation (road, rail, and ocean).
- Lower inventory requirements
Traditionally, off-shoring (typically to Asia) meant much lower production costs. Today, lower production costs are not always outweighing some of the benefits that near-shoring and on-shoring can offer.
The Hybrid Shipper
Few shippers adopt a system that is entirely one of “on-shoring, near-shoring, or off-shoring”. Most manufacturers, for example, use near-shoring and off-shoring depending on the component and what stage of production it is being used in. For example, it's common to assemble products near shore in the final stages of production so they can quickly meet the consumer after their final stage. In the case of vehicles, it also makes a lot of sense to assemble as close to the consumer as possible, since it would be extremely costly to ship such a large item long distances to the consumer. By the same logic, manufacturing some smaller and lighter components offshore (engine pieces, display screens, plastics, etc.) is often cost-effective. As you can see, using a hybrid process allows larger manufacturers who are building and making complicated items to take advantage of the unique offerings that may be more favourable in global markets.
But what happens when one off-shored component is essential to the final product?
Sound familiar? Yes, this is what happened with vehicle microchips, and this specific case is another reason many shippers are thinking harder about near/on-shoring. They are looking to see how they can better control the essential pieces of their complicated supply chain, and they are certainly evaluating the costs and benefits of more local production for certain components.
Naturally, Mexico has been the first choice for Near-shoring in North America. Yes, the cost of labor is higher than overseas; however, it’s often still cheaper than on-shoring into Canada or the USA. Mexico (wisely) has been and is still investing in infrastructure so shippers can move freight by truck, rail (intermodal), and ocean to North America. Their transit times range between roughly 1-14 days, which is extremely competitive given it is about half of the time it takes for just the vessel transit from China.
Wellington GOC has been working out of Mexico since 2018 and our San Diego office has over-the-road, shunting, and intermodal processes in place for shipments coming to the USA and Canada. With our assets and partners, we manage transloads in Laredo, Texas. We also have intermodal services directly out of Mexico using all major lines. If anyone has further questions about near-shoring in Mexico and would like to discuss it with our team, please reach out to me.
Shippers, have you implemented the above process or are you investigating the advantages? Let us know what factors are affecting your consideration of concepts such as near-shoring.
Do you think near-shoring will ever replace export powerhouses in Asia?
See you next week!
Bill Robinson
