Rebalancing your supply chain isn't a risk-free process.
Among the many shocks delivered by the pandemic was the realization that there was a downside to getting all our stuff from the other side of the world. It may have been the cheapest way to get that stuff, but there were hidden costs that didn’t reveal themselves until supply chains had already fractured. Loss of control, disrupted logistics, breakdowns in communication — all leading to the kind of financial and reputational damage that put a lot of companies out of business permanently.
Many companies that didn't go out of business started looking at ways to regain or improve control over their supply chains. Specifically, they began to consider nearshoring as a viable solution — reasoning that a shorter distance between themselves and their suppliers could translate to more timely and accurate delivery of goods, reduced transport costs, and generally greater resilience in all aspects of supply chain management.
Climate change and ESG (Environmental, Social, and Governance) risks also began to factor into nearshoring considerations with the prospect of lower emissions corresponding to shorter transport times. (ESG is a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria.)Tracking the Nearshoring Trend with Data
Recent shipping industry trends show that there has been a definite swing toward sourcing suppliers in closer proximity. Dun & Bradstreet's analysis of shipping data across multiple industries reveals that during 2022, shipping from the Asia-Pacific region to the United States — defined in terms of inbound twenty-foot equivalent units, or TEUs — dropped off markedly. China, of course, saw a significant decline; over the 12-month period from January to December 2022, shipments fell from approximately 45% of TEUs to just over 30%. In contrast, TEUs going from Latin America and Europe to the United States grew in 2022. The biggest gainers included Germany, Belgium, Brazil, and Guatemala.
Export data for European countries during the same time frame showed increased activity for Italy, Spain, and Greece. Import data for the United Kingdom showed more goods arriving from North America and South/Latin America in 2022 than in 2021. Earlier in the pandemic, between 2020 and 2021, UK imports from the Asia-Pacific region decreased from nearly 80% to 67%. Conversely, imports to the UK from mainland Europe were 66% higher in 2021 than 2020, and grew an additional 7% in 2022.
Upsides and Downsides of Nearshoring: Know the Risks
Bringing suppliers closer doesn't just reduce logistical costs. It can help improve relationships with suppliers when there's a better likelihood of cultural and linguistic familiarity. Visiting nearshore suppliers in person is a more realistic prospect, and there's really no Zoom substitute for handshakes, facility tours, and shared meals. Maintaining control over inventory status and product quality can also be easier when you can communicate with suppliers whose workday actually overlaps with yours, at least in part.
You can't let your guard down and not perform thorough due diligence because the new supplier is geographically closer or culturally more familiar.
There can be many ways that nearshoring helps create stronger, more resilient supply chains. However, it's important not to fall under the overarching risk of complacency. You can't let your guard down and not perform thorough due diligence because the new supplier is geographically closer or culturally more familiar. Regardless of the sourcing proximity, these potential risks should always be considered, including when choosing a nearshore supplier:
- Geopolitical risk. Having a supplier located in a nearby country doesn't necessarily guarantee that their working conditions are always stable. You still need to monitor factors like the political climate, labor relations, economic uncertainty, monetary policies, and national security.
- Environmental risk. In the past decade, an unprecedented number of natural disasters have wreaked havoc on global supply chains. When assessing a potential nearshore supplier, it's critical to understand how local climates might disrupt the manufacture and delivery of goods.
- Regulatory compliance. Adhering to local, federal, and international laws and guidelines is challenging even within your own borders. You'll need assurances that a nearshore supplier is following applicable regulations on, for example, environmental health and safety, employment practices, or banned and toxic materials.
- Quality control. Manufacturing standards — not to mention customer satisfaction thresholds — can differ across regions. To what extent can a potential supplier meet the standards set by your market, your industry, and your company? Are the benchmarks the same?
- Competitive factors. Nearshoring may increase the risk of dependence on the same suppliers as your competitors. Sourcing alternate suppliers — or at least being aware of them if needed — helps mitigate the risk of overdependency.
Improving Nearshoring Results with a Comprehensive Data Strategy
Ultimately, mitigating the risks associated with nearshoring suppliers comes down to having meaningful transparency into all your supply sources. This requires a “single source of truth” to provide the intelligence and insights that will help you to actively monitor supplier risk and performance and confirm that your supply chain is functioning as it should.
Also included in this eBook:
- Five crucial data categories to consider as part of a supplier risk management program (nearshore or offshore)
- A four-part framework to help you plan ahead and address any potential supply risks with greater confidence
- Four immediate next steps you can take to help achieve better nearshore supplier risk management
The information provided in articles are suggestions only and based on best practices. Dun & Bradstreet is not liable for the outcome or results of specific programs or tactics. Please contact an attorney or tax professional if you are in need of legal or tax advice.
