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Near-shoring, re-shoring shifting supply chain dynamics

Oct. 23, 2013

A slow but steady shift in manufacturing away from China to other southeastern Asian nations but especially into North and South America may have profound effects on the design and operation of global supply chain networks – with U.S. trucking services expected to be affected as well.

That’s one of the findings from the 20th Annual Survey of Third-Party Logistics Providers, sponsored by Penske Logistics and authored by Robert Lieb, professor of supply chain management at Northeastern University’s D’Amore-McKim school of business.

“About three or four years ago, upwards of 30% of those we surveyed were seriously talking about it,” he told Fleet Owner. “Over the last couple of years it’s been actually happening at significant levels.”

The survey analyzed responses from 34 major third-party logistics company CEOs across North America, Europe and Asia-Pacific – firms that generated approximately $50 billion in revenue in 2012 – and revealed that some manufacturing activity is leaving China, impacting both Asia-Pacific and North American regions significantly.

Within Asia-Pacific, 78% of the CEOs polled claimed that rising wage costs in China have caused companies to shift some manufacturing and export consolidation to lower-priced geographies, including Thailand, Vietnam, Indonesia and Sri Lanka.

In the North American region, the migration toward near-shoring continues with some key 3PL accounts moving from Asia-Pacific to Mexico – in particular for companies in the automotive, technology and pharmaceutical industries, noted Joe Carlier, senior vice president of sales for Penske Logistics.

“We’re also seeing a lot more RFPs [request for proposals] coming from South America as well in terms of ‘near-shoring,’” Carlier told Fleet Owner.

Lieb’s survey also found that 87% of North American 3PL CEOs reported providing third-party logistics services in Mexico, generating an average of 9.3% of their revenues in the U.S. – a number projected to increase to an average of 12.5% in three years. 

“As companies begin shifting their product origins to local regions, they will look for a third-party logistics provider that can strategically navigate through the new normal in the supply chain industry,” Penske’s Carlier said. “This includes the shift in supply chain length, changes in speed and demand for warehousing and transportation along trade corridors.”

He added that this “shift” will also profoundly affect demand for certain types of trucking services. “More near-shoring to Mexico means more demand for cross-border trucking and drayage services at the U.S.-Mexico border, and less demand for port trucking services at places like the Port of Oakland,” Carlier said.

Evan Armstrong, president of 3PL research/advisory firm Armstrong & Associates, also took note of the “near-shoring” trend in a conference call with reporters earlier this month hosted by Wall Street firm Stifel Nicolaus & Co.

“More near-shoring activity and more re-shoring is definitely helping out the industrial companies like Whirlpool. There is definitely some production coming back,” he said. “It is different than what it looked like before in terms of the number of employees, but it is coming back to the U.S. in dribs and drabs.”

As a result, while Armstrong added that largest growth area for the 3PL industry is still expected to be the Asia-Pacific region, and specifically Greater China, where he forecasts 8% annual growth through 2015, North America is expected to be the second-fastest growing region after Asia-Pacific these next few years.

“In terms of the U.S. 3PL market, from 1996 through 2012 – even with the recession in 2009 – we saw a CAGR [compound annual growth rate] of 10% and third party logistics in the U.S. is still running at about three times GDP [gross domestic product] in terms of growth,” he added. “We expect that we will finish up this year at about $150 billion in top line market revenues.”

Lieb’s survey found a similar strain of optimism among North American 3PL CEOs who, despite the sluggish U.S. economy, have their sights set on growth – expecting their companies to increase revenues by an average of 14.6% over the next three years.

North American and European 3PL CEOs forecasted higher three-year company revenue growth projections than last year, at 14.6% and 10.3%, respectively, while Asia-Pacific 3PL CEOs projected 11.6% growth over the next three years, down from 12.5% in 2012.

Lieb’s poll also asked all the 3PL CEOs to project regional 3PL industry revenue growth rates for the next three years in all three regions. For that three-year period, the CEOs projected average regional revenue growth rates of 8.29% in North America, 5.9% in Europe and 8% in the Asia-Pacific region.

“Despite Euro-zone challenges and some slowing of manufacturing activity in China, opportunities to expand services geographically have both regions poised for growth,” Lieb said. “Expansion into eastern Europe and Russia and an increased focus on servicing domestic consumption within China provide 3PLs with the opportunity to strengthen and stabilize their operations in those regions by filling out the services offered and customer base.”

About the Author

Sean Kilcarr | Editor in Chief

Sean previously reported and commented on trends affecting the many different strata of the trucking industry. Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

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