Analyst Insight:Nearshoring satisfies customer demand, contributes to ESG goals, and creates a foundation for supply chain resiliency.
The demand for nearshoring is one of the permanent supply chain outcomes of the global pandemic. Manufacturers, freight forwarders and retailers have made strategic business model changes that prioritize trade routes from neighboring countries. In 2023, the value of trade between the U.S. and Mexico was$799 billion dollars, breaking the previous record set in 2022. To put this in perspective, that’smore than triple the valueof trade between the U.S. and Mexico in 2004.
Nearshoring is not just a customer-driven trend. Beyond customer demand, nearshoring provides a variety of environmental advantages, and offers organizations an avenue to operate more sustainably.
Net Zero Targets
The shift to nearshoring is occurring on the heels of more than a third of the world’s global companies announcing commitments to achieving Net Zero carbon emissions targets by 2030. However, many of these companiesare likely to miss their targetsunless they at least double the rate of carbon emission reduction. Since freight is a significant source of carbon emissions anddemand for global freightcontinues to surge, more efficient trade routes can help move the needle on Net Zero targets while still meeting customer demand.
Fuel Alternatives
Nearshoring makes it easier to utilize alternative fuel and energy sources to move freight.Eighty percent of international tradeby volume is shipped by sea, yet shipping is reliant on fossil fuels. Alternative fuels are currently limited by both distance and route. In other words, shorter-distance supply chain movement can be powered with electric vehicles and other alternative energy sources, but long-distance trade movement by sea is likely to continue to predominantly require carbon-based fuel.
Inventory Waste Reduction
The cost of inventory waste is estimated at a staggering$163 billion annually. Damage is a prime culprit—inventory that gets spoiled, broken, /or delayed ends up getting tossed. The longer and more complicated the supply chain, the higher the likelihood that inventory will be subject to damage. Nearshoring can reduce the time that freight spends in a warehouse or in transit, in turn reducing the risk of waste.
Adaptability
Another cause of inventory waste is overproduction. After pandemic-era shortages, it was common for manufacturers to overproduce to avoid running out of inventory, only to be left with a glut of excess. Even in more typical circumstances, long supply chains make it harder to adapt to changes in the economy or consumer preferences. Nearshoring allows organizations to adjust operations more quickly, minimizing both the financial loss and the environmental impact of waste.
ESG Reporting
More than95% of global companiesnow publicly report ESG goals, and provide periodic updates on their progress toward meeting them. Shortened and more efficient supply chains deliver data points that give organizations quantifiable, year-over-year measurements to highlight ESG progress.
The supply chain has faced seemingly every possible type of challenge in the past few years. Geo-political conflict in multiple regions, extreme weather disasters, an international health crisis, and a volatile global economy have tested the supply chain from every direction, revealing weaknesses as well as opportunities.
