"Made In China" May Not Cut It Any More
Product imports are a huge part of the US global supply chain. You’ve seen ‘Made in China’ stickers on your products before, but now with COVID-19 restrictions and more outbreaks occurring in the Asian countries, supply chains are considering alternatives to embrace diversification.
Brewing for years, the single sourcing from Chinese exports was exacerbated even more during the COVID-19 pandemic due to delays created by the virus. Early 2020 manufacturing and supplier operations in many parts of China ground to a halt. This spread across the trans-Pacific to the US, causing importers to be unable to obtain goods.
There is a high risk that comes with single sourcing from one country.
Trade wars and tariffs as high as 25% added to the total landed costs for importers
IP theft has been a concern for several years, initiating a trade war
China’s wages exceed those in Mexico: $6.50 compared to $4.82 in Mexico.
Forced Labor continues to be investigated by the US in places such as Xinjiang region of China.
A large component of China’s electricity production perpetuates the climate situation. The environmental impact is about 25-50% higher than manufacturing in the US.
Forecasting for manufacturing times, plus shipping times when importing from China, as compared to a location such as in the US or Latin America, etc.
Cross border capacity from Mexico is far larger than that from China.
Covid 19 outbreaks are everywhere. While not unique to China, the pandemic has closed or limited operations at key transport hubs throughout Asia. One positive test can shut down a supply chain for up to two weeks.
While the pandemic continues, there is no single sourcing destination that is immune from delays created by the pandemic. Lockdowns could lift in one region, only to be imposed on another. It’s quite the conundrum to come across in the supply chain industry with a pop-up-and-go or miss your opportunity situation that continues to this day. Single sourcing from China or any one region becomes a huge risk with this kind of pop-up scenario of what is available for shipping, and the space to put the cargo once it’s gotten.
Mexico retains the spot of number 1 trading partner with the US, but sourcing executives are looking at other nations in Central and South America as well. Places like Nicaragua have a strong labor market and good level of education.
These same risk factors that are driving supply chains to diversify, are also driving them to think about reshaping to the US Proximity, allowing shorter transit times, lower emissions, and the ability to have a ‘Made in USA’ label, making import duties no longer a concern, reducing the total cost of ownership to something often lower.
A Thomas study that polled respondents in March, found that 83% of manufacturers are more likely to reshore with North American suppliers, up from the 54% in March 2020. But reestablishing bases in the US could be challenging after decades of standing them up in Asia and Latin America. Nearshoring in Mexico is more common, due to high labor costs in the US and Canada. Sourcing from Central or South America also offers additional transport options such as cross-border rail which can carry goods through Mexico to the US. The Pan American Highway spans Alaska to the tip of South America, with only the Darien Gap breaking the route.
While the infrastructure is still limited in parts of Central and South America, with enough investment to build the transportation infrastructure, the highway could potentially compete with China’s Belt and Road. Here at SecurCapital, it’s our duty to serve the logistics market with diligence and foresight when demand outpaces supply. Our unique vision allows us to consult with clients to improve their operations and procurement processes to meet the changes we see on the horizon. As we navigate these uncertain waters of the pandemic and the waves it throws at us, we will continue to keep you informed and up-to-date with everything that may affect you and your cargo. Trust in us to keep your cargo safe and secure with SecurCapital.