The Case for On-Shoring

Strong consumer demand in the early (nearly) post-pandemic days has caused unprecedented supply chain problems.

With the median wage in China at $4800.00 the labor advantage for overseas production is still insurmountable on its face. However, transportation costs have erased the labor advantage virtually overnight.

As recently as early 2020 the labor advantage and affordable and dependable freight costs made it cost effective to move production up and back between North America and the Far East at will. Supply chain managers could simply do the math on labor costs and factor in the minor, and most importantly, steady freight costs to map out the most cost effective supply chain. This allowed CFO’s to squeeze out ever more effective margins and capital usage by leaning inventory and shifting carrying costs to manufacturers.

Not any more. The sudden surge in demand turned the entire system upside down. Delays and costs have translated into empty shelves and unheard of lead times. Unfilled orders convert to lost sales. Those lost sales must be looked at against the savings the lean planning yielded. Many lost or delayed sales are lost for good.

Now US firms are frantically trying to catch up. Inventory levels are up 16.5% year over year according the US Census Bureau.

However, the backlog is too large to catch up quickly. The 70+ container vessels anchored in the port of LA waiting to be unloaded are evidence of the extreme problem. The imbalance of supply and demand for containers and their transit have caused the cost to increase 600%, an amount that completely erases the labor advantage. Add to that the delays, and now supply chain professionals and all types of financial analysts are re-examining the reliance on off-shore production.

That is the case for on-shoring. The US has an educated and mature work-force. Proper wages will draw this experienced group back into the workforce and will be a powerful foundation for production. The freight imbalances will eventually ease, most experts think in 2023. However, there is now a strong case for balancing wages with dependability and experience and limiting our over-reliance on overseas production.

It turns out that Made in the USA is good for everyone. It is a lesson that is being revisited today with a new set of facts.