Shoring trends are changing the landscape in transportation and logistics

After years of increasing globalization, an appreciation for the benefits of localized sourcing is gaining momentum, with reshoring and nearshoring becoming a pronounced pattern across various sectors.

In a 2022 survey by Kearney, nearly all surveyed CEOs stated that they are considering, planning for, or have already completed reshoring of operations.^{Disclosure 1} Transportation executives whose companies have been preparing for nearshoring expect that by 2025, one-fifth of freight currently coming from Asian countries will originate in North or South America and believe that close to half will be relocated before the end of the decade.^{Disclosure 2}

Change is coming for transportation and logistics (T&L) companies as they reshape their businesses to support a number of trends that are bringing sourcing closer to home.

Varied forces drive the restructuring of global supply chains.

A host of geopolitical, economic, and business factors propel the onshoring movement. Still reeling from the pandemic’s far-reaching disruptions, business leaders see the benefits of moving sourcing and production closer to home to reduce over-dependence on China and escape the political dynamics that accompany that reliance. There’s a desire to mitigate geopolitical risks posed by conflicts in Ukraine, the Middle East, and potentially in Taiwan along with trade wars and other global disruptions that continue to threaten business operations and trade.

Geography. Once dismissed as a secondary concern in a global economy, geography now gets prime consideration as a mechanism to reduce business risk. The math is simple: Moving goods and inputs over shorter distances equates to a more reliable supply, a reduced cost of transporting goods, and a lower chance of transport disruptions.

Government. U.S. economic and trade policies continue to play a prominent role. The United States-Mexico-Canada Agreement (USMCA) supports trade among North American countries, while legislation like the CHIPS Act and electric vehicle (EV) tax credits further incentivize companies to move operations closer to home.

E-Commerce. The rise of e-commerce has had a profound impact on supply chains, with consumers devoted to online shopping increasingly expecting shorter order-to-delivery times—a phenomenon known as the Amazon effect. More streamlined production and warehouse facilities located in proximity to customers enable a faster speed to market, and shorter shipping routes help companies meet their sustainability goals.

Reshoring and onshoring directly impact T&L in the Southeast.

Though reshoring affects businesses nationwide, certain areas are experiencing a more pronounced impact. Six Southeastern states appear in Reshoring Initiative’s top ten list of areas gaining the most benefit of reshoring and direct investment by foreign companies.^{Disclosure 3} North Carolina, Georgia, and Alabama ranked in the top four.

Low corporate tax rates, robust infrastructures, and highly skilled workers make the region’s business-friendly states a compelling location for reshoring initiatives by domestic companies and targets for foreign direct investment. The automotive industry is a prime example, with manufacturers making significant investments in new and existing operations and establishing the Southeast as a center for electric vehicle production.

In Georgia, Hyundai has broken ground on its $7.6 billion EV “Metaplant”, with another $1 billion in investments expected as suppliers establish facilities nearby. Next door in North Carolina, Toyota will spend approximately $13.9 billion on its Toyota Battery Manufacturing, with production scheduled to begin in 2025. In Spartanburg, South Carolina, BMW is investing $1 billion to produce electric vehicles at one plant, and $700 million in another to assemble the high-voltage batteries that power those vehicles.

Not all new investments are EV-related. Fujifilm is committing $2 billion to build the largest end-to-end biologics production plant in the world in Holly Springs, North Carolina. Miele, the German premium appliance company, recently announced plans to establish a U.S. manufacturing hub in Opelika, Alabama.

Nearshoring paints a promising T&L future.

With Mexico now surpassing China as the top U.S. trading partner, nearshore manufacturers concentrated along the U.S. border and in industrial cities like Monterrey, Mexico City, Guadalajara, Queretaro, and Guanajuato are expected to boom. T&L companies based in the Southeast are at an advantage considering their proximity to Mexico. The nearshoring trend is likely to gain momentum in part thanks to the USMCA trade agreement, along with a range of tax incentives the Mexican government rolled out to entice companies considering relocation.

The biggest industrial development south of the border has been in the automotive sector, with Tesla’s $5 billion “Gigafactory” in northern Mexico serving as the most notable example. Other high-value sectors seeing substantial nearshoring development include aerospace, medical devices, and electronics. The German automation specialty company Balluff just began production of sensors and network technology in its new manufacturing facility in Aguascalientes, Mexico.

Southeast is well-positioned to ride the reshoring and nearshoring wave.

Rerouting trade to support nearshore and onshore manufacturing hubs will have dramatic effects on transportation and logistics companies worldwide. Meeting these new needs involves shifting freight volumes from deep-sea trade routes to short-sea and feeder routes. Major infrastructure investments have prepared the Southeast to benefit from the anticipated increase in freight volumes from both reshoring and nearshoring.

Billions of dollars have been invested to expand and upgrade the capabilities of ports along the Southeast coast. These ports are now seeing expanded volumes of port activity, with Savannah, GA and Norfolk, VA as notable winners.^{Disclosure 4}

Savannah is one of the top warehouse growth markets in the U.S., ranking second to only Phoenix in big-box warehouse growth rate for 2022.^{Disclosure 5} The Southeast boasts extensive railway and interstate highway systems that, together with a strong logistics ecosystem, provide for greater speed and efficiency in the supply chain.

In addition to its transportation infrastructure advantages, the Southeast has seen a surge in economic growth and job opportunities. In the two years after the start of the pandemic, the Southeast saw 2.2 million jobs and $100 billion in income shift to the region, with just six southern states surpassing the Northeast’s share of GDP.^{Disclosure 6}

Is your T&L business poised for the change?

How should business leaders address the shift from global to local? Consider two crucial questions to help you position your company to benefit from these trends.

• What’s the best growth strategy for my business? A thorough assessment of your company, the markets it serves, and its current position in its business lifecycle can help you decide whether to focus on organic growth, expansion through strategic acquisitions—or both. Thinking through the optimal strategy and being prepared to act quickly enables you to seize on attractive opportunities when they emerge.
• What investments do you need to make? To stay competitive and capitalize on emerging growth opportunities, consider new locations and lanes along with necessary investments in terminals, warehouses, fleets, and other assets. Look at technology upgrades and ensure your systems and applications enable you to perform at peak efficiency while meeting customer expectations. Shippers are pressing their T&L providers to upgrade their technology interfaces to replicate the ease of functionality of common web applications, with real-time status of their goods in transit and full-featured mobile apps.

Expect organic and inorganic growth opportunities to emerge as activity picks up for middle-market T&L companies. Strategic T&L businesses are continually looking for acquisitions that improve their footprint and access to reshoring and nearshoring-adjacent markets. This presents opportunities for T&L companies that are considering strategic alternatives.