Bloomberg
When Mike Newman started to hear warnings earlier this year about delays at ports on the US West Coast because of labour negotiations, the threat of more supply-chain chaos “became the last straw for us.â€
So the chief executive officer of New York-based Returnity Innovations moved about two-thirds of his production of reusable shipping bags and boxes to Mexico from China to reduce the amount of merchandise flowing through the clogged docks in Los Angeles and Long Beach, California.
Even though Mexico’s manufacturing costs are as much as 30% higher than China’s for Returnity, the absence of tariffs and the speed of trucks give its customers a rarity in today’s disorderly arena of global commerce: more certainty about when their delivery will arrive. Newman plans to keep a significant portion of production in Mexico over the longer term.
Several years of supply-chain instability are pushing an increasing number of US retail companies to shift some production from China to North America. There’s no one-size-fits-all strategy and some options are quicker and cheaper than others. But adding suppliers outside China is emerging as a better short-term fix than more costly investments, such as building a new factory close to customers.
About 70% of the 1,610 executives surveyed by engineering company ABB said they plan
to bring at least part of their
operations closer to home to
address ongoing supply-chain issues.
During the past several years, barriers to the easy and cheap flow of goods have continued to mount, including former President Donald Trump’s tariffs on Chinese imports; months of delays during the pandemic to unload merchandise at snarled US ports; and, more recently, the on-again-off-again closures of major factories in China because of the country’s Covid Zero policies.
The unrelenting problems have convinced some executives that it’s time to rethink the corporate playbook of the past several decades.
Inter Parfums plans to cut its production of perfume bottle components that are made in China and sold in the US to about 25% by 2023, from around 70% in 2020, Jean Madar, chairman and CEO of Inter Parfums Inc, said, as the company shifts to manufacturing in the US as well as Europe. The rewiring will reduce the volume of goods that Inter Parfums ships through ports by about half, he added.
While it’s about 20% more expensive for Inter Parfums to manufacture the parts in the US versus China, Madar said it’s worth it.
Many American companies have chosen to expand their supply chains elsewhere in Asia, rather than closer to home.
High-end retail companies are more likely to move first on reshoring their production to the US and Mexico because their profit margins tend to be wider.
Nearly two-thirds of CEOs surveyed by consulting firm Kearney said they might be influenced by seeing other US companies reshore or near-shore. That’s in part because executives are waiting to see if more companies moving production closer to home pushes manufacturers to “reach enough critical mass for supplier ecosystems to be built out,†Kearney said in a report published in April. That would make it more cost effective for other firms to follow suit.
The higher production costs in the US and Mexico compared to China, though, could ultimately push some companies to increase prices to preserve profit margins.