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Nearshoring in Supply Chain and Logistics: A Strategic Advantage

A massive cargo vessel transporting a diverse array of freight and cargo, smoothly navigating the open ocean en route with nearshoring

In the constantly changing landscape of the global market, supply chain and logistics play a vital role in guaranteeing the smooth transportation of commodities around the world. As businesses aim for efficiency, resilience, and cost-effectiveness, they are increasingly turning to nearshoring as a strategic solution. In this blog, we will explore nearshoring, its advantages, and the reasons behind its popularity in the supply chain and logistics industry.

What is Nearshoring?

Nearshoring refers to the practice of sourcing manufacturing or business processes from neighboring or nearby countries, often sharing geographical proximity and cultural similarities. Unlike offshoring, which involves moving operations to more distant countries, nearshoring retains a sense of closeness and accessibility while still providing cost and operational benefits.

Advantages of Nearshoring

  1. Proximity and Accessibility: Proximity allows for easier and quicker communication, less travel time, and better collaboration.
  2. Reduced Lead Times: Shorter transportation distances lead to quicker delivery of raw materials, components, and finished products. This can lead to faster inventory turnover, decreased working capital requirements, and ultimately a more agile supply chain.
  3. Cultural Affinity and Language Proficiency: Shared cultural values and language similarities between neighboring countries often result in smoother interactions between teams.
  4. Lower Costs: Nearshoring can provide cost savings when factoring in transportation, inventory holding costs, and potential trade-offs with quality and lead times.
  5. Risk Mitigation: Being geographically closer can help businesses respond more effectively to unexpected events, such as natural disasters, trade policy changes, or global pandemics.

Why Nearshoring is Gaining Popularity?

The COVID-19 pandemic exposed vulnerabilities in global supply chains, which led to disruptions in production, transportation, and logistics. As a result, businesses are now reevaluating their supply chain strategies and seeking more resilient alternatives. Nearshoring offers a way to mitigate risks associated with over-reliance on distant and complex supply chains. Moreover, modern consumers demand faster deliveries and personalized products. Nearshoring allows companies to adapt more quickly to changing consumer preferences, reduce delivery times, and provide localized products or services. Recent developments provide a compelling testament to the growing popularity of nearshoring, with Tesla being a prominent example. The company’s plans to establish factories in Mexico underscore the increasing appeal of nearshoring. Lastly, nearshoring can contribute to sustainability goals by reducing carbon emissions associated with long-distance transportation. Businesses are increasingly under pressure to adopt environmentally friendly practices, and nearshoring aligns with these objectives.

In an era of rapid change, the supply chain and logistics industry must continuously adapt to meet new challenges. Nearshoring provides a compelling solution, offering benefits such as proximity, reduced lead times, cultural affinity, cost savings, and risk mitigation. By embracing this approach, companies can position themselves for success in an increasingly dynamic global marketplace.

Elevate your nearshoring initiatives with US Cargo Link. We have the strategic tools to enhance your supply chain’s efficiency and resilience. Connect with us today!

Tariffs, Simplified.

https://twitter.com/realDonaldTrump/status/1156979446877962243

 

 

President Trump recently announced that the United States will be implementing a 10% tariff on $300 billion in Chinese imports effective September 1.

Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers.

(Source: https://bit.ly/2C9sF1b)

Ostensibly, these tariffs are focused on consumer goods like electronics (smartphones, laptop PCs, video game consoles), apparel, and footwear.  These items have peak imports during the last quarter of the year so it is speculated that there will be an influx of imports in attempt to beat the upcoming tariffs.

Just two weeks ago, Chinese media outlet Xinhua stated China will take “necessary countermeasures to defend its core national interests and it’s people’s fundamental interests if the United States goes ahead with these announced tariff hikes.”  Of course, we know now that the countermeasure is the devaluation of the yuan which caused the Dow to drop when the stock market reopened the following Monday (August 5) and initiating a trade war.  China has also since announced that they will suspend all agricultural product purchases from the United States.

https://twitter.com/realDonaldTrump/status/1158709475517325313
President Trump doesn’t seem too concerned, though.

So, what does this all mean? Well, it is assumed that China’s devaluation of the yuan has put us in a win-lose situation.  Since China allowed its currency to weaken, China is now paying for at least part of the tariffs proposed by President Trump.  However, because the tariffs are now being paid, it is unlikely U.S. businesses will see a boost in domestic sales.  Essentially, it’s impossible to have both the tariffs and an increase in domestic sales. 

“Some U.S. consumers may switch their purchases to U.S. goods, but they won’t be able to afford as many, and other consumers may simply put off purchases altogether…if the Chinese allow the yuan to keep falling, it could theoretically undo the effect of the tariffs. Consumers would see the same prices they did before the tariffs were imposed.  U.S. manufacturers face a double-edged sword: China’s devaluation of its currency makes their inputs cheaper. But it also makes foreign demand for their products weaker.”

–Karl W. Smith, assistant professor of economics at the University of North Carolina’s school of government.

(Source: https://bloom.bg/2yJhCI8)

It is important to keep in mind that though this trade war is between two world powerhouses, it will affect the entire world. The European economy has already been struggling and the devaluation of the yuan will make it harder for countries whose economy depends on import/export to compete. Caterpillar, an American company, sell their machinery internationally and heavily depend on China’s inexpensive steel and aluminum to build.  They have since resorted to buying domestically because of the tariffs but don’t see it as a permanent solution since U.S. aluminum and steel are so costly.  Not to mention, China pulling out of all agricultural purchases from the U.S. will most definitely have further adverse effects to the economy.

Supply chain is global, and the ripple effects of the tariffs will be as cyclic as a leaky faucet on a clogged sink with no clear indication of who will come out on top.

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