More US-based manufacturers are closing their overseas factories while opening new factories here in the US. Known as reshoring, it’s been gaining momentum among manufacturers, and for good reason: it reduces shipping costs, allows manufacturers to be closer to their customer base, and it promotes a healthy economy.
According to a recent study conducted by the Boston Consulting Group (BCG), 17% of US manufacturers are moving operations from overseas back to the US. This isn’t a new trend, however, as manufacturers have been reshoring jobs for years now. In 2013, however, the percentage of manufacturers who were actively reshoring jobs back to the US was just 13%. In just one year, that number has grown by 4%, which is a pretty substantial amount to say the least.
The BCG report also found that the US has surpassed China as being the most popular country for new factory capacity for products sold in the US. Roughly 31% of CEOs and corporate executives with a minimum of $1 billion in revenue said the US is the most likely country for a relocation. This number is up from 26% in 2013. To put this into perspective, only 20% of these corporate executives said China would be their destination of choice for a relocation.
BGC’s Michael Zinser explained that the same “economic forces” that prompt companies to reevaluate their manufacturing footprints have not changed. Subsequently, it’s more cost-effective for companies to produce products right here in the US as opposed to overseas. When manufacturing companies produce products overseas, they must pay additional money for shipping, port fees, taxes and more.
“The fundamental economic forces that are prompting many companies to reassess their global manufacturing footprint have not changed,” said Michael Zinser of BCG. “Given the big differences in wage growth and productivity—and the greater attention companies are paying to total cost—there is good reason to believe that the cost-competitiveness of the U.S. compared with China and many other major export economies will continue to improve in the near term.”
So, how long will the trend of reshoring in the manufacturing industry continue? There’s really no way to predict just what the future has in store for the industry, but experts say there’s no indication of reshoring slowing down anytime soon.