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Reshoring Manufacturing Sounds Good, But Where Will You Put Your Factory?

There's lots of noise these last few years about companies bringing back some of their manufacturing to North America. Cheaper energy options, better on-time delivery, and increasing wages in countries labeled low-cost have been cited as the main motivating factors.

What kind of impact this is really having on the U.S. economy is up for debate, with some organizations and news agencies now discussing that the reshoring trend is less significant to the economy than it originally seemed.

Still, momentum around this shift continues to make headlines and remains on people's minds.

This leads to a practical question companies need to ask themselves when deciding to reshore manufacturing: Where will you put your factory?

Finding quality and affordable space for factories and warehouses has been one of the biggest challenges companies face when they decide to make the leap back, according to Cushman & Wakefield's 2015-2017 North American Industrial Forecast.

As the report points outs, there's a big contrast between sentiment and what's happening on the ground.

Here's the plus side. “U.S. manufacturing is making a highly anticipated comeback. The promise of cheaper domestic energy sources and rising labor costs around the world are prompting more manufacturers to set up shop locally. This phenomenon, known as reshoring or in-sourcing, is being adopted by a number of major companies now expanding operations stateside,” the report stated.

The downside, though, is a dose of reality. “A lack of quality space remains one of the biggest challenges facing manufacturers in the U.S. Emerging technological advances, such as improved measuring/process control, advanced digital technologies and sustainable manufacturing, have made many older facilities functionally obsolete, opening the door for more speculative construction to take place within the next few years,” the report noted.

This means rental rates and availability for manufacturing and warehousing spaces are squeezed. Here's how, according to the commercial real estate services firm's research:

About 35% of the manufacturing markets tracked by Cushman & Wakefield reported direct net asking rental rates above the national average. We see rental rates increasing for most manufacturing markets through 2018 in step with strengthening consumer demand.

With a 6.7% vacancy rate, the warehouse sector has now posted 19 consecutive quarters of declining vacancies. Strong market demand for high-quality class A space has led to tight supply.

2014, however, marked a turning point, and new construction is underway in various parts of the U.S. Although demand will continue to outstrip supply, places like Phoenix, Silicon Valley, Denver and the New Jersey metro area have been leading the way in adding flexible space square footage, Cushman & Wakefield said.

Has your company encountered any of these issues? What challenges have you experienced with reshoring efforts?

11 comments on “Reshoring Manufacturing Sounds Good, But Where Will You Put Your Factory?

  1. apek
    March 30, 2015

    I believe backshoring has to happen and it cannot be avoided. However, I suggested in Mass Capitalism that it would be ideal to backshore to low cost rural areas as the payscales are low and it would also lead to rural economic development. THere are several reforms needed to make this happen and I believe reshoring can be a win-win for government and business if all the suggested recommendations are carried out.

  2. nssdiver
    March 31, 2015

    Reshoring, backshoring, onshoring – nothing will happen en-mass until the populace at large cares more about Made in America than it does now.  I do not know how to avoid politics in my response, but as long as we are importing people that hate our country and are teaching people how to take instead of give, Made in America is going to matter less and less. 

     

    Onshorers have a steep, albeit not unclimbable, road ahead of them… 

  3. apek
    March 31, 2015

    It also needs reforming Education system, Immigration system and most importantly monetary and fiscal policies which are not possible without reforming democracy which itself is not functioning properly.

  4. docdivakar
    March 31, 2015

    @apek: you do have a point in reshoring at rural instead of urban areas BUT this has to be qualified with which industries can do so. As you know many hitech industries need a host ancillary industries around them and also need access to consultants and specialists. Your point therefore makes sense for completely self-contained industrial entities.

    On the flip side, urban areas are still the best choice for most reshoring opportunities as long as one addresses the issue of qualified workforce -many have left the industry altogether or have moved away! But I am not yet prepared to say we have reached a point of no return for most industries to reshore!

    MP Divakar

  5. John Benito
    April 1, 2015

    Reshoring of consumer products from Asia to Europe and USA is not going to work very well for many reasons!!

    Standard of living and expectations are very different and unlikely to change in the next 10 years.

    Transport costs, to put a factory in the city of Los Angeles will not cost too much in transport costs compared to putting the same company in the Las vegas desert area. These in my opinion are semantics!!

    Devceloped countries should concentrate on developing the things that will be of importance and critical in the future and that all Countries will need.

    IE.

    1) Water! Clean drinking water The technology is there and we should have many more or should be building many more desalination plants like the biggest one in Saudi Arabia.

    2) Food! Developing countries are much better and have the resources and technology to produce larger harvests per Sq Mts than any country in Asia.

    3) Communications. In many so called developed coiuntries it is rather expensive to have access to the internet WHY???. In HK and PRC, Internet is readily available almost anywhere this will have an impact in the way companies do business in future. And alos will help to educate the future generations.

    For what is worth!!! JB

     

  6. apek
    April 1, 2015

    @Joh- Developed countries also should be worried about trade deficits…everything will change by end of this year.

     

     

  7. apek
    April 2, 2015

    @divakar – Reshoring to urban areas will increase urban congestion and still leave the rural areas in doldrums.

  8. docdivakar
    April 2, 2015

    @apek; people will have to live with urbann congestion in the years to come! The trend toward increasing urbanization is clear as reported by UN studies which says more than 75% of the world's population will live in the cities by 2050! This planet in general can not support loss of cultivable land on one hand and increasing population on the other.

    Adapting and repurposing existing urban industrial infrastructure will therefore become inevitable.

    MP Divakar

  9. Hailey Lynne McKeefry
    April 2, 2015

    What an interesting discussion! I think that the US university sytstem also has a role to play here. We are going to need more people trained in manufacturing, lostistics and supply chain activities. Also, instury organanizations and vendors need to step up and create opportunies for young workers to learn about the opporunities through internships and similar programs.

  10. GLDPartners
    April 20, 2015

    Well, this is about psychology really, what do we mean by a “reshoring trend” is it about a flood where 85% of the companies with offshore (China) locations are coming home?  No.  It is certainly not.  But if it is about a steady and increasing range of companies that are recognizing a wider spectrum of issues as important to their business, and choosing a North American alternative – then the answer is a resounding yes.  In the 80's and 90's, for many it was all about saving money on labor costs.  The world is more complex now and lower labor costs are 1) not as low any longer, and 2) are just a slice of the overall cost/delivery puzzle. 

    We have had a number of clients want to talk about the “all-inclusive costs” of manufacturing, including transport, shipping time, investory carry cost, product production and supply chain management nimbleness, labor quality, raw feedstock cost and availability, etc.  For some, operations on this side of the Pacific makes sense, for others not so much, at least right now.  Obviously, Mexico represents a very different proposition from the US or Canada. Different solutions for different products. 

    As for where to locate, well this just depends on the market and the specific user requirement.  For our site selection practice, asset availability is an important factor for sure and especially critical for some situtions. At GLDPartners, we haven't typically had a huge problem finding a building, or an asset delivery profile – but there can be delays in markets that aren't receiving waves of investment interest with infrastructure tht is one-step ahead of the market. But many development entities and their community economci development partners are getting far more advanced in terms of being able to deliver assets quickly – as priority projects and many are quite willing to move mountains while also offering attractive incentives

  11. markgrogan
    August 31, 2018

    The aim of businesses in this world is to look for more profitability isn't it? To decrease costs and increase revenue by selling more or charging more for a better quality product. I would imagine that many companies would be exploring each and every opportunity to do this, but there will always be stragglers who don't believe the benefits until some other guinea pig dives headlong into the change first.

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