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Companies are sourcing closer to home

By control on January 23, 2013

Shorter supply chains resulting from near-shoring could have an impact on future airfreight volumes, if new research from logistics provider BDP International proves to be an accurate indicator.

An international supply chain survey conducted by BDP, its Centrx consulting unit and Temple University’s Fox School of Business suggests that historic global trade flows from manufacturers in the East to consumers in the West are undergoing a gradual shift toward shorter intra-regional routes as companies seek to reduce the distance between the production and consumption of their goods.

Researchers surveyed more than 200 companies throughout the world, with annual revenues ranging from $100 million to over $10 billion. Of the supply chain executives surveyed, 87 percent indicated their companies are considering moving production closer to end markets, or have already begun to do it.

“There are three principal reasons for this phenomenon,” said Arnie Bornstein, BDP’s executive director of marketing and corporate communications. “First, emerging nations are starting to trade with one another, shortening world trade flows. Second, Asia, Latin America and the Middle East have growing middle classes driving demand for consumer goods. And third, it makes both operational and economic sense to have shorter supply chains, where goods are produced and consumed within the same part of the world.

“That’s why North American companies are looking to Mexico and Latin America as a manufacturing base; EU companies are looking to Eastern Europe and Turkey; and Asian companies want to sell more of their production to Asian consumers as a hedge against sluggish export markets in the West,” Bornstein said.

Around 81 percent of larger companies, with revenues of more than US$10 billion, reported this intra-regional shift. Among firms in the $100-500 million bracket, however, the percentage was a startling 92 percent.

“The survey suggests small to mid-size enterprises are more aggressively pursuing intra-regional supply chains because they have far less invested in sourcing infrastructure and are newer entrants to the world of international trade,” said Bornstein.

“Companies are seeking to reduce costs and transit times in meeting demand from countries where consumers are becoming more affluent,” he added. “The survey shows that globalization may be moving toward a tipping point, belying the conventional wisdom that it would allow companies to economically produce anything, anywhere for sale everywhere.

“Globalization and traditional East-West trade routes aren’t going away anytime soon, but trade patterns are being transformed to mirror the realities of low to no growth in the West and the rise of the rest of the world.”

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