Understanding nearshoring can help your business
The recent trend of nearshoring is taking off, and you may be thinking of jumping right in. But first, continue reading to better understand what nearshoring is, the pros and cons of utilizing this practice, and when/how to implement this popular strategy.
What is nearshoring?
When businesses transfer their operations from a far region to a closer one, nearshoring is taking place. This contrasts with offshoring, which is when a company takes its services to a farther location (usually a different continent). While nearshoring is becoming more popular in today’s business environment, it’s important to remember that with all solutions, there is always a list of pros and cons.
How nearshoring can benefit you
Nearshoring is more commonplace than it has been in the past, and with good reason. Here are some of the advantages of adopting this strategy.
Reduce transit times
Setting the origin of your loads to a nearby region means less mileage between you and your freight. This may instantly improve transit or lead times and could mean faster delivery of your goods. This is especially important in industries where time directly correlates to money, including the automotive industry.
Enhance communication
Being in a similar time zone and having a comparable cultural understanding of your operation can significantly improve how and when you communicate with vendors.
Gain supply chain flexibility
Quicker response times to enhanced or decreased demand, market conditions, or disruptions will follow when you choose to move processes to a nearby region. This provides more agility in your overall supply chain.
Further, nearshoring may provide more transportation options. For example, while offshoring to Asia, the only means of transporting loads to North America are ocean or air. Nearshoring to Central or North America can allow you to use alternate modes of transport for shipping cross-border. With more options at play, nearshoring can be a great resource for your supply chain.
Reduce transportation and inventory costs
There are many factors that influence transportation costs, but having flexibility and closer proximity to your vendors puts you in a good position to reduce overall costs. Nearshoring can also help you to reduce inventory costs. No more need to have an abundance of inventory sitting in the warehouse when you have closer proximity to your factories. Utilizing nearshoring brings point A and point B closer together (warehouse with factory), so getting your product shipped quicker is a breeze. Lower fuel surcharges help add to these cost savings.
Decrease your environmental impact
With lower fuel costs at play, your company's environmental impact will be reduced — sometimes significantly. Improving sustainability may benefit your bottom line since customers may have a better view of your operations and choose to purchase from you more.
Challenges associated with nearshoring
While nearshoring poses many advantages, there are also potential drawbacks when implementing this strategy. Here are the most prominent.
Competition for transportation
Bringing your operations closer to home is becoming more popular, which may create a challenge when procuring transportation options. When demand for equipment is high, transit times and costs associated with logistics may go up.
New regulatory differences
Nearshoring can also force you into a new set of regulations that you may not be used to. Learning these regulations can cost time and money. But rest assured that no matter how steep the learning curve is, studying a new regulatory environment can be navigated and mastered.
Infrastructure limitations
Depending on where you choose to nearshore, operations and infrastructure may be less developed than what you’re used to. Because Asia has been widely used for offshoring for decades, their infrastructure is generally developed and sophisticated. Nearshoring may include changing to vendors in a region with less sophisticated ports, roads, airports, etc. Understanding the impact of those changes is important for deciding if nearshoring is a viable option.
Make sure to do thorough market research in these new regions that align best with your current supply chain. For example, knowing all the ports of entry between the U.S. and Mexico can be helpful, as well as which specific port you would utilize, can help ease some of these limitations.
When nearshoring can benefit your business
Nearshoring may make sense for you if you are currently experiencing any of the following issues with your supply chain:
- An overly complex transportation plan
- Slow transit times
- Hefty regulatory costs
- Inflated transit costs
- Difficulty with communication
How to implement nearshoring
Doing your research on new locations of origin is the first and most vital step in implementing your nearshoring operations. By thoroughly learning new regulatory practices, getting to know a region’s transportation options and sophistication, and discovering communication tendencies, you will be able to make a more informed decision before finalizing any movement of your business.
Reach out to any contacts you may have in the region, as they may provide the best understanding of working in a new area of the world. You will also need to seek out both legal and compliance experts. Choosing to nearshore should be based on thorough research and a distinct analysis of the needs and goals of your company.
Let ArcBest provide your transportation options
When making the decision to implement nearshoring, let ArcBest be your trusted transportation partner. Moving your operations is a large-scale decision, so take the guesswork out of your supply chain. Reach out to an account manager today and let us find a solution to make your transition as smooth as possible.
