Kearney Reshoring Index Remains Negative, but the Tide is Turning

Photo credit: Aaron Burden on Unsplash

Good news is on the horizon for U.S. manufacturing, according to the ninth-annual Reshoring Index released April 13 by the global management consulting firm Kearney.

The study found that despite the short-term challenges, large portions of offshored manufacturing may soon be returning thanks to companies combining their nearshoring production to Mexico, Central America and even Canada, with manufacturing and assembly in the United States.

The Reshoring Index is a unique barometer for tracking the extent to which America is reshoring manufacturing back from low-cost countries (LCCs) and regions in Asia that have benefitted for decades from U.S. companies offshoring manufacturing. The Reshoring Index is determined by calculating the Manufacturing Import Ratio (MIR), dividing the import of manufactured goods from the 14 Asian LCCs by the U.S. domestic gross manufacturing output. The Reshoring Index reflects the year-on-year change in the MIR.

In 2021, U.S. imports of manufacturing goods from the tracked LCCs totaled 14.49 percent of U.S. domestic gross manufacturing output, up from 12.95 percent in 2020. This resulted in a negative 2021 Reshoring Index of -154. Kearney has calculated a negative Reshoring Index for two years in a row, reversing and canceling out the 2018-2019 move into positive territory that was triggered by the U.S.-China trade war. Since 2020, the Reshoring Index has gone down an additional 67 basis points.

“Nevertheless, the near to midterm future of reshoring looks more promising than it has in any year since we started tracking the Reshoring Index in 2013,” says Patrick Van den Bossche, partner and lead author of the annual Reshoring Index report.

REDEFINING RESHORING

“Previous Kearney Reshoring Index reports have highlighted that, because of their dependence on overseas suppliers for materials, parts, and components, companies that have considered or even executed reshoring plans often wrestle with challenges associated with operating very long global supply chains,” Van den Bossche said. “But what if that ecosystem of suppliers that China and other Asian countries have been building for the past three decades were to move closer to the U.S.? That’s exactly what we’re starting to see happening in this year’s edition of the Kearney Reshoring Index because, for a variety of reasons, more and more Chinese and Asian companies are setting up manufacturing operations in Mexico.”

These overseas suppliers, which American companies have been depending on, are building or acquiring locations closer to the United States to then ship their manufactured components and parts for final, probably highly automated, assembly into the United States. This shift will allow companies to claim the products were domestically produced, thus redefining reshoring in ways that reflect the evolving realities of new global supply chains by incorporating certain nearshored activities.

Redefined, reshoring is likely to catch on faster in some industries than it does in others. “We are seeing a significantly increased focus from apparel and footwear companies on finding reshoring and nearshoring opportunities as a way to both mitigate supply chain disruptions and increase sustainability,” said Brian Ehrig, partner, apparel sector lead and consumer practice sustainability lead.

“The challenges we are seeing that need to be resolved are significant,” Ehrig added. “But if the industry can work together on rebuilding its domestic and nearshore raw materials value chain, and with advances in new technology, there is a real opportunity to make this happen.”

Read the full Kearney report here.