Nearshoring will alter supply chain flows

As nearshoring gains traction, it could change supply chain flows across the United States. This sourcing strategy—bringing manufacturing closer to end markets or purchasing from suppliers near those markets—could lead companies to establish distribution centers in new locations and push carriers to set new routes.

The offshoring of manufacturing to Asia has resulted in fleets of containerships bringing goods to West Coast ports. There, containers filled with imported goods are offloaded onto intermodal trains for transport throughout the United States. In this scenario, supply chain flows run from west to east.

But that west-east pattern is expected to abate somewhat. With an increasing number of manufacturers leaving China for Mexico or other countries in Latin America, the volume of cargo flowing along a north-south axis—particularly from south to north—should pick up.

Of course, since Canada and Mexico are major trading partners of the United States, a steady north-south flow among the three North American Free Trade agreement (NAFTA) countries is to be expected. But aside from NAFTA trade, there's another important development that could strengthen the flows of shipments along north-south routes: an increase in manufacturing in the United States. If the pundits are right and more producers choose to establish plants in nonunion states in the South, then supply chain flows should increasingly radiate northward.

If supply chain flows in the United States change, companies likely will need to change their networks and establish distribution centers in new locations. Although that might be somewhat disruptive to the warehousing industry, carriers should be able to adjust to these patterns and provide the service their customers will need. In fact, railroads and trucking companies might welcome the change. Those whose major business flows west to east sometimes have trouble finding loads heading back in the other direction. As more traffic begins to flow from south to north, carriers may be able to use such network changes to their advantage, finding backhauls and balancing equipment flows better than they are able to do now.