The challenges of nearshoring logistics
Nearshoring in the supply chain refers to the shift of manufacturing and transportation of goods from traditional locations, such as overseas, to a closer domestic location. Often, this is focused on the China-US trade lanes. However, nearshoring may also apply to US-based companies wishing to develop trade relations with Mexico and Canada further. This step of eliminating a trans-Pacific leg of transportation is a significant savings opportunity, but like all changes within logistics, optimizing your nearshoring efforts comes with a few core challenges, including:
- Local infrastructure and connectivity.
The transportation infrastructure of the new location may not be as robust as your prior supply chain. For example, poor road conditions, inadequate ports, and limited connectivity can lead to delays and inefficiencies.
- Language and cultural barriers.
As with any activity in the global transportation network, there is bound to be various language and cultural barriers to address. Dealing with business partners, government agencies, and local staff in a new country can be complicated due to these issues, leading to misunderstandings and miscommunications.
Nearshoring high-value goods, including semiconductors, automotive components, industrial machinery, solar panels and products, and chemicals, is a high-risk process requiring absolute compliance in all operations. Compliance in this form is often equated with supply chain visibility.
Nearshoring also means challenges will arise in managing the customs process and leveraging transloads for future intermodal or inland drayage needs. Rather than allowing transloads to wait idly at a random warehouse, shippers need to know what’s happening and create a plan to address it.
Cross-border trade is also subject to various CTPAT regulations and requirements for maintaining citizens’ safety and security on both sides of the border. The added complexity may lead to delays in transport, especially for shippers seeking a US CBP FAST authorization and with limited experience handling cross-border shipments.
Another issue comes from the proliferation of different transportation management systems (TMS) and the technologies with which they communicate. Not all systems were built with interoperability in mind, and if the systems cannot share data, it amounts to driving blind and hoping excess costs don’t arise.
- Specialized equipment and handling needs.
Moving your supply chain to a new area may also mean that you’ll need to train new staff on how to handle specialty freight. Specialty handling and transportation requirements may apply and take additional time to address compared to keeping your supply chain in its original location.
Many challenges go well beyond the above but have a common denominator. They can benefit from a thorough understanding and plan to optimize nearshoring in Mexico, the US, and Canada.
Steps to optimize nearshoring
Whether working in the automotive, machinery, chemicals, semiconductor or solar supply chain , or even if handling furniture logistics, nearshoring optimization is hard. And now that you understand the real issues in handling a nearshoring supply chain strategy, the next step is to start thinking about how to be more strategic. In other words, what are the actionable steps to improving your nearshoring operations and doing so without breaking the bank? Here are nine steps to get started right away:
- Work with a logistics broker that has local expertise and knowledge in Mexico, Canada, and US trade.
Differences in cultural norms are present in both Mexico and Canada compared to US standards. Each culture may expect different schedules for shipment updates, and the language barriers can also present a challenge. This is an ideal opportunity to brush up on your Incoterms and open your mind to the existing differences.
- Integrate your data streams to know what’s happening.
Integration between systems is essential to the supply chain and every business process, and working with a broker means using their systems and expertise to better understand your nearshoring operation. It’s how companies share data between departments and make informed decisions. This is the first precursory step toward more visibility and having the right data at the right time.
- Create a plan to optimize your logistics.
Optimization means getting visibility and insight from point A to point B, and build out contingency plans and alternative solutions. This may include warehousing considerations, planning transport from port to warehouse, choosing the best warehouse, hiring inland transportation providers, and maintaining cross-border compliance.
- Create a plan for warehousing and staging of goods.
It’s not only the actual transportation that shippers need to plan for. They must create a plan for the warehousing and staging of goods, particularly those slated for transloads or rail (intermodal) transit. Core strategies in this aspect of nearshoring might include strategically sourcing warehouses based on your in-US expected demand and working with an existing network of rail and warehousing solutions providers too.
- Invest in logistics network optimization software built to scale.
Scalability is always necessary in business, and your logistics network software should be highly scalable. Plus, it should already be in use among companies across all of North America, and it helps if the solution can offer additional insight through data analytics to find even more opportunities to grow your operation. Plus, working with a broker, e.g., PRIMO, puts this same technology at your fingertips.
- Access a strong local network to streamline processes and prices.
Working with a local network helps to ensure you’re paying fair rates and using standardized processes to get the most out of your nearshoring efforts.
- Track your nearshoring supply chain nodes’ performance.
While data analytics have already been discussed, it’s equally important to track the data on both performance and costs with advanced systems. Further, you should track each node’s activity levels with industry-leading KPIs, including on-time delivery rates, lead times, cost-per-mile, and fill rates, to avoid delays and unexpected issues.
- Don’t lock yourself into a single carrier contract.
This is a somewhat controversial step. Working with a single carrier sounds excellent when considering volume-based discounts, but it comes with a grave risk to your capacity. Instead, expand your capabilities by choosing a provider with a vast network of carriers, including regional, and local owner-operators.
- Leverage an omnimodal approach to nearshoring, considering all transportation options.
The final step to better nearshoring is a true game changer. Nearshoring isn’t like your usual China-to-US shipment and is ripe for optimization. That optimization begins with an omnimodal approach that considers all possible scenarios and finds the best way, whether warehouse, drayage, less-than-truckload or full truckload, to get your freight delivered at the right service level, at the right time, and the right price.
