The ongoing pandemic has stalled many components of globalization, resulting in a trend of increased localization of global supply chains. What started as a stop-gap solution for many companies is becoming the new normal for shippers looking to reduce costs and build supply chain resilience. Regionalizing supply may further increase labor and transport costs in the short term, but it could also be crucial for shippers to successfully endure ongoing supply disruptions.
Long supply chains are long gone
International trade has been booming since the 1980s, making global supply chains long and lean. Free trade agreements created reduced labor costs, communicative technology development, and the manufacturing of parts worldwide.
Over the last decade, however, increasing nationalism, global economic recessions, and anti-immigrant policies have led some countries to re-localize their industries. Governments that blame outsourced labor for their suffering economies have turned inward by incentivizing businesses to shorten supply chains. In 2020, Covid-19 also caused more limited movement of people around the world. Now many factories are still locked down by Coronavirus. Ocean and air transportation costs are higher than ever, and inflation continues to impact material cost. This has all further increased the trend for countries to prioritize the independence of their economies.
Localization vs. regionalization of supply
That trend of prioritizing economic independence doesn’t necessarily mean total localization of global supply chains but rather regionalization. The last few years have shown an increased regionalization of manufacturing and a shortening of worldwide supply chains. Many strategists expect supply chains to continue to grow more regionally as companies seek to mitigate the risks of relying on one supplier or even one continent for manufacturing.
The nurturing of regional networks is especially essential for companies that have grown dependent on specific countries for production. For example, many companies are shifting production from China to other nearby countries, as some Chinese factories remain locked down from the pandemic.
Japan’s economy once relied on imports from China but is now incentivizing its manufacturers to move production to Japan or the Philippines. In 2020, Japan paid 87 companies to move production back to Japan and Southeast Asia. The trend has continued and the US is becoming more active in Japan’s economic initiatives, with a plan to launch increased Indo-Pacific economic collaboration in the next month.
Don’t give up on free trade
Still, there is hope for globalization to continue thriving. Many countries are developing systems to cope with and recover from Covid-19. China is increasing exports, diversifying its businesses, and securing supply. But, some factors will continue to cause disruptions.
The war in Ukraine, limited fuel supply, and an ongoing climate crisis are just a few of the challenges that make a case for the localization of global supply chains. One strategy to mitigate risks is to not rely on one type of supply chain or one supply region of the world. Diversification of networks comes with expanding local networks but also collaborating on a global scale.
Expanding carrier networks
Shippers can build up resiliency by making a long-term commitment to expanding their carrier and manufacturer networks. CTSI-Global offers a TMS with access to over 20,000 carriers so shippers can cultivate new relationships and find the best rates without sacrificing the quality of service.
The Honeybee TMS™ multi-carrier shipping application also provides companies with continuously updated reporting, offering supply chain managers 60 years of data analytics and intelligence to be able to respond to disruptions in real-time. As you expand your network, having data that guarantees the quality of the carriers, makes all of the difference.
Contact us to access the tools you need to localize your supply chain.