Automotive corporations around the globe are shifting manufacturing operations nearer to their key markets. This not solely offers them nearer entry to these markets, however it additionally addresses among the prime provide chain challenges that they’ve confronted lately, like record-high transport prices and lengthy dwell instances at ports.

In North America, Mexico is seeing a flurry of recent automotive manufacturing exercise, particularly because the trade shifts to electrical automobiles. The Nationwide Affiliation of Auto Transport in Mexico expects to develop 20% within the subsequent 4 years due to nearshoring efforts. Comparable exercise is occurring in Europe, as corporations eye international locations like Poland, Hungary and Romania as nearer manufacturing alternate options.

Whether or not an automotive firm is shifting a line or constructing a brand new plant near a key market, they’ve quite a bit to contemplate from a provide chain perspective. For starters, they should be positive the transfer makes monetary sense. Additionally, no nation is a cure-all for provide chain challenges. Every presents its personal distinctive obstacles in areas like customs, transportation and cargo dangers. Firms want to grasp these challenges and have a plan for addressing them.

Firms that wish to get probably the most out of their nearshoring actions shouldn’t consider them as simply an extension of how they function at the moment. Somewhat, they need to see nearshoring—and the diminished volatility in at the moment’s provide chain—as a possibility to take a contemporary take a look at how they’ve designed their provide chain programmes and see the place they will enhance.

The price issue

The underside line is prime of thoughts for automotive provide chain professionals after years of pandemic-related challenges. Port-to-port transport charges elevated severalfold from 2020 to 2022. On prime of that, excessive detention and demurrage charges grew to become a value of doing enterprise as cargo sat at congested ports week after week.

Expedited freight helped preserve provide chains shifting, however it additionally got here with all-time-high air-freight prices. And as automotive corporations tried to get forward of provide chain disruptions, they ended up with larger stock and carrying prices. Nearshoring may also help corporations recoup among the larger prices that they’ve skilled over the previous couple of years. But it surely’s nonetheless essential that corporations do their homework to verify what financial savings, if any, they will count on to understand from a nearshoring mission.

An automaker that plans to construct a plant in Mexico as a substitute of China, for instance, may have some monetary incentives. They received’t want to fret about paying the Part 301 tariffs or duties that they pay on shipments from China. On the similar time, as ocean charges have gone down, these prices have change into extra manageable. So, they should take into account if transport will truly be cheaper.

An automaker may also reap the benefits of USMCA, however they want to ensure they meet the settlement’s necessities with a purpose to realise these financial savings.

No nation is a cure-all for provide chain challenges. Every presents its personal distinctive obstacles

All of that is why it’s essential for provide chain professionals to look holistically on the prices of their nearshoring mission. First, they should decide the price of manufacturing a product at a sure location. Then, they will establish their transportation prices and potential obligation and taxes, whereas ensuring they do certainly qualify for incentives like these accessible from free-trade acts. They need to additionally account for overhead and stock prices. For instance, what prices should be lined for a product that takes 5 weeks to ship by way of ocean from China versus 5 days to ship over land from Mexico?

Optimising a nearshoring provide chain

A nearshoring mission can have a major affect on an automotive firm’s provide chain. If an organization is relocating a manufacturing line from one a part of the world to a different, for example, it might want to rebuild the road’s provider base from scratch. That’s a whole lot of work contemplating that tens of 1000’s of SKUs go into one passenger automobile.

A sourcing evaluation reporting service may also help carry some readability to this exercise. It might probably assist an organization establish sourcing places that carry commerce agreements or different choice laws that may assist cut back their landed prices. It might probably additionally assist an organization perceive how their sourcing programme compares to others and establish if there have been shifts in sourcing places of their trade.

Relocating a manufacturing line may also contain a whole lot of logistics in relation to disassembling a line, transport it midway around the globe after which reassembling it at a brand new website. Most automotive corporations don’t have expertise on this space. That’s why some flip to logistics corporations that not solely have achieved the bodily disassembly and reassembly work however may also use service relationships to get the gear to the brand new website on schedule and establish price saving choices by means of transport mode and lane diversification.

It’s additionally essential to grasp and plan for the customs processes and charges which might be distinctive to every nation. In Mexico, for instance, each truck that crosses into the US is transloaded and goes by means of a full inspection. A customs dealer may also help an organization put together for these challenges and make the method extra environment friendly with options like warehouse and transload providers.

A brand new nation may also introduce new dangers into an automotive firm’s provide chain. The bodily safety of automotive cargo, for example, is a much bigger concern in sure areas. Actual-time cargo monitoring and having the ability to use diversified routes and a number of border-crossing places may also help corporations handle these dangers and defend their shipments.

Harnessing knowledge

Automotive provide chains are among the many most advanced provide chains on this planet. And the pandemic helped spotlight how unstable they are often due to all of the potential for disruption. To assist cut back this volatility for a brand new or relocated manufacturing website, corporations ought to harness the ability of their provide chain knowledge. Actual-time insights may also help them see what’s occurring of their provide chain and get in entrance of points earlier than they flip into disruptions.

For instance, plan-for-every-part knowledge is widespread SAP knowledge. And an automaker can use it to know every thing about each half— from the place it was bought to the place it was used. This may also help the corporate higher forecast and ship in opposition to demand. Primary historic knowledge like ship date and container weight may also assist an organization know if it’s transport cargo in an optimum method and finest utilising every transport container.

In Europe, it’s widespread for suppliers to make use of consolidation by transport their merchandise to a NVO (non-vessel working service) operated consolidation centre. The aim is to construct and ship full containers from the consolidation centre. However lately, containers being shipped out are sometimes solely partially full. This may be attributable to quite a lot of causes like a provider being delayed or particular elements that may’t be stacked in a container.

Automotive provide chains are among the many most advanced provide chains on this planet

At a brand new or relocated plant, an organization can keep away from this drawback through the use of knowledge to get a extra holistic view of consolidation actions. They could see, for example, that pooling sure suppliers collectively will assist them extra predictably fill containers to capability. And so they might even see that sure suppliers merely aren’t an excellent match for consolidation and suggest an alternative choice, like less-than-truckload (LTL) or less-than-container-load (LCL) ocean transport, which many corporations have taken benefit of.

Nearshoring in a brand new period

Nearshoring can provide automotive corporations aid from the economical, logistical and geopolitical issues which have disrupted their provide chains lately. However no area is free from disruptions and excessive prices. By dropping pre-pandemic considering and embracing fashionable provide chain methods—like utilizing knowledge to drive selections and utilizing numerous transport choices to stay versatile—corporations can relocate their operations with minimal prices, dangers and surprises.

Concerning the creator: Mike Brief is President, World Forwarding at C.H. Robinson