Come Closer, Come Closer and Listen

By Ruari McCallion

May 2023

How is nearshoring affecting logistics and warehouse operations?

Successive ‘black swan’ events, from the Fukushima earthquake to Covid-19 and the Ukraine War, have exposed the key vulnerability of globalisation: long supply chains. Are measures to shorten supply chains, to ‘bring production home’, a trend gathering momentum or just a discussion topic, Ruari McCallion asks.

The past 30-35 years have been characterised by globalisation – the outsourcing, offshoring or exporting of production to low-cost countries. China has gained most, but it has looked like generally good news for the deindustrialising West as well. However, disruptive events* over the past 14 years have led firms to question the strategy and, according to some reports, to reshore, nearshore or ‘friendshore’ their sourcing (see definitions**).

World-spanning supply networks are only as strong as their weakest link – and the longer they are, the more weak links they have.

“Manufacturers are experiencing issues securing raw materials, a steep rise in shipping costs, a lack of container ships or containers being stuck at busy ports, [as well as] factory shutdowns and labour shortages,” says Andrew Newton, Dynamics 365 Business Central Food Consultant at Columbus UK, part of the multinational Columbus consultancy organisation that operates in Germany, Scandinavia and eastern Europe, the USA, Chile and India. He is quite clear that change is under way. “Since the start of the pandemic, disruptions have increased by 14%, with hidden costs that are often difficult to quantify. Manufacturers are restructuring their strategies – starting with nearshoring core production.”

2 truck montage-sm

Advantages of regional or local supply chains include greater inventory control, reduced lead times and, crucially, risk mitigation.

While there is talk of an upheaval in supply chain management, is it a fundamental change or just papering over the cracks until normal service is resumed? Andrew Newton points out that regional or local supply chains can be more expensive and may add another level of complexity but, on the other hand, they allow for greater inventory control, reduced lead times and, crucially, risk mitigation. A Gartner survey in 2020 found that 33% of supply chain leaders were planning to move business out of China by 2023; the pandemic has only increased the speed of adoption, he maintains. Analysis of how a reversal of the globalisation strategy affects logistics, its infrastructure and providers presents a mixed picture.

“Without doubt, we have benefited from companies moving their supply chain closer to home,” says Reiss Newport, Finance Director at Nuneaton-based Lesters Logistics, which operates a mixed fleet serving over 150 clients across the UK and Europe. “We have several examples of winning new contracts as a result of ‘nearshoring’ and it is a key business strategy of ours to explore how we can win more. For example, we are doing some work for a customer that’s based overseas but looking to grow their business in the UK. They’ve chosen to partner with us to provide their warehousing and logistics.”


Reshore/reshoring: bringing major elements of component production all the way back to the country of final assembly and sale.

Nearshore/nearshoring: bringing major elements of component production closer to the country of final assembly and sale.

Friendshoring: bringing major elements of component production to locations closer to the country of final assembly and sale, typically via a strategic ally or close economic partner. May not be geographically as close as nearshoring or reshoring countries but may offer some labour cost or efficiency advantages.

“Nearshoring is on track to redraw the transportation map.”

There are negatives, however. The existing infrastructure, including both vehicles and warehouses, is geared for long supply chains and big loads. Companies seeking to bring production and supply closer to their markets encountered storage and driver shortages during 2022, across Europe, USA and the whole world. Covid didn’t help but, while that was a passing difficulty, it seems the pressures are structural and permanent, not temporary.

“Things are beginning to get back under control,” Reiss Newport says. “In my opinion, nearshoring, onshoring or reshoring, whatever we choose to call it, will inevitably lead to smaller warehouses, fulfilling individual business needs on a more local basis, rather than giant hubs that service internationally.”

It isn’t just the direct effect of interrupted supply chains that is concentrating minds, although in a recent survey over 80% of businesses with international operations reported transport disruption as a major issue. Disruption raises costs.

2 truck montage-1-sm

Nearshoring will result in an increase in smaller warehouses and greater flexibility.

Andrew Newton says: “We don’t have to cast our minds back too far to see how events such as the Suez Canal blockage can bring the global supply chain to a standstill. Localisation of supply chain networks will help manufacturers strengthen their supply network and reduce the transportation costs associated with longer chains.”. An increase in smaller warehouses will add greater flexibility. Companies based close to each other, in the same time zone, will enable problems to be fixed quickly, he points out, and multiple local suppliers will enable greater agility and reduce reliance on single sources.

Reiss Newport-sm

Reiss Newport, Finance Director, Lesters Logistics

Andrew Newton-sm

Andrew Newton, Dynamics 365 Business Central Food Consultant, Columbus UK

“Nearshoring is on track to redraw the transportation map, but this doesn’t mean manufacturers need to overhaul their entire supply chain. Opting for a good ratio of local to foreign suppliers is best practice,” he concludes.

*Globalisation and its disruptions

Globalisation really got going when China opened up to the world in the late 1980s, after decades as a closed society. The trend enabled China to rise from an economically backward nation to becoming the second-largest economy in the world, after the USA.

Major disruptions:

1989 – Tiananmen Square massacre. While not technically a disruption to growing globalisation, it was a warning of the potential for political events to impact upon economies.

1992 – ERM crisis. Several countries, including the UK, were forced out of the European Exchange Rate Mechanism, delaying introduction of the Euro and leading to the withdrawal of the UK from the single currency project.

1997/98 – Asian financial crisis. Nominal GDP per capita dropped massively across a range of countries, from 12.5% in the Philippines to 43.2% in Indonesia. Hong Kong, mainland China, Singapore and Japan were also affected. International investors became less willing to invest in and lend to developing countries. Oil prices fell, leading to a squeeze on shipping companies’ margins and a series of mergers in the industry to cut costs. IMF support for countries hit by the crisis required raised interest rates and reduced public spending.

2008/9 – Global Financial Crisis. A credit crunch triggered by sub-prime lending across several western countries led to the near-collapse of the global banking system and an 18-month recession.

2011 – Fukushima disaster. An earthquake measuring 6.6 on the Richter scale in the east of Honshu, Japan’s largest island, triggered a tidal wave that crippled the Fukushima nuclear power station. It also crippled Japan’s pharmaceutical industry, leading to shortages in a range of everyday drugs, and affected microchip production.

2019 to present date – Covid-19 pandemic. Lockdowns, restrictions on hospitality and travel, and other measures, contributed to a global economic slowdown whose effects are still being felt. Microchip production from the Far East and South East Asia has been severely affected, leading to collapse in (for instance) automobile production in excess of 50% in some countries.

2021 – Ever Given container ship blocks Suez Canal. The 400-metre container ship was stuck across the Suez Canal for six days. It led to an estimated US$6 billion of goods being held up on ships caught in the Canal. Many European ports had difficulty meeting the subsequent spike in demand for berthing space.

2021 – Fukushima earthquake. Although a severe earthquake, it did not cause the same amount of disruption as its predecessor in 2011.

2021 – Miyagi earthquake. An intense earthquake in Miyagi Prefecture, in north-east Honshu, leading to power outages, the temporary shutdown of Onagawa Nuclear Power Plant, and interruption to manufacturing and production.

2022 to present date – Russian invasion of Ukraine. The immediate impact of the Ukraine War includes a spike in gas prices, which have still not returned to normal and have led to rises in inflation and to economic contraction. Supplies of sunflower oil, neon, potash and other essentials have been severely disrupted, further affecting food and other commodity price inflation.

February 2023: Türkiye and Syria suffer a series of devastating earthquakes.