The Truth About Reshoring & U.S. Manufacturing

The repatriation of jobs and work from low-cost-countries is ‘a drop in the bucket’ for the U.S. manufacturing sector economically, and the trend is likely to fall even further throughout 2018 and into 2019.

That is the overall contention of a recent report released by A.T. Kearney entitled, ‘Reshoring In Reverse Again.’ Several other points are made by the report that seem to throw water on the notion that work will be ‘reshored’ to the U.S. anytime soon, particularly to custom parts manufacturers.

But, not so fast – says a rebuttal piece published by The Reshoring Institute (TRI), ‘A.T. Kearney’s Report On Reshoring: Some Right, Some Wrong.’ While the rebuttal piece concedes some observations made by Kearney are accurate, it paints a much more optimistic picture of the reshoring landscape by directly challenging some of Kearney’s most important conclusions.

As for what Kearney gets ‘right,’ according to TRI:

  • The skilled labor shortage is a severe problem
  • Manufacturing costs are lower in many other countries
  • Imports rose in 2017

TRI rebutes many of the report’s conclusions regarding its formulae for measuring actual reshoring. TRI tracks actual data from manufacturing companies that report repatriated production.

But first and foremost, according to TRI, Kearney’s primary argument that reshoring is down is wrong. From TRI:

“(According to Kearney,) reshoring declined in 2017.” No, it actually increased about 50% from the 2016 record high. Fig 1 (below) shows the number of reshoring and FDI (foreign direct investment) jobs announced/year.

The remainder of the TRI piece identifies what it perceives as flaws in the FDI and other data Kearney uses to identify and track reshoring in its report.

A.T. Kearney’s Reshoring Index does not actually measure reshoring. It essentially uses the trend in imports to imply a trend in reshoring. Something like describing an object based on only seeing a portion of its shadow. The Reshoring Initiative measures reshoring directly and reported that a record 171,000 manufacturing jobs were announced in 2017 as reshored or FDI’d. (Fig. 1) Factors that cause Kearney’s Index to be wildly inaccurate include changes in prices and exchange rates in the various countries and the relative rate of growth in each country. Also, trade actions can increase or reduce imports. For example, the announced tariffs for solar panels, and appliances caused a surge in these products prior to implementation.

Kearney’s Index is a direct measure of U.S. imports, which are clearly too high, not a measure of reshoring, which is one of many factors that influence the level of imports and has kept imports from growing more.

These factors, according to TRI, result in incorrect reshoring activity reporting – and TRI offers Kearney alternatives for more accurate measurements of manufacturing reshoring to the U.S. Per TRI:

AT Kearney’s “Database” shows only 20 cases of reshoring reported in 2017, down from over 200 in 2013 and 2014.

Reality: 223 cases in 2017, up from 158 in 2013 and 124 in 2014. You can find all of these cases in the Reshoring Initiative Library.

It would be better to compare the rate of change in U.S. manufacturing output or jobs over a longer time period. Fig. 2 shows that U.S. mfg. jobs (from the Bureau of Labor Statistics) as of 12/31/17 were about 2.5 million higher than would have been predicted in 2007. The primary reason: offshoring has slowed and reshoring and FDI have surged.

TRI concludes that its data show clear growth of reshoring in the U.S. and it continues to educate manufacturing suppliers and buyers / sourcing professionals on the use of its Total Cost of Ownership (TCO) methods for determining repatriation options for manufacturing and production.

These reports and data and reactions enforce the fact that no one outside of TRI is accurately counting specific instances of reshoring to the U.S., which confuses matter for the general populace.

As a custom parts manufacturer or anyone that manages custom parts manufacturers, a visit to The Reshoring Institute and its collection of data and tools can help clear any confusion and help with sourcing or marketing advice.

In the meantime, have you seen any reshoring activity with your customers? Have you received work once targeted to low-cost countries but now returned to the U.S.? Send us a note and let us know.

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