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Made in America?

Companies are looking to shorten their supply chains to limit risk and ensure speed to market – air freight’s proposition. So how will near-shoring affect the industry, asks Alexandra Lennane

Near-shoring, re-shoring, near-sourcing. There are a lot of words to describe the latest trend, in which companies aim to shorten their supply chains. And these are all words that could send fear into the heart of the air cargo business. After all, shortening the supply chain is essentially the USP that aviation offers – aircraft make the world a smaller place.


Politicians are keen to jump on this bandwagon, particularly in the US, where the debate has become linked to election promises to bring jobs back to America. But the employment issue is something of a red herring in a global economy. Jobs gained here are jobs lost there. The real question is why companies want to shorten their supply chains, how they plan to do it, and what this will mean for their logistics providers – especially airlines.


The reasons for near-shoring are manifold. As wages in China rise, the competitive edge that companies can gain through cheaper labour starts to become less significant. This is particularly true when combined with the high costs of a longer supply chain. Transport weighs heavily on the balance sheet, and can be difficult to plan for as fuel prices continue to be volatile. And then, of course, there is the risk. Whether tsunami, ash cloud or political upheaval, the further the source is from the sale, the greater the chance of disruption.


According to some estimates, so great is the rise in Chinese wages that by 2015 it will be as cheap to manufacture in the US as it is to produce goods in China.


It is a simplistic way of looking at the supply chain though, and while near-shoring has become a corporate buzzword, the reality is far more complex than simply moving factories out of China and repositioning them in more developed economies.


For one thing, many companies now see themselves as global – not just in terms of sourcing and procurement – but also in sales. Nike, for example, saw its sales in China increase by 18% in fiscal year 2011. General Motors sold record numbers of cars in China in 2011, a rise of some 8% on the previous year. Abercrombie & Fitch, the US clothing retailer, saw international sales rise 74% in 2011 after it looked for growth in new markets and opened a number of stores. UK retailer Marks & Spencer is also looking to international markets for growth, and has opened stores on China’s east coast. There is no ‘near-shore’ for a wholly global business.


It also depends on the goods themselves. Fashion is indeed seeing a shift in sourcing – but not necessarily to the west. As wages and processes in China have become more expensive, other countries are positioning themselves as low-cost producers.


“We are seeing a tendency to move into Bangladesh,” says Remo Eigenmann, head of air freight, Damco. “It is very strong, as is Vietnam.”


Yahya Patel, imports director for UK company Voi Jeans, agrees that garment sourcing continues to be strong in Asia. “We are seeing quite a bit happening in India, where they are competing on price and quality. India has moved forward a lot in fashion. Bangladesh has come onto the scene too, and Pakistan. They are coming up with some really good products. The denim market is being split between those countries.”

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