In a recent survey on manufacturing trends from Boston Consulting Group, it was reported that, “more than 90% of respondents said that they had relocated production or some of their supply base as a backlash towards globalization.”
This sourcing backlash started as a reaction to supply chain inconsistencies experienced during the pandemic. Called “onshoring” or “reshoring,” this concept is very much a dynamic initiative today, continuing to drive sourcing and manufacturing out of Asia and relocating it to the United States, North America and nearby neighboring countries. According to the U.S. Department of Commerce, Mexico has recently become the leading U.S. trading partner, overtaking China.
Today, onshoring and reshoring continues to grow and flourish because companies believe that by manufacturing closer to customers, they will have better control over production and logistics, experience a shortened delivery timeline, receive significant cost reductions including reduced transportation costs, and other benefits.
However, the phenomenon of relocating manufacturing from Asia to North America will lead to a paradigm shift in logistics, and in railroading, in particular. It will cause managers to completely reexamine their transportation strategies, starting from mile zero, and consider some new alternatives such as rail freight for all of its advantages.
In theory, this new phenomenon should provide railroads with a bountiful growth opportunity resulting from their perceived proximity to the onshoring/reshoring ecosystem and its customers, such as heavy equipment, food, chemicals, wood, automobiles and other categories. However, that growth will not necessarily be automatic. The railroad industry will need to evolve in three key areas to maximize this onshoring/reshoring opportunity.
1) Infrastructure
The passage of the Infrastructure Bill in Congress is a good step in the right direction, yet its benefit is mostly designed to shore up and modernize existing infrastructure. To accommodate the onshoring/reshoring phenomenon, plans need to be quickly concepted, funded and produced to support new infrastructure designed to more efficiently bring rail accessibility and efficiency to the latest onshoring/reshoring manufacturing and supply centers. New track, new terminals and expanded back-office support will be needed.
2) Service quality
Timeliness is often used as a definition of railroad quality. However, when compared to other modes of transportation, railroads often lag behind in delivery speed and reliability. A focus on new operational strategies will need to be developed to improve service quality, satisfy supply chain distribution expectations and compete more effectively with other options.
3) Technology
The rail industry as a whole needs to incorporate technology into its systems and operations as soon as possible. Competing against the technology in Asia that potential new rail customers recently left, companies will continue to expect at least a similar level of technology for monitoring shipments, implementing artificial intelligence (AI) intuition, aiding supply chain management, enhancing reporting of results and activities, and other uses.
The onshoring/reshoring phenomenon does offer great potential not only to grow rail business in the short term, but also to strengthen the rail industry as a whole, transforming and modernizing it for the future.
As we start to appreciate the growth potential the onshoring/reshoring phenomenon can deliver, the industry will do well to invest in its evolution. It is an exceptional opportunity to grow and profit, as well as to capture market share from other modes of freight transportation.
