Near-shoring for the U.S. – or bringing outsourced personnel and services to a country closer to the product’s primary customer base – is a natural fit for the country’s greatest ally: Canada. With centuries of friendly relations and a unique bilateral relationship, the U.S. and Canada are linked by common geography, shared values, and powerful, multi-layered economic ties.
And thanks to the strength of the strong NAFTA relationship, Canada is the largest export market for 35 states. The countries have decades of work on harmonization (including security measures), making cross-border manufacturing and trade easier and more streamlined.
In advance of I.CON ‘16: Trends and Forecasts, June 9-10, NAIOP spoke with Diane Gray, president and CEO of CentrePort Canada, North America’s largest inland port, about what re-shoring, near-shoring and cross-border movements mean for industrial real estate.
NAIOP: Why has re-shoring turned into a compelling financial advantage for manufacturers?
Gray: Locating closer to customers helps companies save costs by reducing lead times and inventory levels. This is growing in importance with the emergence of “mass customization.”
It also can significantly reduce freight costs, which is important as quick, inexpensive and smaller shipments become more prevalent with increasingly specialized customer demands. Costs associated with the rise of e-commerce and reverse logistics (returns, warranties, etc.) are also more manageable when companies are closer to the customer.
Setting up shop in Canada or the U.S. can reduce or eliminate a number of mitigation costs for risks that are common in other markets, including dealing with corruption; intellectual property right protection; interpretation issues associated with product specifications, volatile energy prices; varying legal requirements, and safety and environmental standards.
Increasing manufacturing wages in China – the average annual increase was approximately 12 percent per year between 2000 and 2013 – paired with higher transportation and lead-time requirements, brings down the cost difference between China and North America.
NAIOP: Name three advantages or re-shoring, near-shoring and cross-border manufacturing.
- Greater flexibility and responsiveness: Companies can react better and quicker to the changing and diverse demands of consumers, including demand for “same-day” experiences.
- Enhanced reliability: It is easier to mitigate problems, and respond to customer needs, when you are located close to market.
- Sustainability: Goods are closer to the customer so transportation requirements are reduced; there is less waste from obsolete inventory; there are higher environmental and regulatory standards in Canada and the U.S.; and companies can better meet customer preferences for products that minimize social, economic and environmental impacts.
NAIOP: What is the ripple-effect benefit of re-shored manufacturing? How will the logistics industry respond?
Gray: The critical need to invest in strategic infrastructure can reduce congestion delays and improve deteriorating highways, roads and bridges. Delays and costs associated with overseas transportation are reduced with re-shoring, but the need to deal with overland transportation issues still exist. Without strategic infrastructure investments, companies have increased costs associated with vehicle repairs from poor road conditions, additional time in traffic or extra distances traveled to avoid congestion, and potential delivery delays.
The logistics industry must focus on the “last mile,” including sustainability and efficiency considerations including improving load factors; reducing pollution and noise; mitigating congestion; strategic use of cross-dock facilities; urban warehouses and fulfillment centres to shorten delivery distances; and alternative delivery vehicles.
Intermodal will continue to play a key role, as it allows customers to move freight in a cost-effective and efficient manner by taking advantage of multiple modes. Mode options also provide flexibility by helping to mitigate concerns associated with truck driver shortages, increased trucking regulations, road congestion and poor road conditions.
Adopting new technologies will be important for meeting demands for quicker and more efficient movements, and to meet increasing security requirements (in particular for cross-border activities).
There will be enhanced collaboration with other logistics providers and manufacturers that will help meet customer demands for reliable, quick and inexpensive goods, while optimizing operations given the issue of truck driver shortages. Where practical, collaborating with manufacturers to locate facilities closer to each other will provide better responsiveness.
Hear more from Gray and a great panel of industrial experts discussing what’s driving industrial real estate at I.CON ’16: Trends and Forecasts, June 9-10, in Jersey City, New Jersey. See the conference website for details on who attends, hot sessions and project tours.
Kathryn Hamilton is Vice President for Marketing and Communications at NAIOP Corporate.