What is Onshoring?
Onshoring, also known as reshoring, refers to the strategic practice of relocating manufacturing and production operations back to the country of origin. It’s driven by factors such as economic incentives, supply chain disruptions, and national security concerns. Onshoring entails bringing back production facilities and processes that were previously outsourced to foreign countries, with the aim of strengthening domestic capabilities, creating jobs, and enhancing overall economic resilience.
In recent years, the U.S. has seen a resurgence in onshoring efforts, particularly due to vulnerabilities in global supply chains exposed by events like the COVID-19 pandemic. Onshoring reflects a growing movement to reduce reliance on external suppliers, improve control over production, and ensure that critical industries remain resilient in the face of global challenges.
What Will Onshoring Mean to the Freight Industry?
In 2023, onshoring is a major focus for the U.S. economy. Companies are increasingly recognizing the need for supply chain resilience after facing widespread disruptions caused by the pandemic. In particular, delays in international shipments, factory shutdowns, and logistical challenges underscored the risks of depending heavily on global supply chains. By bringing production operations back home, businesses can reduce their exposure to these risks and have more control over their production processes.
According to the Reshoring Initiative, onshoring efforts in 2022 brought back over 350,000 manufacturing jobs to the U.S., with projections suggesting that this trend will continue to grow. As a result, the freight industry is witnessing a significant shift, with increasing demand for domestic freight capacity.
Key Impacts on the Freight Industry
Increased Demand for Freight Capacity As companies reshore production, there is a growing need for domestic transportation to move raw materials, components, and finished products across the country. According to a report from American Trucking Associations (ATA), domestic freight volumes are expected to rise by 5-6% annually through 2025, driven by increased manufacturing activities in the U.S.
Higher Freight Costs The increased demand for freight capacity has led to rising transportation costs. Data from FreightWaves indicates that the average cost per mile for trucking increased by 12% in 2022, a trend likely to continue as more companies bring production back onshore. This places pressure on businesses to manage their logistics costs more efficiently while maintaining smooth operations.
More Complex Supply Chains Onshoring also complicates freight transportation. Companies must now navigate a variety of transportation modes, including trucking, rail, and air freight, to optimize their domestic supply chains. As companies recalibrate their logistics networks, the need for multi-modal transportation solutions is increasing. The transition from linear supply chains to more intricate networks demands enhanced coordination and planning.
Regionalization of Supply Chains Onshoring encourages regional supply chains, with businesses increasingly opting to establish production facilities closer to their target markets. This leads to shorter transportation routes, reducing lead times and allowing companies to respond faster to demand fluctuations. For the freight industry, this means an increased focus on regional logistics hubs to handle the growing volume of shipments.
Industries Facing the Most Onshoring Attention
Certain industries, deemed critical to national security or particularly vulnerable to supply chain disruptions, are leading the onshoring movement. Here are the sectors drawing the most attention:
Medical Supplies The COVID-19 pandemic revealed the U.S.’s over-reliance on foreign suppliers for personal protective equipment (PPE) and other medical supplies. According to the U.S. Department of Commerce, domestic production of PPE increased by 20% in 2021, with further growth expected as the government provides incentives for local manufacturing.
Food and Agriculture Disruptions in the global food supply chain have led to increased onshoring efforts in food production. The U.S. Department of Agriculture (USDA) has introduced initiatives to encourage more local food production, reducing the reliance on imports and ensuring a more resilient domestic food supply.
DefenseThe U.S. Department of Defense (DoD) has ramped up efforts to onshore the production of critical defense equipment to avoid reliance on foreign suppliers. The DoD has announced plans to invest $3 billion in the onshoring of defense-related manufacturing by 2025.
Technology Onshoring is gaining momentum in the technology sector, particularly with the semiconductor industry. The CHIPS Act, passed in 2022, provides over $50 billion in funding to boost domestic semiconductor manufacturing. This is expected to reduce dependence on foreign semiconductor suppliers, particularly from Asia, and ensure national security.
How Onshoring Impacts Logistics
Onshoring is reshaping the logistics landscape, and its impact on freight transportation is significant. Here’s how logistics is adapting:
1. Increased Freight Volume
As domestic production rises, the demand for freight transportation is following suit. Trucking companies, in particular, are expected to handle a higher volume of goods as reshoring efforts continue. However, this increase in volume is leading to capacity constraints, with freight carriers struggling to keep up with demand. According to the Bureau of Transportation Statistics (BTS), the U.S. trucking industry handled over 11.84 billion tons of freight in 2022, a figure projected to rise in the coming years.
2. Rising Transportation Costs
The surge in demand for domestic freight transportation is driving up costs. FreightWaves reports that trucking rates increased by 12-15% in 2022, and this upward trend is expected to continue as capacity tightens. As companies onshore their production, they will need to factor in these rising logistics costs.
3. Increased Complexity in Supply Chain Coordination
With more goods moving across the country, managing logistics becomes more complex. Companies must coordinate transportation across multiple modes—trucking, rail, and air freight—to ensure efficient delivery. This complexity is further compounded by the need for real-time tracking and logistics optimization software to ensure that goods arrive on time and in the right condition.
Opportunities and Challenges for Freight Transportation
Onshoring presents both opportunities and challenges for the freight industry. On the positive side, it creates new jobs, drives economic growth, and builds resilience into domestic supply chains. However, the freight industry faces hurdles such as capacity shortages, rising costs, and the need for infrastructure improvements to accommodate the growing demand for domestic transportation.
Opportunities:
Increased demand for domestic freight capacity creates new business opportunities for trucking, rail, and air freight companies.
Shorter supply chains and regional production hubs enable more efficient logistics planning and faster delivery times.
Challenges:
Higher freight costs are placing a strain on businesses’ logistics budgets.
The increasing complexity of supply chains requires advanced logistics technology to manage multi-modal transportation and real-time tracking.
Conclusion
The shift towards onshoring is reshaping the U.S. manufacturing and freight industries, creating new challenges and opportunities in the logistics landscape. As companies focus on strengthening domestic production and reducing reliance on foreign suppliers, the demand for freight transportation capacity is increasing, along with the complexity of supply chain coordination.
While onshoring promises to bring jobs back to the U.S. and bolster national security, it also requires careful planning and adaptation from the logistics sector. Rising transportation costs, capacity constraints, and infrastructure limitations must be addressed to ensure a resilient and efficient supply chain.
As we look ahead, onshoring is poised to play a critical role in shaping the future of freight transportation, creating new opportunities for innovation and growth in the industry.
- Ken Aiken
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