06 May 2021


Global pandemic roils 2020 Reshoring Index, shifting focus from reshoring to right-shoring

Kearney
Kearney


Kearney’s annual Reshoring Index tracks whether manufacturing is coming back to America from Asia, where so many jobs have been offshored over the past several decades. Our latest findings show that the US has not reclaimed manufacturing jobs in any material way. 

The disruptions wrought by COVID-19 make the latest Kearney Reshoring Index uniquely challenging to interpret. Our annual reshoring metric plunged from an historic high in 2019 (due mainly to a sharp decline in imports from China, not a surge in domestic manufacturing) deep into negative territory for 2020. Yet the Index took many twists and turns throughout the year, sinking deepest during the 2nd quarter, when the pandemic shuttered much of US manufacturing capability; rebounding solidly back up into positive territory over the summer, when US production resumed; then ending the year in decidedly negative territory. 

US manufacturing imports from China took a similar roller-coaster ride, albeit on a different timetable. COVID struck first in China, and US manufacturing imports from Asia’s largest low-cost country (LCC) dipped in the 1st quarter, then rose even more sharply in the 2nd quarter, when many US facilities were idled by the pandemic. Later in the year, US manufacturing imports from other LCC countries (led by Vietnam, Taiwan, and Thailand) surged, while US manufacturing imports from China flattened to end 2020 at roughly the same volume as in 2019. US manufacturing imports from Mexico, the primary “nearshoring” LCC option, dropped for the year, largely due to disruptions the US automotive sector experienced during 2020. 

Despite the recent plunge in the Kearney Reshoring Index, a related Kearney survey of US manufacturing executives found that many intend to reshore at least some manufacturing operations over the next three years. In personal interviews, some executives voiced a strong intent to reduce dependence on manufactured imports from any one country, particularly China. A sister survey of US manufacturing plant managers found that COVID significantly disrupted the labor productivity gains many facilities had achieved in recent years. A majority of plant managers also reported that it is actually more difficult to find and hire the right workers now than it was before COVID forced widespread employee furloughs and layoffs. 

This array of shifting variables has made what was once essentially a binary choice—offshore or reshore—a more complex decision set. “Right-shoring” requires a comprehensive and nuanced consideration of where the company should source manufactured products. 

 

Global pandemic roils reshoring picture 

In 2020, US imports of manufacturing goods from the 14 Asian low-cost countries (LCCs) tracked in our annual study equaled 12.95 percent of US domestic gross manufacturing output, up from 12.08 percent in 2019 (see figure 1A). This resulted in a negative 2020 Reshoring Index of -87 (see figure 1B).

US imports of manufacturing goods from 14 Asian LCCs increased in 2020

The Reshoring Index relects a decrease of 53 basis points in MIR

In pure mathematical terms, this finding would indicate a resumption of the mostly steady climb in the manufacturing import ratio from 2011 to 2018. However, in a year roiled by the COVID-19 global pandemic, interpretation of our data bears more nuanced examination. 

In fact, monthly tracking shows that as 2020 dawned, the Reshoring Index was trending decisively positive. Then the pandemic struck, triggering widespread shutdowns of US manufacturing and severely dampening global demand for US manufactured exports. The slowdown in US production also increased US reliance on LCC imports. The result? The Reshoring Index plunged precipitously into negative territory during Q2 of 2020. Yet the subsequent rebound was nearly as decisive. By summer, domestic output had ramped back up, far faster than many had anticipated, sending the Reshoring Index back into positive territory in Q3. 

The Reshoring Index still finished 2020 well below where it was at the start of the year. A global recession continues to depress US export volume, while a relatively robust US economy—buoyed by a pair of massive COVID relief stimulus packages—sent manufacturing imports back up past their pre-pandemic levels. Once the roiling effect of COVID-19 recedes, the Reshoring Index seems likely to again shift positive, as global economies recover and overseas demand for US manufactured goods gradually rebounds. 

Viewed in this light, the -87 Reshoring Index for 2020 looks more like an aberration caused by the global pandemic than a true return to the pre-2019 trend. Later in this report, when we explore what the future may hold, we will be mindful of how imports and domestic production bounced back in the latter half of 2020, as US factories reopened and resumed operations. 








 

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