Reshoring, which is the practice of bringing manufacturing and services back to the US, is difficult to quantify, but some organizations have made attempts to measure over time. The Reshoring Initiative, for example, noted that in 2018, reshoring was at its highest level in history, up 38% from the prior year. Since 2010, over 757,000 manufacturing jobs have been brought to the US from other countries. This number accounts for an estimated 31% of the total increase in manufacturing jobs for the US during that period, and 3.3% of the 12.8 million employed by manufacturing at the end of 2018. Reshoring from China represented 59% of the total. Among the reasons for reshoring are quality, freight costs, government incentives, and brand image.
While some manufacturing appears to be moving to the US, low-end manufacturers, already facing rising wages and other costs, had started leaving China prior to the trade war. The Trump tariffs are prompting them to move faster. However, they are moving to Southeast Asia, not the US, and it’s not just foreign companies shifting supply chains. Chinese companies are also moving to Southeast Asian countries such as Vietnam, where they can avoid tariffs and pay lower wages.
In recent quarterly earnings reports, FedEx and UPS have reported either little or declining growth in cross-border trade between Asia and the US, but both companies remain optimistic and have introduced services in this region. For example, in April, FedEx launched its Cross-Border E-commerce Export Solution in South China. According to their press release, FedEx uses a consolidated clearance declaration method as part of the solution at the FedEx Guangzhou and Xiamen Gateways. As a result, FedEx is able to provide faster, more efficient service that enables e-commerce companies to ship their products to international markets. UPS is also reducing delivery times. In May, the company announced that global imports to the Japanese cities of Yashio, Misato, Koshigaya, Kunitachi, and Fuchu would be reduced by one business day, while export shipments from the cities of Chiryu and Obu would arrive to destinations worldwide one business day earlier than before.
Regardless of where manufacturers are moving operations, manufacturing activity is slowing thanks in part to front-loading of inventory ahead of tariff increases. The ISM manufacturing index reported the lowest reading since Trump has been president, down from a 14-year high in August 2018. Meanwhile, a separate factory Purchasing Manufacturing Index (PMI) from IHS Markit also fell, dropping to the weakest level since 2009.
As global manufacturing slows, UPS International volumes have slowed. In 2017, average daily International volumes increased 9.3% year-over-year. However, in 2018, the growth had slowed to 3.1% year-over-year. For FedEx, it is difficult to determine due to the 2017 NotPetya cyberattack, which crippled the company’s acquisition of TNT Express’s operations. For fiscal year 2019, which ended in May, total International average daily volume increased 1.4% year-over-year whereas for fiscal year 2018, the volume increase was 1.3% year-over-year.
Just how much FedEx and UPS have benefited from any reshoring back to the US is difficult to determine, but one thing is certain: Both companies continue to grow volumes in the US despite slowing in international trade. In FedEx’s recent earnings announcement, the company acknowledged the global trade slowdown and its plan to focus on business-to-consumer (B2C) e-commerce. Likewise, UPS is also emphasizing its capabilities in B2C e-commerce. How long it will continue is unknown, but as long as consumer sentiment and spending remains positive, volumes will remain positive.
John Haber is Founder & CEO, Spend Management Experts. Contact solutions@spendmgmt.com.
This article originally appeared in the July/August, 2019 issue of PARCEL.
