The US is promoting incentives for domestic production of computer chips and electric vehicle components, while the European Union has announced a 43 billion euro ($46 billion) package to boost chip production in the bloc.
Luke Sharret | Bloomberg | beautiful pictures
A new “reshoring” trend is set to upend global supply chains as companies seek to source products – such as clothing and computer chips – closer to home, turning away from the manufacturing powerhouses. export like China.
Some executives are even more concerned with local manufacturing than with the impact of artificial intelligence on their businesses.
China, the global manufacturing hub for decades, is lost its dominance – and it Factory activity declines in April and May.
Meanwhile, Russia’s invasion of Ukraine and the aftermath of the Covid-19 pandemic are continuing to disrupt shipping, meaning some companies are rethinking their sourcing methods. .
At the same time, the United States is stepping up incentives for Domestic production of computer chips and tram components, while the European Union announced a 43 billion euro ($46 billion) package to boost chip production in blocks.
Earnings calls discuss ‘reshoring’
Several banks noted mentions of domestic manufacturing trends in their US earnings calls for the most recent quarter.
In an analysis of the S&P 500 earnings call transcript, Bank of America said referring to “reshoring” – in which companies move production from overseas to countries where goods are sold – To be 128% increase in the first quarter of the year compared to the same period a year ago.
Meanwhile, mentions of artificial intelligence were up 85% year-over-year, according to an April 29 note by BofA strategist Savita Subramanian.
UBS also looks at this trend, with many senior executives in different sectors surveyed by the bank intending to move parts of the supply chain closer to home — 78% in Europe, 70% in the US and 54% in China plan to do so, according to a research note published on March 2. The bank polled more than 1,600 executives.
Brokerage firm Strategas Securities analyzed the S&P 1500 earnings call transcript for the last year, noticing a “notable increase” when it comes to “reshoring” and “nearshoring” — where manufacturing activities moved to countries closer to home.
“This is in stark contrast to what was not talked about throughout the 2010s when growth/inflation was low, global supply chains and ultimately global,” said Ryan Grabinski, CEO of Strategas Securities. evolution is going strong.”
Model ‘excess’ in fashion
In the apparel industry, the model of producing goods abroad and shipping them to the place of sale has been broken, according to Bill McRaith, a veteran industry expert.
“Normally, a factory, a place in the world that makes a final product that we order three, four, five months in advance and wait for it to sell. And we never… aim right. target,” McRaith told the audience at a supply chain conference hosted by software company o9 Solutions in April.
The challenge is that the on-premises supply chains are built for the old model.
Bill McRaith
Former Supply Chain Manager, PVH
McRaith, former supply chain manager for owner Tommy Hilfiger PVH, said the apparel industry both over-orders and under-orders are around 20% to 25%. “Too much inventory leads to liquidation of goods, while too little to sell leads to profit and loss,” he said.
“The model that we have used for the past 30 years is redundant at this point. It should be destroyed,” he said at the conference.
One solution to this, says McRaith, that could reduce the negative financial and environmental impact, is to create a “supply network” in which some goods continue to be sourced from the country. In addition, some are bought from neighboring countries and a third are produced near where they are sold.
TikTok effect
In the apparel industry, sales of common items like white shirts are fairly predictable, so it makes sense to manufacture and ship those goods from overseas, McRaith told CNBC by phone. phone. But domestic production could accommodate more niche fashion items that have overnight demand from appearing on items like TikTok, with businesses able to react quickly to produce the items. provided locally.
“When we switched to Shein, TikTok, many influencers [world] … more and more things are falling into that very unpredictable state, what I call ‘edge space’,” he said. [sourcing]”, added McRaith.
Last month, the Chinese fast fashion giant Shein announced investment of $150 million in production in Brazil for the Latin American market, a move McRaith hopes the company will replicate in the US and Europe. “They can afford to produce goods locally, more than any other retailer can do,” he said, referring to the model of ordering a small number of items from a single retailer. Shein’s large base of manufacturers.
A worker sews clothes at a garment factory supplying Shein, in Guangzhou, China. Shein will manufacture the goods in Brazil for the Latin American market, instead of shipping them from China.
Ngoc Gao | AFP | beautiful pictures
McRaith said the Covid-19 pandemic has accelerated some business trends by five years. “It’s no longer a case of brands telling consumers what to buy, it’s now consumers actually telling brands what they want to buy. So it really reverses the whole paradigm. The challenge is that existing supply chains are built for the old model,” he said.
Made in USA
US companies are set to generate record hiring numbers in manufacturing, according to lobbying group The Reshoring Initiative, with about 360,000 job announcements in 2022, up 53% from 2021 (figures include US manufacturing roles from both domestic and foreign companies). Manufacturers of electrical equipment posted the most jobs, with EV batteries being one of the top products, followed by manufacturers of computer products including chips.
If we are to build an economy based on electrification and batteries, then controlling our own supply chains will be really important.
Keith Phillips
President and CEO, Piedmont Lithium
The Inflation Reduction Act was signed by US President Joe Biden in August tax credit for electric vehicles. In February, the US government said it wanted to have 500,000 public electric vehicle charging stations on highways by 2030.
Lithium hydroxide is a key component of EV batteries, most of which are currently manufactured in China. Keith Phillips, president and chief executive officer of the US mining company, said those US government efforts are meant to benefit domestic suppliers. Piedmont Lithuania.
“If we’re going to build an economy based on electrification and batteries, it’s really important to take control of our own supply chains,” he told CNBC.Asian street signs” in April.
Elon Musk breaks ground ABOVE Teslaof the lithium refinery in Corpus Christi, Texas, on May 8, and said the auto company aims to produce enough lithium to make one million electric vehicles a year. And Piedmont’s planned production facility in Tennessee will produce 30,000 tons of lithium hydroxide per year – double current capacity in the United States, the company said.
Phillips said it would “take time” for the United States to become self-sufficient in lithium hydroxide production and said more raw lithium needed to be mined.
UK trend
In the UK, 40% of manufacturers surveyed by industry group Make UK said they have sourced more goods domestically in the past year and have similar plans for next year. Make UK surveyed 137 companies in January and February.
While producing goods near the point of sale can reduce costs, the main reason for sourcing locally is to avoid possible disruptions in longer supply chains — such as Covid and war in Ukraine — according to a survey by Make UK.
For British audio equipment maker BishopSound, moving some of its supply chain from China to Yorkshire in northern England has improved cash flow because of lower domestic minimum order quantities.
“In the past, we imported finished plywood speakers from China 7,000 miles away. We now manufacture all of our speakers in the North of England and use UK-made components wherever we can. We stopped importing finished wood speakers last December,” company founder Andrew Bishop told CNBC via email.
Other benefits of producing locally, Bishop said, include a lower likelihood of products being copied, as well as improved quality control and a smaller environmental impact. There is also a political reason for the production shift: “The Chinese use Russian Plywood and we don’t want to support war,” Bishop added.
— Lora Kolodny of CNBC contributed to this report.
