What to Consider Before Reshoring

Is reshoring manufacturing to the U.S. the solution to preventing the serious supply chain blockages factories faced when Covid struck, and to creating new American jobs? Companies need to think deeply about the answer – and act soon, if they decide to go ahead, a new report from Cushman & Wakefield suggests. 

“Reshoring” has been a popular buzzword under the Biden administration, “In the first quarter of 2023, S&P companies that mentioned ‘reshoring’ during earnings calls were up 128% year-over-year,” the report noted. 

“Reshoring and foreign direct investment manufacturing job announcements exceeded 360,000 in 2022, a record-breaking 53% increase from 2021. Since 2020, private companies have announced $470 billion in manufacturing and clean energy investments – in addition to the $220 billion announced by the federal government.”

However, before companies take the plunge into reshoring, several factors deserve consideration, Cushman & Wakefield cautioned. A shortage of available manufacturing space is one. So are power availability and labor supply. Poor or outdated infrastructure is another. 

Companies that don’t have facilities under contract will encounter tight leasing market conditions, the report warned, though opportunities do exist and substantial development is happening. Only 10.3% of total available space in the U.S. is made up of manufacturing vacancy, and only 10 million SF is currently under construction. Half of that will be owner-occupied and 25% non-owner-occupied build-to-suit. “That is not likely to improve anytime soon,” the report predicted.

Availability of power is also key. Finding greenfield land sites with sufficient power to host the planned manufacturing site will be a challenge, the report pointed out.

Generally poor infrastructure is yet another obstacle to overcome in making a location decision. 

“The American Society of Civil Engineering (ASCE) gave the nation’s infrastructure a grade of C-minus on its 2021 quadrennial infrastructure report card,” Cushman & Wakefield noted. However, the ASCE report was written before the impact of the Biden administration’s initiatives to improve the nation’s infrastructure could be felt, including the American Rescue Plan Act (ARPA), Infrastructure Investment and Jobs Act (IIJA, and the Inflation Reduction Act (IRA). More recently, the CHIPS and Science Act joined the list.

How many factory job opportunities the new investments by the private and public sector will create is also a factor. They helped lift manufacturing employment to 13 million as of midyear 2023 – its highest level since 2008, Cushman & Wakefield noted, adding, “That represents only a 1.3% increase from the same period in 2019, compared to a 3.5% increase in employment across all sectors.”

Industries that have made the largest investments in the U.S. as a result of reshoring initiatives are the motor vehicles and parts, pharmaceuticals and medical equipment, industrial machinery and semiconductors. Competition for skilled workers, scientists and engineers could make sustained expansion more difficult.

“The U.S. has a long way to go before larger reshoring and nearshoring trends take hold. Manufacturers need to decide if it makes sense to relocate parts or the entirety of an operation and if the U.S. is the right place,” said David Smith, head of Cushman & Wakefield Americas Insights. “Working strategically on location, understanding labor needs and the cost of operations and materials will be more important than ever, and the planning should start now.”