Reshoring to the US and Europe Accelerating, Now Also Serving CO2 Emission Reduction Objectives

Reshoring to the US and Europe Accelerating, Now Also Serving CO2 Emission Reduction Objectives

by Luc Kremers, Vice President – Asia Pacific, BCI Global

Reshoring is accelerating as American and European companies want to de-risk their supply chains from geopolitical developments and supply chain disruptions. Companies are now combining this decentralization of production from China and Asia to Europe and the US to include CO2 emission reduction objectives.

This is one of the findings from a very extensive study that BCI Global did with 150 senior supply chain leaders from large international companies.

This study was organized in July-August 2023, and included the following participant profile:

  • Companies from industries such as Pharma & Medtech, High tech and Electronics, Automotive, CPG, Retail and E-commerce, Agricultural and Chemicals Oil and Gas
  • 45% have more than 10,000 employees, 33% have 1001-10,000 employees and 22% less than 1000 employees
  • 53% considered North America their main market, 41% Europe, 8% APAC and the rest across Latin America, Middle East and Africa

The study covered two themes that shape the supply chains of the future namely decentralization and reshoring of production.

50% of the interviewed companies have implemented re-shoring initiatives in the last 3 years for up to 20% of their Asia-based production capacity. It is not only nearshoring locations like Mexico, Central and Eastern Europe and Southeast Asia who benefit from this change, but also on-shoring locations in major markets like Germany, the UK, France and the US themselves are getting more and more new production plants.

The proximity to main customers, a more resilient value chain and reduction of transportation costs favor decentralisation of production. That is also why 50% of the companies who have not yet implemented  such reshoring initiatives will so that in the next three years.

Barriers to onshoring are selecting cost-effective production locations and finding the right suppliers. While most companies report favorable results on reduced lead times (and thus more agility), more resilient supply chain with less risk, and lower CO2 emissions, one out of four companies who re-shored is disappointed about the cost savings, according to the research.

As a result of shifting manufacturing networks across the world, distribution networks will change substantially in the next few years. Centralized distribution networks with a single DC in the US or European market will lose ground while central distribution centers with satellite hubs or regional distribution networks with multiple distribution centers are on the rise. This trend is a direct result of the fact that centralized DC networks have relatively more transport and less warehousing cost, and thus higher CO2 emissions, while decentralized distribution networks have more warehousing cost but less transport cost and thus a lower CO2 footprint.

Decarbonisation

Nine out of ten companies want to decarbonize their supply chains, mainly driven by their own company’s strategic objectives but compliance with regulations and customer requirements are for as much as 50% of the reason why they are doing this.

Many companies struggle with prioritizing carbon reduction over their service levels, total landed costs, risks and cash but CO2 emission reduction efforts are accelerating. Supply chain footprint redesign including  reshoring is ranked as the number one measure as large distances from Asia to Europe and the US can be reduced. Waste reduction, elimination of carbon intense products and energy efficiency improvements are other preferred measures.

Carbon accounting, that is the exact measurement of carbon emission from an end-to-end supply chain perspective is still in the early stage.

Only one out of three companies does it completely across Scope 1 to 3 as. until today  such carbon accounting is mainly based on annual estimates and not measurements, although the adoption of carbon accounting specific tools is growing fast.

Lack of budgets, standards and knowledge at the supplier side are stated as the main barriers to moving further into decarbonisation initiatives.

Reporting regulations in Europe such as CSRD and the US (California) are now in place, so companies will have to hurry to catchup and be ready to report accurate figures in the very near future.

About the Author

Luc Kremers
Vice President – Asia Pacific
BCI Global

Luc Kremers is a seasoned supply chain expert, with 25 years of supply chain improvement experience within various industries in Asia from strategic to operational level. Luc has worked with a wide range of clients in the areas of supply chain optimization and analytics, operational improvement, SCOR implementation, strategic benchmarking, and technology deployment.

In his career, Luc has held numerous workshops and trainings, presented in leading conferences in Asia Pacific and has written various articles about SCM. He also is a guest lecturer at Tsinghua University in China and NTU and SMU in Singapore.