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Friendshoring Is Reshaping the Supply Chain — How Can Transportation Software Help?

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The nearshoring and reshoring movements have been well underway for many years, but recently, “friendshoring” has become an increasingly larger part of the supply chain conversation. Though all of these movements have their own area of focus and unique framework for addressing challenges, they are united by one goal: to reduce risk in our increasingly fragile supply chains.

As friendshoring becomes a more popular supply chain model, it can significantly — and permanently — reshape the supply chain as much as nearshoring and reshoring already have. Trading with more politically aligned supply partners can provide many benefits, but fulfillment providers need support to manage all of the changes friendshoring might bring to their operations. Is this shift in the trade landscape going to help fulfillment in the long run, or create further disruption?

What is “friendshoring?”

U.S. Treasury Secretary Janet Yellen characterizes friendshoring as moving supply chains to countries the U.S. has more stable relations with to avoid potential disruptions. This differs drastically from supply chain frameworks like nearshoring (which prioritizes geography only), and reshoring (which relocates production to the U.S.).

The friendshoring approach has the potential to enhance supply chain resilience by reducing reliance on suppliers in nations that the U.S. is de-emphasizing ties with. Friendshoring is also a way to foster long-term, trust-based partnerships between companies in more tightly allied markets. Already, Apple is increasingly relocating iPhone production from China to India, expanding their market share in the region from just 2% in 2018 to 6% in 2023.

However, it’s worth noting that because political alliances can shift over time, the alliances that are in place now might not be in place forever. This could put companies in the U.S. in the position of needing to frequently switch suppliers to different regions.

The Impact of Friendshoring on Fulfillment

The friendshoring movement (as well as nearshoring and reshoring) will primarily impact companies directly involved in manufacturing, but the effects will ripple out to the companies and stakeholders involved in logistics. Some of the biggest changes to anticipate are:

  1. Realignment of Supply Chains

As the U.S. alters trade policies to favor which countries are deemed “friendlier” partners like India, Mexico, or Vietnam, manufacturers will increasingly shift away from markets they’ve been involved in for decades, and create changes that cascade throughout the global supply chain. Already, Vietnam has seen a dramatic increase in containerized trade with the United States, with a 156% rise over the past five years. And because Mexico is both a nearshoring partner as well as a friendly nation, it recently surpassed China as the number one exporter to the U.S.

  1. More Production and Distribution Facilities

As investments pour in to build up manufacturing and distribution capabilities of friendlier  countries, they will create new hubs and options for fulfillment companies to send and receive goods. These changes could completely transform shipping routes as we know them today. Because Canada and Mexico each share a border with the U.S., shipments from these countries will dramatically increase the volume of over-the-road shipments happening daily and create a significant boom in relevant infrastructure and services.

  1. Potential Reduction in Transit Time and Costs

One of the benefits of a friendshoring strategy is that there’s often an overlap in countries that are both geographically near and deemed friendly by the U.S. government. If companies choose friendshoring partners strategically, moving supply chains closer to home will reduce transit time and overall costs, allowing fulfillment centers to improve customer service while benefiting from higher profit margins. What’s more, the government may begin offering tax credits and other incentives to companies who invest in friendshoring, similar to the credits provided to companies that reshore chip production to the U.S., further reducing costs.

  1. Smaller Supplier Markets

A downside to focusing on friendshoring, however, is that it limits the number of markets manufacturers can source from as well as the variety of suppliers to work with. In the short term, as more companies invest in friendshoring, it will increase competition and demand for the  services of established suppliers in those countries, and temporarily strain supply chains until they can increase capacity. Fortunately, over time, more suppliers will likely emerge to meet demand.

  1. Higher Material and Labor Costs

While friendshoring improves security and certain aspects of convenience, it could also increase some costs around labor and sourcing raw materials. Some materials only available from specific regions, such as titanium, might be more difficult to procure without a direct presence or relationship with suppliers in the country of origin.

The Demands of the New Fulfillment Landscape

As global supply chains re-align with changing U.S. trade policy, it re-emphasizes the importance of shippers investing in an end-to-end transportation, shipping, and integration software suite to improve their operational agility and adapt more quickly to the changing landscape. Fulfillment centers will need to be able to accommodate:

Faster Carrier Onboarding, Integration, and Management

On the surface, friendshoring won’t change much about the day-to-day operations of fulfillment centers, but it may require them to streamline carrier management processes. Supplier relationships are already shifting rapidly, but this could accelerate even faster as friendshoring becomes more prevalent, especially increasing need for drayage. When that happens, fulfillment companies may have to quickly switch to new carriers under pressure to onboard and integrate quickly. It’s critical to have a transportation management system (TMS) or transportation suite to manage those relationship changes efficiently and accurately to avoid delays and disruption.

More Robust and Efficient Logistics Planning

As over-the-road shipping volume increases with deliveries from Mexico and Canada, historic traffic patterns will change, and new hubs will alter the logistics landscape. Fulfillment providers will need to be able to adapt to changing conditions in real time to ensure routes are always optimized, both to keep costs down and avoid losing customers to delays.

Greater Collaboration as a Competitive Strategy

With so much change happening, supply chain partners will prioritize working with companies that can communicate efficiently and even directly integrate with their systems. In essence, improving collaboration will paradoxically increase a company’s competitive edge in the marketplace by making them more convenient and desirable to work with. One of the best ways to achieve this is using the same software platforms for easy data exchange, or prioritize adopting a transportation suite that integrates seamlessly with third-party solutions.

Increased Emphasis on Sustainability

Like nearshoring, friendshoring has the potential to dramatically shorten the supply chain, reducing the carbon emissions associated with shipping. And since the nations deemed “friendlier” by the U.S. government are likely to be part of trade agreements, companies in these markets are more likely to work toward the same sustainability and carbon reduction goals, like alignment around the U.N.’s Sustainable Development Goals, increasing the importance of tracking environmental metrics. While commitment to meeting these goals are currently voluntary, future regulations and trade agreements could formalize sustainability goals and unify manufacturers and suppliers in participating countries around the same metrics. Fulfillment providers need a transportation software suite that’s able to gather and analyze all supply chain data cohesively to track their sustainability profile effectively and accurately.

Navigating the Changing Supply Chain Landscape

Friendshoring has the potential to completely transform global supply chains, and any company involved in transporting and shipping goods needs to be prepared to adapt to these transformations quickly and efficiently. It’s unclear how much these changes are going to impact fulfillment companies directly, but the unpredictability underscores the urgent need for digital transformation to streamline carrier management and route planning.

3G offers a comprehensive transportation software suite that helps users manage every aspect of transportation, shipping, logistics, third-party integration, and carrier management in a single, fully integrated product suite. Learn from our own customer stories how our solutions have helped them navigate the rapidly changing supply chain landscape, or contact our team to schedule a demo.

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Author

3G

Publish date

June 3, 2024

Categories

Shippers

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