Following COVID Chaos, Kearney Reshoring Index Turns Negative for 2020, Following Record High in 2019
Annual benchmark of US manufacturing competitiveness shows America gave ground to Asian low-cost countries in 2020, in an unusually uneven year. A sister study finds global shocks are prompting many US companies to actively consider reshoring to America but challenges still abound
CHICAGO, April 27, 2021 /PRNewswire/ -- The disruptions wrought by COVID-19 made the eighth annual Kearney Reshoring Index a unique barometer for tracking US manufacturing competitiveness, according to an analysis released today by Kearney, the global management consulting firm that conducts the annual study. The index tracks whether America is reshoring manufacturing back from Asia, where so many US factory jobs have been offshored over the past several decades.
A positive index number indicates net reshoring versus the previous year, while a negative index indicates net offshoring; the Reshoring Index fell from a record high of +98 in 2019 to -87 in 2020, Kearney announced today.
Global Pandemic Roils Trade
In pure mathematical terms, the latest figures would suggest a resumption of the mostly negative Reshoring Index results from 2011 to 2018. But a month-by-month analysis reveals that the Reshoring Index took many twists and turns during 2020, sinking deepest in the 2nd quarter, when the pandemic shuttered much of US manufacturing capability; rebounding solidly into positive territory over the summer, when US production resumed; then ending the year down in decidedly negative territory.
US manufacturing imports from China, specifically, took a similar roller-coaster ride, albeit on a different timetable. COVID struck first in China, and US manufactured-product imports from the country dipped in the first quarter, then rose even more sharply in the second quarter, when many US facilities were idled by the pandemic, raising their reliance on imports. Later in the year, as demand recovery favored supply from Asian low-cost countries, US manufactured-product imports from especially Vietnam, Taiwan, and Thailand surged, while US manufactured-product imports from China flattened to end 2020 at roughly the same volume as in 2019.
US Manufacturers Actively Weighing Their Options
Despite this Reshoring Index plunge, in a sister study conducted by Kearney many US manufacturing executives expressed favorable views toward reshoring as part of the actions they're taking in response to a year of global turmoil, but also noted several challenges to increasing US manufacturing in the short to medium term. Specifically:
- 52% of the US manufacturing executives surveyed by Kearney say they had started increasing the sourcing of products from the US in response to COVID-related disruptions, while 17 percent increased the sourcing of manufactured products from nearshore countries (e.g., Mexico and Canada).
- 47% said their company will strive to reduce dependence on a single country source or manufacturing location over the next three years, with 41% saying they will specifically strive to reduce dependence on China for manufacturing.
- However, 60% of survey participants found that COVID significantly disrupted the labor productivity gains that many US facilities had achieved in recent years and that are required to stay globally competitive.
- 56% also reported that it is actually more difficult to find and hire the right workers now than it was before COVID caused widespread employee furloughs and layoffs.
From Reshoring to Right-Shoring
"American manufacturers appear to have absorbed the harsh lessons of 2020 and many have taken decisive action as a result," said Kearney partner Patrick Van den Bossche, who leads the annual benchmark study of US manufacturing competitiveness. "What was once largely a binary choice―offshore to save costs or manufacture domestically―has now become a more complex set of decisions to factor in risk and resilience. This new approach, which some call 'right-shoring,' entails much more nuanced consideration of where to source products."
"US companies are moving toward more comprehensive and sophisticated decision frameworks," agreed Yuri Castano, Kearney manager and co-author of the annual study. "To absorb unexpected shocks with minimum disruption, while also sustaining a highly competitive cost structure, they need to effectively balance a wide range of economic, political, geographic, and ecosystem considerations as they weigh various sourcing options."
How the 2020 Reshoring Index Was Calculated
US imports of manufacturing goods from 14 Asian low-cost countries―China, Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka, and Cambodia―equaled 12.95% of US domestic gross manufacturing output in 2020, up from 12.08% in 2019. This resulted in a 2020 Reshoring Index of negative 87 (12.08 manufacturing import ratio [MIR] in 2019 to 12.95 MIR in 2020 = -.87).
Read the full report here.
About Kearney
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