Regionalized sourcing trend in supply chains


The process of localizing the source of goods is slower than expected, but it is currently recording steep growth as forwarders in Europe are expanding to Eastern region.

A Frankfurt-based cargo services company reported their plans to open more branches in Eastern Europe next year, specifically “We already have an office in Poland and are looking to expand to neighboring countries”, the main purpose for the expansion its branches due to the customers from forwarder companies.

According to Mr. Jo Feiks, director from the air cargo unit based in Vienna, Austria, added: “Among European manufacturers show the signs of supplier switching in Turkey and Eastern Europe, including plans to expand existed semiconductor plants in Europe, but it will take time, not until 2023 or 2024.”

Some major fashion brands are also planning to migrate from Asia, such as Benetton, which has moved 10% of its total output out of China, Vietnam and Bangladesh this year and plans to halve its output in Asia until the end of next year. This brand is looking to locations near Southeast Europe and North America.

In some countries like Vietnam and Bangladesh, production costs are low but high in transportation, including: shipping container costs for demurrage, detention and road transportation costs. In many companies recorded underperformance business due to interruptions.

Outsourcing in Eastern Europe or the Mediterranean will significantly reduce latency while current shipping costs to ship from Asia to Europe have almost doubled. This change not only targets for shorter production processes and cyclical plans, but also helps companies to access the European market faster when problems arise.

For manufacturers and retailers, proximity to major markets has been emphasized at some point, starting from the trade war with China under President Trump’s administration. According to a report on US manufacturers by supply chain platform supplier Thomas showed that 83% either interest or strongly prefer moving the sourcing to other location, a significant increase from 54% in March 2020.

“We've seen great interest in moving to Latin America, especially in the high-tech industry," said Robert Villmizar, DHL Global Forwarding's Head of Route Development in the US-Latin America region.

Mexico is the prime choice for many businesses, Panama, Puerto Rico and Costa Rica also receive a lot of interest.

Observers also noted that moving sourcing to other regions is a transient trend. A study from MacKinsey explains the point in a survey from May 2020 and next year to evaluate companies' plans to improve supply chain capability for Covid-19 pandemic.

As a result, 38% of businesses responded to the first survey have plan to localize their supply chains while only 27% in the second survey have already done the transition. The solution that many firms applied is increasing inventory more than planned in spring 2020.

Despite this, up to 90% of businesses in the 2nd report have plans to localize within the next 3 years.

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