Is Nearshoring the Answer to Tariffs Uncertainty?

In the wake of unprecedented global disruptions, supply chain leaders are rethinking their fundamental strategies. 

The pendulum that swung decisively towards globalisation for decades is now shifting back, with many organisations prioritising operational proximity over pure cost efficiency. 

This evolution in supply chain thinking is being driven by a complex mix of conflict, geopolitical tension, pandemic-induced vulnerabilities and growing sustainability concerns.

The resilience imperative

The events of recent years have delivered a series of stark lessons in supply chain vulnerability. 

From pandemic lockdowns to container shortages and port congestion, organisations with globally-distributed supply chains faced unprecedented challenges. 

In turn, those with operations closer to home often fared better.

Mary Rollman, US Supply Chain Leader at KPMG, offers an Americas-focused take on the question of how companies should be distributing each element of their supply chains. 

“Historical experience demonstrates that organisations with established Americas-based supply chains weathered trade tensions more effectively compared to those with fully global operations.

"This is a lesson that is driving current strategic planning, with many organisations accelerating investment in regional supply chain infrastructure and relationships."

The benefits extend beyond crisis management. According to Mary, supply chains positioned closer to end markets “offer superior operational agility, enabling organisations to respond swiftly to sudden changes and complex trade policies”. 

This agility translates to competitive advantage in a world where consumer preferences and market conditions can shift overnight.

Cost considerations

Despite the clear case for nearshoring, cost considerations remain top of mind for many decision-makers. 

Research from KPMG indicates that, while flexibility and agility are gaining momentum, cost still ranks as the most important outcome in supply chain strategies at 33%.

However, the equation is changing, as Mary explains: “Proximity to key markets allows for more efficient logistics and distribution, leading to cost savings in transportation and warehousing, which can offset some of the increased costs.”

More sophisticated cost analyses are also painting a more favourable picture for nearshoring. 

"When organisations factor in comprehensive cost analyses that include potential tariffs, indirect taxes, and regulatory compliance costs," Mary points out, "proximity to the Americas can significantly reduce costs and improve operational efficiency”. 

The tariff effect

Clearly, the spectre of tariffs looms large over supply chain-related decisions. 

The intersection of higher tariffs and post-pandemic resilience concerns has created what Mary describes as a "proximity premium" in the Americas.

"Organisations are increasingly willing to accept higher operational costs within the region in exchange for tariff stability," she explains.

This willingness reflects a more nuanced understanding of risk. 

"Instead of reacting to individual tariff changes, organisations should consider strategic shoring as a long-term risk management strategy," Mary advises. “This not only mitigates tariff exposure but also leverages government incentives and maintains competitive advantages."

The potential impact of new tariff structures has the potential to be truly transformative, with Mary predicting that broad-based tariff increases could transform regional trade dynamics, making regional sourcing more cost-effective – particularly in sectors like automotive, electronics and textiles.

As geopolitical tensions continue to simmer, the case for proximity grows stronger. Mary emphasises that proximity “can serve as a strategic shield to manage regulations and tariff uncertainty”. 

Strategic relocation of operations closer to the Americas acts, in Mary’s words, as a “protective buffer”, enabling organisations to better navigate tariff uncertainties while maintaining both operational stability and cost efficiency.

She adds: “Retaliatory measures from other countries underscore the critical need for resilient supply chains within the Americas, intensifying the existing trend of strategic shoring. Mexico is emerging as a primary beneficiary due to its USMCA membership and strategic location.”

Making a business case

The journey towards regionalisation is not without obstacles. For many organisations, the business case represents the greatest hurdle.

"Compared to previous exercises, the case for transferring from a global supply chain to one more regional one isn't obvious," Mary acknowledges. "The move to global had obvious labour benefits that far outweighed any additional lead time considerations. Now, while labour has gotten closer to equal, the value of agility has increased."

This shift in value proposition requires new approaches to quantifying benefits. 

"That value, while sometimes challenging to calculate, is the case for nearshoring," says Mary. "Cutting out lead time reduces risk in the supply chain."

Beyond the business case, implementation challenges abound. Operations leaders identify the tax environment and a lack of local skills as the most significant challenges when shifting supply chains within the US or the wider region.

“Taxes and tariffs certainly are more variable and regulations continue to be unpredictable,” emphasises Mary. 

Sustainability considerations

As is the case with a growing proportion of modern-day business decisions, sustainability is having a big influence on supply chain configuration.

On the plus side, strategic shoring can help reduce an organisation's carbon footprint by minimising the environmental impact of their products, with some regions offering particular advantages in this regard. 

“Latin America looks attractive due to its abundant natural resources and developed hydropower, which provide about two-thirds of its electricity from clean sources," continues Mary.

"Being a leader in hydropower, wind, solar and other renewable energies, Latin America could offer significant tax advantages for organisations, making it an appealing region for strategic shoring.”

As tariff and, therefore, trade uncertainty reigns supreme, proximity is evolving from mere logistical consideration to strategic imperative. The ability to respond rapidly and adapt effectively to rapidly-evolving stakeholder expectations has become truly invaluable. 

For many supply chain leaders, the path to resilience now leads closer to home.

To read the full article in the magazine, click HERE.

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