North America’s Reshoring Of The Global Supply Chain

By John Gallagher of FreightWaves

With manufacturing and labor markets on the decline with North America’s traditional partners in Asia — and with trade with Russia collapsing — North America is in prime position to take advantage by reshoring global sourcing.

“For the most part we can keep this in America — or at least North America,” said geopolitical strategist Peter Zeihan during the opening keynote Monday at FreightWaves’ F3: Future of Freight Festival in Chattanooga, Tennessee.

Zeihan is the author of the recently published book “The End of the World is Just the Beginning: Mapping the Collapse of Globalization.”

He said one of the keys to boosting U.S. trade will be reforming the Jones Act, a century-old trade protection law that Zeihan contends boosts transport costs.

“This would help the country bring manufacturing back on the water in a very big way,” he said. “Mexico is now ahead of Canada from a labor productivity measure, which means that Mexico now needs a low-wage partner. Colombia and Cuba are the obvious candidates. It’s a much simpler system, one that is reliant on things close to home.

“When you want to do a trade deal with Russia or China, it’s a pain. But calling on a country like Colombia, which is kind of desperate and wants to be part of the club, it’s a much easier process and we don’t need to do things at scale to the same degree. A small container ship is fine, you don’t need that massive Triple E container ship.”

Some of the trends that many in the transportation industry are expecting to happen quickly — such as the transition to electric vehicles — could be stuck in neutral for a while, Zeihan said.

In fact, he said, “the [EV] transition is not going to happen — that’s the short version. Russia is one of the top three suppliers of nickel, cobalt and aluminum — and all of those are going to zero” as far as U.S. imports.

“So we’re going to be in the position, very soon, where we will have to decide which parts of the green transition are worth doing because we will not have the materials. If you’re looking at this from a carbon production transition period, a wind tower you put up in a place with wind, that has an immediate carbon impact.

“But an EV does not, because it draws from the grid in its current form, and for the most part the processing facilities required to build the EVs in the first place are incredibly carbon intensive. And most vehicles running on most grids are going to take in excess of a decade to pay back the carbon debt.”

And in a world where globalization is shifting — or ending — what does that mean for inflation?

“Every disinflationary trend of the last 75 years has flipped, and every inflationary trend is back at the same time. We are looking at 9% to 15% inflation for at least the next five years — and that’s independent of anything the Fed does,” he said.

“If at the end of the five-year period we’ve succeeded in building out the industrial plant, we go back to a much tamer system that will be lower for longer, because the supply chains will be local, the processing will be local and we’ll be following our own labor metrics, which will have evolved because we will have had to do a lot more with artificial intelligence and automation than we currently have, especially as we bring in electronics manufacturing — we will have a choice.

“But if we fail to do that, then the 9% to 15% inflation continues and there are product shortages. From my standpoint, it’s a really clear path. The alternative is to go through the worst of it and get none of the benefits.”

For companies looking to survive in the new North American supply chain, “anything that makes you more modular and more capable and allows you to adapt more quickly is something I think that can provide an outsized advantage,” Zeihan said.

“We’re going to have fewer supply chain steps closer to home, and the competitive nature to that is going to be very different from just waiting for things to show up at the dock. We’re going to have the need to do everything that is currently done in Asia but in fewer steps and right in our own world.

“That’s not just an issue of a capacity increase. That’s an awareness of what the cargo is on a micro level and in each container so that anyone can go to anything at any time and find out the best way to route within the system — that’s going to require a lot more information technology.”