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State of Reshoring

The Case for Here

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MCN Editor Dan Markham Reshoring was already under way in the U.S., but the past two years have only highlighted the value of manufacturing in North America.

A dozen years ago, Harry Moser set out to prove that U.S. companies shifting production to China, India and other spots in the Far East were not necessarily making the most fiscally prudent decision. The former manufacturing executive believed that once the total cost of such moves was understood and analyzed, the economic case for offshoring was, in many cases, at best questionable.

He founded the Reshoring Initiative to provide the resources and data to back up that claim. With the initiative was the development of the Total Cost of Ownership Calculator, to help U.S. manufacturing companies determine whether offshoring was better for the bottom line. 

The results of his work, and others in the field promoting U.S. manufacturing, have been more promising than even the optimistic founder ever imagined. 

“The overall trend has been favorable, even better than I predicted 12 years ago,” Moser said during a recent webinar hosted by the Precision Metalforming Association. 
 
In 2010, the year the Reshoring Initiative was founded, only 6,000 jobs were brought back to the United States from overseas. In 2021, that number jumped to 265,000. And for 2022, the U.S. is looking at approximately 350,000 jobs coming back.

Growth in U.S. manufacturing jobs has been propelled by two factors, foreign direct investment and reshoring. Approximately four years ago, reshoring became the driving force. For the recent push, Moser credits the U.S. supply chain recognizing the difficulties with depending on faraway sources for materials and the U.S. government stepping in to address some issues. 

“Is globalization dead? We say at least it’s peaked,” he said, answering his question. “The ’20s will mark an era of deglobalization. We won’t say no companies will operate in multiple countries, but they will produce in the country or continent sold in that continent.”

It is no longer just advocates such as Moser making such claims. The recognition that the through process on manufacturing is shifting is also coming from the financial sector, which Moser blames for the move away from the U.S. in the first place. “Wall Street told manufacturers they should cut back to core competencies, which might be engineering, marketing, finance, and cut out that manufacturing stuff.”

Some may question how the U.S. can embrace reshoring given the ongoing labor shortage that has plagued the country for the last few years. But Moser believes that issue is abating somewhat, with greater use of apprenticeships and community colleges adding more training programs. Additionally, while the U.S. may be just coming out of the worst of it, other countries are now entering a more troublesome period for labor. 

One intriguing development is the cost of labor in the country most intimately associated with offshoring, China. Over the past 20 years, Chinese labor costs have risen dramatically, which has been pushing some manufacturing out of the country and into nearby Southeast Asian countries such as Vietnam, Cambodia and Malaysia. And the factory is becoming less attractive to many Chinese workers. “The problems the U.S. has had over the last 20 to 30 years of losing skilled labor workforce to other interests is happening very rapidly in China,” Moser said.

If not China, there are other countries where labor expenses will provide a significant cost savings vs. the United States. But, as the last two years have amply demonstrated, those savings can come at a pretty significant cost themselves. 

Initially, those costs manifested in freight, duties, cost of inventory, difficulty in delivering just in time, plus some smaller risks such as language barriers, time zone problems and intellectual property theft.
But the massive disruptions to the supply chain over the last two years illustrate even bigger concerns. COVID shutdowns, the Suez Canal blockage, port congestion at home, natural disasters and the Russian-Ukraine war have all contributed to a significantly delayed or outright ability to source some materials, further showcasing the risk of relying on overseas suppliers for raw materials, components or finished goods. 

“Based on all of this, companies are deciding to put assembly plants in the U.S. market. The United States is still the biggest market, so you want to nestle suppliers as close as you can, ideally in the same state or county. By eliminating ocean freight or air freight, you cut off so many chances for disruption and risk and simplify the whole situation,” Moser said. 

While Moser has been promoting the idea of reshoring for a decade, veteran steel analyst John Lichtenstein is relatively new to exploring the effects of the movement. But he believes there is strong evidence of it taking place, and believes steel and other industrial metals, in particular, stand to benefit the most. 

Lichtenstein said it will be much easier to reshore the production of steel than it is the manufacturing of many of the components that steel goes into. “The more labor intensive the manufacturing activity is, the more difficult it is to reshore. If a gear guy in the U.S. is buying steel offshore, sourcing that steel locally or domestically is a lot easier than sourcing a component.”

One wildcard in the push toward reshoring, he noted, are exchange rates. “A strong U.S. dollar really makes it even tougher to reshore. It increases the hurdle you have to get over to make that decision.“
On the other hand, one thing working toward reshoring, or at least nearshoring, is the effects of the USMCA. Lichtenstein says the pact is driving the sourcing of steel, particularly for the automotive market, which calls for more North American content in the vehicles produced here. 

While Moser prefers to see manufacturing relocated all the way home, he recognizes that stopping at one of our continental neighbors is vastly preferable to the production taking place in another hemisphere. 

“My priority is always to bring work to the U.S. if we can, but there are some categories where the labor costs are so high and it’s not automatable enough where it can be gotten to Mexico but not the U.S. I’d rather have it in Mexico than in China or India. On average, product coming out of Mexico into the U.S. has 40 percent U.S. content and product coming out of China has 5 percent,” he said. 

“We’re not here to promote Mexico, but sometimes it can be part of the solution.” ?


[Sidebar:]

Nucor Follows its Mantra

Of all the companies in the steel industry leading the push for American-made materials, Nucor Corp. ranks near the very top. Leaders of the Charlotte, N.C.-based EAF producer have been championing the case for American steel for decades in a number of forums. 

So, it’s no surprise that when it came time to need a custom-engineered roller leveler for a processing line, the company took the same approach. 

The company’s mill in Tuscaloosa,  Ala., produces hot-rolled steel coil and cut-to-length plate. It can produce coiled steel from 3/16 inches to 1-inch thick and up to 102 inches wide and discrete plates up to 3/4-inch in thickness and 102 inches wide. Alloys ranging from A36 structural to high-strength, low-alloy Grade 100 steel can be produced. Much of the coil steel is processed into flat plates on the company’s cut-to-length line. 

Since being acquired by Nucor in 2004, the Tuscaloosa plant has enjoyed numerous upgrades, the most recent in 2019 when management decided to modernize its heavy plate line. Plate finishing supervisor Alex Farinelli noted a key part of this project was the purchase of a roller leveler, a machine that, as its name implies, uses a series of rollers to convert coil stock into flat, smooth plate prior to shearing. 

“Our leveler back then was only rated to 3/4-inch thick material, and as Nucor’s product mix rose to include thicker plate and higher-strength steels, we found ourselves pushing that machine well past its capabilities,” says Farinelli. “It was definitely time for a new one.”

The selection process for such a critical piece of machinery was grueling. Nucor sent requests for quotation to multiple equipment manufacturers, each of which went through numerous revisions. Months later, potential vendors were invited to come onsite and deliver their final sales pitch, an event that Farinelli and his team refer to as “Buy Day.”

Delta Steel Technologies prides itself on delivering the most advanced “state-of-the-art technologies” in coil processing equipment. These include cut-to-length lines, stretch levelers, shape correction devices, and whatever else companies such as Nucor need to convert huge steel coils into flat, precision-cut material. The company also provides a range of industrial services such as gearbox and cylinder repair, retrofitting new technology onto legacy equipment, and turnkey installation and training on their various products, as with the roller leveler that Delta Steel delivered to Nucor in early 2022. 

One of the people who helped oversee the new machine’s installation was Nucor maintenance supervisor Justin Pate. “The commissioning was great; probably better than anything we’ve ever done here,” he says. “Since then, I’ve heard nothing but compliments from the people on the floor. I’m also told it’s far easier to run than the old leveler, and that it delivers product much more quickly.”

While not every manufacturer invited to pitch to Nucor was a U.S.-based company, made in America was definitely a factor in Nucor’s decision. In addition, as with this and other such projects, partners were asked to use only domestic steel to make their equipment. “We also tell them to notify us if they do have to purchase foreign steel and must then explain why they couldn’t find a U.S. source,” Pate says. 

Still, Farinelli admits there are times when the only option is to go offshore. “I get it. We have equipment here that, for various reasons, came from an overseas supplier, and in most instances, it works perfectly fine. But I think one of the biggest benefits of being made in America is the ability to pick up the phone and call whenever there’s a problem or question,” he says.

“In Nucor’s case, each minute of downtime on our cut-to-length line costs $3,000 in lost revenue, so uptime is obviously crucial. And when you get right down to it, I think all of us would prefer to use American manufacturers employing American workers. That’s a big part of what makes our country great and has played no small role in our ongoing relationship with Delta Steel. They’re a great company to work with,” he adds.


[Caption:]
The USMCA may help drive some reshoring efforts.  (Photo courtesy Olympic Steel)

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