Reshoring to North America and Infrastructure Fueling Long-Term Growth in the Industrial Distribution Industry
Industrial Distribution Reshoring Update
Companies in more than 80% of global sectors suffered supply chain disruptions during the pandemic, of which 75% are broadening the scope of their re-shoring plans, according to a Bank of America Global Research survey released in February 2020. Tariffs, automation, and national security were cited among the reasons for the shift. “[Re-shoring is] a tectonic shift because we anticipate that it will happen slowly but persistently over the next five or 10 years,” said Ethan Harris, Head of Global Economics at BofA Global Research. “It won’t happen overnight, but the forces seem unstoppable.” BofA Global Research covers more than 3,000 companies globally.
According to Thomas’ State of North American Manufacturing 2021 Annual Report, 83% of North American manufacturers are likely or extremely likely to reshore— up from 54% in March 2020. COVID-19 accelerated the prioritization of reshoring, which can translate into significant economic benefits. According to the survey, if these manufacturers with plans to reshore bring on just one single-contract domestic supplier, the shift would drive as much as $443 billion in U.S. economic value.
“We are witnessing the wholesale reexamination of supply chain relationships, which will realign global manufacturing for decades to come. With North American businesses accelerating reshoring and replacing some of their overseas suppliers with domestic alternatives, U.S. manufacturers are being presented with an unprecedented opportunity,” said Tony Uphoff, Thomas CEO. “The insights from this year’s State of North American Annual Report further underscore the need for increased investment in skilled labor and manufacturing technologies to ultimately improve the trade deficit and future-proof supply chains to protect against potential disruptions.”
“We’re inundated with companies coming to us realizing that they need to reshore,” said Harry Moser, Founder and President of the Reshoring Initiative®. According to the 2021 Reshoring Initiative Data Report, the number of companies reporting new reshoring and FDI (FDI by foreign companies that have shifted production sourcing from offshore to the U.S.) set a new record of over 1,800 companies.
Reshoring is not without its challenges, among them potential added cost and operational complexity. Better visibility and transparency across the supply chain, as well as increased access to real-time data, are gaining in importance. “Only through modern digital solutions can we consolidate supply chain metrics and empower more people to make better decisions,” said Bryan Palma, Director of Product Marketing at supply chain software company Kinaxis.
Industrial Distribution Infrastructure Update
The $1.2 trillion Infrastructure Investment and Jobs Act signed into law last November aims to invest in the nation’s infrastructure, including funding for roads and bridges, rail, transit, ports, airports, the electric grid, water systems, and expanded broadband. The wholesale distribution industry is expected to see tailwinds from the new legislation, with the industrial products sector a primary beneficiary through its enhancements in telecommunications, transportation, and logistics.
“Distributors of construction and building materials, steel, machinery and equipment, electrical and plumbing, and wireless and telecom materials should all benefit,” said Paul Pretko, a wholesale distribution industry executive advisor at SAP.“ Distributors serving public transportation infrastructure projects, power grid, electrification, broadband, and waterworks markets will see the most direct impacts over the five years of the bill’s spending cycle,” commented Tom Gale, CEO at Modern Distribution Management (MDM). “While some concerns center on the bill fueling inflation, initial takeaways from distribution executives indicate a longer-term tailwind supporting transformational shifts and trends emerging across all sectors of the economy.” According to Gale, there will be a six- to 12-month cycle before project funding starts flowing into the economy, so stronger impacts will be seen in 2023 and beyond.
The legislation also includes Buy America sourcing requirements to incentivize domestic re-shoring of supply chains and investment in the country’s industrial automation, reported Industrial Distribution. Under this requirement, the cost of the components used to manufacture products that are mined, produced, or assembled in the United States must be greater than 55 percent of the total cost of all components.
Interested in a recap and analysis of recent industrial distribution M&A activity? We invite you to download our full 22-page Industrial Distribution Insider for a breakdown of recent deals and their implications for the industrial distribution market.
Contact our Industrial Distribution Investment Banking Team
Led by Kevin H. Sargent, BGL’s Industrial Distribution team leverages its industry knowledge and global relationships to execute highly effective and efficient transactions on behalf of our clients. Please reach out via our contact form provided below.