Auto Industry Shifts Logistics Strategies

Auto Industry Shifts Logistics Strategies

While companies across industries and sizes are making changes to mitigate supply chain risk, the automotive industry seems to be leading the way on some of the top trends.

These trends include sourcing differently than pre-pandemic with tactics like nearshoring and other cost-saving strategies without reverting to traditional just-in-time shipping, which could introduce more risk.

Implementing strategy shifts, whether it’s something as substantial as nearshoring part or all of your supply chain, or shifting freight across modes, is not always an easy road. Before taking action, you should first evaluate if the effort and time is worth the reward.

Analyzing the risks and rewards

Nearshoring gained popularity in 2018 when Section 301 tariffs between the United States and China were introduced, but most companies didn’t act on the tactic. At that time, for many, the risk and time wasn’t worth it.

Now, that tune has changed, especially in the automotive space with three large automotive players, including Tesla and BMW, announcing they are moving or growing their plants in North America, primarily Mexico due to its proximity to the United States, trade agreements with multiple countries, and current manufacturing infrastructure.

Even with incentives to nearshore in Mexico and other countries, you should first analyze the cost factor.

Although you may be closer to your end consumer, consider how your storage needs and transportation costs will differ. For example, a shorter transit time doesn’t guarantee lower transportation costs, especially since ocean rates have decreased compared to previous years.

However, the trade benefits—such as avoiding Section 301 duties if you import from China—may outweigh potential added transportation and storage costs.

Understanding what it takes to relocate a production line, the new country’s trade and transportation laws and restrictions, and how much of the supply chain you will nearshore are all factors to assess before moving forward.

In automotive, most companies opt to move a piece of the supply chain to further diversify and mitigate risk.

With many automotive companies exceeding their shipping budgets as high as 200% in 2022, saving on shipping costs is a top priority but not at the cost of decreasing flexibility, which is key to lessen delays during market disruptions.

However, the shifts to take advantage of savings could invite some risk. For example, if you’ve never utilized less-than-container (LCL) shipping before, shifting half of your current full-container freight to LCL can invite savings, but also uncertainty. Working with a logistics expert with a track record for these services helps reduce the risk of delays.

Whether you want to nearshore, introduce more flexibility into your supply chain, or use other tactics, technology and analytics are useful to evaluate the risks and rewards specific to your supply chain.

A sourcing analysis report is a good first step to understand if reshoring or nearshoring is a strategy to consider. The report helps you see where else your commodity is being sourced, if alternative sourcing locations offer trade agreements, and if adjusting can help reduce landed costs.

Other technologies like freight lane analytics tools can analyze lanes through comparative pricing, volume and service to uncover the best way to buy freight to help cut costs.

As supply chains continue to become more complex, diversification will remain vital. The supply chain evolution across the automotive industry is a great example of how companies can diminish risk and reap rewards with strategic planning. n