Podcast: Is reshoring right for your company?

Karen Langhauser is chief content director at Pharma Manufacturing and has 20+ years of experience in the B2B manufacturing space. Kevin Jones is the editorial director for Endeavor Business Media’s Commercial Vehicle group, which includes Smart Industry sister brands FleetOwner, Bulk Transporter, Refrigerated Transporter, and Fleet Maintenance magazines and websites. Lynne Sherwin is managing editor for Plastics Machinery & Manufacturing, as well as Plastics Recycling and The Journal of Blow Molding. The team recently spoke with IndustryWeek editor in chief Robert Schoenberger about reshoring and its impact on various industrial sectors.

Below is an excerpt from the podcast:

Robert Schoenberger: Karen, I really wanted to bring you on to talk about, from the manufacturing perspective in pharmaceuticals, the impact this is having on things other than jobs, like intellectual property and research and investment going on in the pharmaceutical world.

Karen Langhauser: I think you have to kind of back up and look at what's driving this interest and what's going on in pharma that's driving this. I mean, reshoring isn't a new idea, but it's just been at the forefront of the discussion in the pharmaceutical industry for maybe, you know, since the pandemic. So, you have a confluence of related issues that are driving policy makers and presidential administrations, both the Trump administration and the Biden administration.

So, first you have the pandemic. The country sees firsthand how much of our medical supplies, our PPE, and our drug ingredients, which is an important one, are all coming from China, and I think this is something that inside the industry people have known, but the public wasn't as acutely aware of it until the pandemic. And the U.S. wasn't really the only country that realized this, either. During the pandemic, you saw the government in India recognize, you know, their country’s dependence on China, not just for ingredients but for the key starting materials, like the chemical precursors that go into the pharmaceutical ingredients.

And they've responded by stopping exports of, I think, 26 different drugs and ingredients, which included antibiotics, painkillers, and vitamins because they were concerned about having a supply for their own population.

So, I think this is a wakeup call to U.S. policymakers, and you saw this rush of proposed America-first legislation relating to drugs and APIs, both administrations behind this, and concurrently, in pharma, you also have this strong anti-China movement. I mean, going on within the government in general, I think, and the pharma industry specifically, we've been hearing a lot about this proposed piece of legislation known as the Bio Secure Act, which would stop federal contracts in the U.S. with Chinese biotech companies that are a national security concern, and there's a specific list of companies on that bill that the government is concerned about.

And this, to be clear, is not a reshoring bill, but what it has done is to kind of undermine confidence that U.S. pharma companies have working with Chinese companies, which in turn has positioned working with domestic suppliers as a more attractive option.

And on top of all of that, you have this drug shortage problem reaching an all-time high in the U.S. And because it's affecting really vital drugs like chemotherapies and antibiotics and medicines used on hospital crash carts, you have this kind of flood of congressional hearings and reports and proposed policy solutions to solve the drug shortage problem.

So, reshoring is consistently proposed as a solution to drug shortages, even though most experts and health care economists have concluded that reshoring isn't going to solve the drug shortage problem because the shortages we're mostly concerned about apply to generic drugs and these drugs are generally struggling for economic reasons, not necessarily in terms of where they're made. So, reshoring is probably not going to solve that problem.

But when you take all these factors together, you know, the inability to get supplies during the pandemic, this pervasive drug shortages, and the anti-China movement, they've all escalated into this like very strong reshoring movement for pharmaceuticals.

RS: Kevin, this has had a huge impact on the trucking and shipping industries. Truck border crossings between Mexico and the U.S. have been consistently moving upward. Is this all reshoring or are there other factors at play?

Kevin Jones: Well, this is largely reshoring. You know, the thing to note here is that the U.S. domestic freight market has basically been in a recession for two years. And you can see from that slide that while domestic freight has been flat or below expectations, that number has continued to grow from Mexico. And that comes from ACT Research, their industry analysts, and I talked with Tim Denoyer, who's their trucking specialist there, and he says that, you know, nearshoring is not a game-changer just yet for fleets, but it is supporting a resilient manufacturing sector in this soft freight market. And the long-term momentum is good, and the value of being a trucking company that can handle cross-border moves is really going to pay off going forward.

Of course, I could spend an hour just talking about, you know, the trucking challenges of cross-border, especially with Mexico. Congress and labor unions had fought allowing Mexico to enter the U.S. with longhaul trucks. They're supposed to be in NAFTA, and when was that? You know, the mid-90s. And it wasn't until the early 2000s that the Bush administration first started trying to get Mexico permission to cross in the U.S., even though Canada had been doing it all along. But Mexico then started putting some trade penalties on the U.S. if they didn't allow it, and ultimately by the Obama administration 10 years later, they finally got a target or a pilot program in place.

And all of the things that the Teamsters were suing about, you know, the fear that this will be a disaster, never came to pass. A lot of the challenges were that the Mexico fleets have to send their best trucks over to be able to run in the U.S., but they hate spending five hours sitting at the border. So, there's still a whole lot of that, traffic is still just using the trade zone in the U.S., and that's what we've had several stories about.

Lots of big distributors are setting up factories in the big border crossing areas, or setting up distribution centers, because that's still the best way to handle it rather than having longhaul trucks going back and forth. Just shoveling things across the border is kind of been the key to success. So that way then they go from Laredo (Texas) or El Paso to the rest of the U.S. So that's kind of where we are right now.