The pandemic exposed the fragility of our global supply chains and how vulnerable they are to disruption. A more regionalized model would create greater flexibility and speed, allowing companies to be more nimble when problems arise.
The backlogs of ships at the ports, the overseas logistics delays, and the subsequent supply chain snarls of the past two years have been covered ad nauseam. But while issues at U.S. ports are beginning to stabilize, the pandemic has revealed an even bigger issue that has yet to be resolved: our overdependence on an overseas supply network and a lack of visibility into where our goods and materials are sourced. We believe the pandemic has revealed the risks of a globalized supply chain and the need to start shifting to a more regionalized sourcing model.
There’s a host of compelling reasons why business leaders must act now to start making this shift—from national security to the health and safety of medically vulnerable Americans to sustainability. It’s time to start restructuring our supply chains so that we are sourcing more from our allies and democratic countries, especially those in the Americas. Indeed, the Biden administration has set a goal of making critical sectors of the U.S. economy less dependent on China. For the U.S., this endeavor will require public-private partnerships and hundreds of billions in government investments, subsidies, incentives, and sourcing mandates. It will also require us to leverage our neighbors to the north and south and set up manufacturing and logistics capabilities across the Americas.
Overseas dependence: a look at how we got here
The pandemic woke us up to the vulnerabilities baked into our historically lean, cost-optimized supply chains. Over the past several decades, we have optimized our globalized sourcing and procurement practices around reducing labor and other input costs. The result is a system that is designed to deliver goods and commodities at the least cost. But this cost-optimized system comes with a high price: we have created fragile supply chains that are vulnerable to disruption and manipulation.
For example, early in the pandemic, we saw shortages of personal protective equipment (PPE) including isolation gowns, medical-grade gloves, and masks, as well as ventilators. Between an overnight increase in demand for these items (70% of which came from the country where the pandemic originated) and just-in-time inventory management aimed at reducing stock and cost, the supply chain in the United States couldn’t keep up. This was followed by shortages of critically important drugs, including those needed for treating COVID-19 patients.
Follow-up research from Washington University in St. Louis also revealed longstanding problems with U.S. dependence on foreign manufacturers for active pharmaceutical ingredients (APIs) for essential medicines and generic drugs.1 Consider this: 97% of all active pharmaceutical ingredients (APIs) for antiviral drugs and 92% of antibiotic APIs have no U.S. manufacturing source. The Drug, Chemical & Associated Technologies Association blames this weakness on a “race to the bottom” mentality that drove manufacturing to low-cost manufacturing countries that provided structural advantages that the United States did not, such as greater government subsidies, lower input costs (such as a lower minimum wage), and lesser regulatory burdens.
Currently, India and China are the largest global suppliers of APIs, and this overdependence puts the U.S. in a precarious position of being vulnerable to price hikes, as well as supply chain disruptions. In 2021, for example, manufacturing delays from these countries accounted for 11% of all drug shortages in the U.S.
The pharmaceutical industry is not alone in its overdependence on overseas suppliers. Currently half of all global manufacturing is located in Asia. As a result, when U.S. consumers—many still stuck at home and flush with cash from stimulus checks—began buying electronics, vehicles, exercise gear, and other products on a scale that demand modelers couldn’t have forecasted, it resulted in severe port backlogs and delays. The more recent factory shutdowns and logistics delays caused by China’s extreme quarantine policies and its current energy crisis continue to demonstrate how vulnerable the globalized supply chain is to disruption.
A Pan-American supply network
Instead of the current global supply chain with an overdependence on Asian manufacturing, we believe that the United States would gain many financial and strategic benefits from a Pan-American supply network. Consider that in supply chains, speed translates into cash, and flexibility translates to resilience. A regional, “near-shored,” land-based supply chain would accelerate movement across the Americas, substantially reducing transit times. Less time spent in transit would mean less cash tied up in inventory. This equates to reduced working capital requirements and healthier balance sheets.
Creating a Pan-American supply network would require a mix of private investment and public funding and incentives. For example, governmental funding could be used to build a transportation infrastructure that linked the U.S., Canada, Mexico, and Central and South America. This would create a robust and resilient supply chain corridor that would allow products to flow through the two continents faster and with fewer impediments. By investing in railways, bridges, and highway infrastructure from Canada through Mexico and into Central and South America, we would have a more seamless supply chain infrastructure. Goods and critical resources could be transported by ground from low-cost locations in Central and South America to the U.S. and Canada quickly without requiring water or air transportation (two of the worst offenders when it comes to pollution).
At the same time, we could work to create a Pan-American manufacturing ecosystem. The cost of labor in Mexico and Central America rivals that of China. Additionally, countries in Central America have the population and demographics to support a large-scale manufacturing and logistics footprint (the average age across Central America is 28). Local manufacturing opportunities would be welcomed by Central American communities: They would create jobs, build wealth, reduce the pressure to migrate, and promote political stability in countries such as Guatemala, El Salvador, and Honduras. We have seen in Asia that supply chain opportunities have the power to uplift hundreds of millions out of poverty. Why not try to replicate that model in troubled countries closer to home?
Initiatives by the U.S. apparel and footwear industry, with support from the Biden Administration, are already beginning to have an impact in developing Central American supply chains. For example, U.S. manufacturer Parkdale Mills recently announced that it is building a multimillion-dollar yarn-spinning factory in Honduras. This investment will enable Parkdale’s customers to shift one million pounds per week of yarn sourcing from Asian suppliers to Honduras while also creating new jobs.
In addition to subsidizing upgrades in transport infrastructure, U.S. trade officials can facilitate this regional shift by providing technical assistance and training to U.S. original equipment manufacturers (OEMs) on how to navigate Central American regulatory structures and business cultures. This might involve advising on key challenges including maintaining compliance, achieving track-and-trace visibility, clearing customs, and best practices on how to reduce risk with carriers.
Of course, a strategic reset of this magnitude will take time and come at a great expense. It would be up to the United States, along with more developed countries like Canada, Mexico, and Brazil to lead the Pan-American initiative and persuade others. But it’s likely other countries in the Americas would be willing to help share the costs given the clear economic, political, and social benefits.
Roadmap to regionalization
We believe that we should fund and provide incentives for supply chain regionalization and diversification for critical industries first. This includes the four sectors prioritized by the Biden Administration in its 2021 report on improving supply chain resiliency: high-capacity batteries, semiconductors, critical minerals and materials, and pharmaceutical APIs. To those sectors, we would add telecommunications, energy, and food.
Pharmaceutical and health care companies are already taking on this challenge. For example, the health care improvement company Premier Inc., an alliance of hospitals and health care providers with extensive pharmaceutical supply chains and distribution networks, has worked with partners and even competitors over the last two years to increase domestic production and sourcing of PPE and APIs.2 Premier is leveraging its supply chain data to identify supplies that are most at risk and investing in those categories with “Buy-American” commitments. Masks, isolation gowns, and exam gloves are all examples of products with such commitments.
Premier recognizes that there are many reasons why the U.S. cannot aspire to become anywhere close to self-sufficient in pharmaceutical API production. For example, there is still a shortage of skilled manufacturing labor in the United States, and there are several key raw materials that region does not produce. The company argues, however, that both U.S.-based and geographically diverse manufacturing is needed to reduce overreliance on a single country or region.
A balanced approach, like the one Premier is taking, is a good first step to help keep costs in check while also helping to alleviate U.S. health care supply chain dependence on foreign nations. Still, this will not be easy nor inexpensive, and the company is urging the U.S. government to fund incentives such as zero-interest loans and tax incentives to “help close the cost gap between domestic and foreign drug manufacturing.”3
It should be noted that in some market segments and industries, it will not pay to invest in a significant re-engineering of supply chains to be more regional and less dependent on Asia. There are some cases where consumers will continue to choose less costly options over items with higher prices due to domestic or regionalized manufacturing. What’s more, China is the world’s largest economy with a vast and growing consumer market. So large global OEMs will want to maintain and, in some cases, continue growing their China-centric supply chains to serve this market as well as the rest of Asia.
Another alternative to supply chain regionalization is what is sometimes called “ally-shoring”—shifting procurement to democratic countries that are reliable U.S. allies. One model for this is how the United States cooperates with its closest allies—Australia, Canada, and the United Kingdom—through the National Technology and Industrial Base (NTIB) to produce and supply defense technology.4 Another is the cooperative work between the U.S. and Canada on critical minerals production.5
Mapping out the first step
How do you begin to understand where to start the journey of diversifying your supply chain? For supply chain managers, corporate leaders, and even the Biden administration, the journey to a regionalized, risk-adjusted supply chain network strategy begins with mapping your supplier network. While historically it’s been costly for companies to develop and maintain an accurate map of their supply chain, today, with the right partners, the process can be much more streamlined and efficient. Rapidly evolving technology, cloud adoption, and enterprise networks have made mapping cost effective, scalable, and rapidly achievable. What’s more, the new generation of software companies providing mapping capabilities go far beyond what could be accomplished with emails, phone calls, and spreadsheets.
Multi-tier visibility into the entire supply chain—which includes second and third tier suppliers and goes down to the part level—can help identify the most optimal supply chain design. This is because mapping provides a complete picture of the current supply chain. It can also provide visibility into any alternate sites within the network that might be available and where parts and raw materials could be sourced.
The visibility that mapping provides may show to you that it is possible to move your supply chain without having to switch suppliers. Imagine if you mapped your tier one, two, and three suppliers in China. What you’d likely find is that 30% of them have manufacturing sites outside of China.6 Instead of onboarding new suppliers, which is extremely labor and cost intensive, you’d be able to easily shift to an alternate location with minimal disruption.
A sense of urgency
We need to start approaching supply chain regionalization with a sense of urgency, as regionalization is the first step toward addressing the risks and vulnerabilities affecting our supply chains.
However, this shift to more regional supply chains will not be easy. It will take significant investment and cooperation across both private industry and the public sphere. It will also take time. It took more than 30 years for China to become the dominant manufacturer to the world. Building this kind of capacity in other countries and regions will also take decades—which is why we need to start designing the supply chain for the next 50 years, now.
4. Heidi M. Peters, “Defense Primer: The National Technology and Industrial Base,” Congressional Research Service (February 3, 2021): https://sgp.fas.org/crs/natsec/IF11311.pdf
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."