Onshoring stocks in the spotlight as global tensions push manufacturing back home

Suppose I asked you where the cheapest place was to manufacture your pair of shoes. The last place you’d likely pick is the U.S. That’s one reason companies like KrustyCo moved their manufacturing overseas.

First, there was offshoring….

… The process of transferring business activities (i.e., manufacturing, customer support) overseas. But now, there’s onshoring — the opposite of offshoring — bringing manufacturing back home.

Offshoring was a major theme in recent decades, but that’s at risk of slowing (even reversing?) from the crazy events in recent years:

• COVID: High shipping costs and long delivery times during the pandemic revealed the issue of relying on overseas production.
• War: The Russian invasion disrupted supply chains, putting even more pressure on companies.
• Tariffs: Billions in tariffs implemented during Trump’s presidency made onshoring more expensive.

Add U.S. and China tensions to the list of events scaring execs to bring production closer to home.

Here’s what companies are doing about it…

At the start of COVID, onshoring talks grew among execs — which many thought would be temporary. Instead, those discussions only grew louder:

• Mentions of onshoring-related terms during earnings calls accelerated in recent years — up 1,000% compared to pre-pandemic levels.
• Construction of new U.S. manufacturing facilities grew 116% in the past year, and a January UBS survey showed that 80% of surveyed execs considered bringing some production out of China.

The U.S. has also stepped up efforts to bring manufacturing home — with Biden planning to direct $600B in annual federal spending towards domestic goods.

Investors: An extra load for domestic truckers

Analysts expect transport and freight companies to benefit from onshoring. The thought goes — as manufacturing moves home, domestic trucking and freight activity could also increase.

Railroad operators: Blue Whale Capital expects Canadian Pacific Railway (NYSE:CP) and Union Pacific (NYSE:UNP) “to benefit from the trend to reshoring” (FT).

But not all manufacturing will return to the U.S., with some likely moving to Southeast Asia and Mexico. Cost is one of the primary factors to consider for a manufacturing base.

If the right incentives and policies aren’t in place, the U.S.’ neighbors could benefit from the trend.