Logistics companies race to adjust layouts in response to global supply chain restructuring

Editor's note: This is the first article in a series exploring the transformation of global trade.

How are logistics companies responding to shifts in global supply chains? Just follow the money.

Manufacturers are investing billions of dollars to build factories closer to consumers or in alternative regions with lower risk than China, aiming to enhance supply chain resilience after years of political and pandemic-related disruptions. These trends—reshoring, nearshoring, and friendshoring—may increase shipper costs in the short term, but Brian Bourke, Global Chief Commercial Officer at SEKO Logistics, said during a media event in October that shippers will benefit from shorter lead times and more diversified distribution strategies.

To realize these benefits, sufficient airplanes, trains, trucks, and container ships are needed to move products out of shippers' newly opened factories. Amid weak freight demand and ongoing economic uncertainty, carriers are rushing to provide these services.

Companies such as Union Pacific, DHL Express, and ZIM are striving to seize opportunities from this geographic shift in demand by enhancing service capabilities and adjusting networks. Related initiatives span multiple transportation modes, from cross-border services connecting Mexico, the United States, and Canada, to new routes from Latin America.

As these logistics services improve, more factory groundbreaking ceremonies are expected to follow.

A report released in October by the U.S. Chamber of Commerce and Ipsos noted: "Overall, businesses consider logistics the most important factor when deciding sourcing locations and making direct investments."

Ocean carriers adapt flexibly

Anders Schulze, Senior Vice President of Ocean Services at Flexport, said in emailed comments that ocean carriers have been adapting to changes in global trade demand for years. He noted: "During the 2008 financial crisis, the industry faced a sudden drop in demand, and shipping companies responded by cutting capacity and implementing cost-saving measures. Similarly, the 2016 Panama Canal expansion changed trade routes, requiring significant investment in infrastructure to accommodate larger vessels."

But Schulze said carriers are now adjusting faster than before, mentioning ZIM's recent relaunch of the ZEX express e-commerce route connecting South China to the U.S. West Coast.

ZIM told Supply Chain Dive that it developed a "unique agile strategy" years ago to respond to rapid market changes. Recently, due to market shifts and evolving customer needs, it expanded connectivity from South America to the U.S. East Coast and Gulf Coast. The company said: "In some cases, declining demand led to the closure or reduction of certain routes, while the emergence of new or growing markets allowed us to launch new routes and services."

Ocean Network Express (ONE) also told Supply Chain Dive that it remains flexible and proactive in responding to changes in global trade flows. The shipping line recently reduced services in the United States and Europe while launching new routes within Asia and to Latin America. For example, in July it launched the "FLX" service connecting the West Coast of South America to Florida.

However, not all ocean carriers are rushing to launch new services. As the industry navigates demand fluctuations, Hapag-Lloyd said in an emailed response that it focuses more on adjusting existing services to suit current demand. The company added: "Of course, we see emerging markets, such as Africa or India, and will integrate them more into existing networks."

Air cargo actively positions itself

Nearshoring or friendshoring is not easy—adjusting supplier networks, finding the necessary labor, and adapting to other countries' regulations are just some of the challenges. Matt Castle, Vice President of Global Freight Products and Services at C.H. Robinson, said in an email: "For example, manufacturers moving operations from China to Mexico may still rely on suppliers in Asia or other sourcing regions for materials."

This is where air freight services come into play. Castle noted that during the nearshoring transition, shippers often use air freight to quickly transport supplier components to meet production and inventory needs at new factories. He added that many companies hope to shift to lower-cost transportation modes like truck or rail after the transition, but air freight remains advantageous for operations close to customers. He mentioned that air freight "has always been a reliable choice for many automotive suppliers and OEMs to quickly bypass congestion at the U.S.-Mexico border."

"The theme here is that as shippers diversify supply chains to reduce risk, agility is crucial because disruptions are indeed inevitable, and shippers have historically turned to air freight to keep goods moving." — Matt Castle, Vice President of Global Freight Products and Services at C.H. Robinson

Boeing's air cargo industry forecast released last year supports Castle's view, suggesting that nearshoring will benefit airlines. The aerospace giant said that supply chain shifts are expected to trigger a North American manufacturing renaissance, producing high-value components typically transported by air.

This provides an opportunity for the air cargo industry to increase volumes, as carriers face weak demand and falling rates. Many air cargo providers are already investing to capitalize on this expected growth. Mike Parra, CEO of DHL Express Americas, said on LinkedIn earlier this year that the company will invest a total of $600 million in Mexico by 2024 to leverage the country's growth, doubling its initial investment announced in 2019.

Meanwhile, according to a November 20 press release, air cargo companies WestJet Cargo and Awesome Cargo aim to strengthen connectivity between Mexico's Felipe Ángeles International Airport and other parts of North America. A WestJet spokesperson told Supply Chain Dive: "While the partnership is not explicitly aimed at nearshoring, it does position both companies well to leverage existing trade agreements and strengthen trade ties."

Growth in cross-border intermodal services with Mexico

Rail and trucking companies are strengthening partnerships to capture demand from North American supply chain investments and the USMCA, leveraging each other's networks to provide integrated services across the three countries.

For example, Union Pacific earlier this year partnered with Canadian National Railway and Grupo Mexico Transportes to launch the "Falcon Premium" Mexico-to-Canada intermodal service. The service connects parts of their networks to support the transportation of automotive parts, food, and temperature-controlled goods.

Union Pacific's trucking partner Hub Group also expects to benefit from the arrangement. President and CEO Phil Yeager said during an April first-quarter earnings call: "We are very excited about the southern premium service just launched by our western partner Union Pacific. I think this will really help us capitalize on nearshoring opportunities in the near and long term."

The Falcon Premium combination faces stiff competition from Canadian Pacific Kansas City (CPKC), which is the first single-line railroad connecting the United States, Mexico, and Canada, and has a partnership with trucking provider Schneider National.

Stephen Bruffett, Executive Vice President and CFO of Schneider, said during a November earnings call that its intermodal business in Mexico is currently "a small part of our business" but is growing. The carrier has seen a 20% increase in order volumes on its Mexico-bound and outbound services with CPKC. Bruffett said: "The growth percentage is higher, and the overall Mexican market growth is also driven by nearshoring. So the incremental volume is still relatively small, but we see a larger long-term opportunity."

This forward-thinking mindset is a common theme among many carriers, who are adjusting their vast networks to adapt to a new era of supply chains.