Reflecting on the pandemic-induced shortage of hygiene products, such as toilet paper, many freight forwarders and supply chains together recognized the glaring inconsistencies that led to this situation. As the industry sought more robust supply chains, striving for resilience became a critical goal. To achieve such resilience, logistics companies and manufacturers highlighted nearshoring as an effective strategy. In this article, we examine the challenges that compelled the pulp and paper industry to move toward nearshoring and how it is implemented. 

Nearshoring is understood as the relocation or outsourcing of manufacturing processes or storage centres, either to a nearby country, typically one that shares a border with it, or to a location closer to target markets. Unlike offshoring, which emphasizes low cost, nearshoring primarily focuses on temporal proximity.

How Nearshoring Helps?

Pre-pandemic, the trend was often to rely on single, cost-effective overseas sources. A limited number of contracts were awarded to logistics companies to operate in the supply chain, which were required to ensure timely deliveries. When the pandemic disrupted these movements of goods, especially from overseas sources, paper companies began to look for more local networks. Nearshoring helped a network of suppliers and logistics companies across local, inland, and regional geographies to work with paper companies in order to avoid disruption and mitigate the risks of dependence on a single source. 

Shorter supply chains resulting from nearshoring also enable greater traceability and transparency. An example of this came to light when  EU Deforestation Regulations were enforced in 2023. Many “operators” (those who import material) and “traders” (persons within the supply chain that distribute products) were required to provide proof of origin for wood and wood-related products, vouching that their production did not cause deforestation, and that they were legally produced, along with a due diligence statement. Those that nearshored their operations could offer such proofs relatively easily.

Situating production and distribution centres close to markets has helped supply chains manage empty shelves and generally increased overall reliability. An example of this can be seen when many Chinese paper companies began relocating away from the domestic coastal hubs to RCEP (Regional Comprehensive Economic Partnership) countries, such as those in Southeast Asia, to avoid supply disruptions, port congestion, tariffs, trade barriers, and primarily to protect stock from volatility. This was seen mainly in the midstream sectors of boxboard or corrugated base paper. Similarly, many companies are considering Latin America to remap their supply chains and avoid single-source dependency, creating broader alternatives within geopolitically stable countries. In this case, nearshoring is better understood as “friendshoring,” a process in which companies move production, operations, and warehouses to friendly nations to address geopolitical uncertainties. Friendshoring, in recent years, has also challenged the protectionist practices of trade blocs, pushing companies to reach beyond their “comfort zone” sources while seeking lower institutional and political risks. 

Nearshoring as a Process

Implementing nearshoring requires a structured approach and robust planning. There are some significant aspects to consider before conducting nearshoring. First and foremost, companies must conduct a comprehensive financial analysis to deepen their understanding of budget constraints and their intersections with technical demands and delivery timelines. Furthermore, adopting the Total Cost of Engagement (TCE) model when nearshoring exposes hidden costs and the impacts of stockouts or long lead times, enabling more informed decision-making and a resilient system. Often, organizations also develop parallel supply chains, called ‘Supply Chain Ambidexterity’, by building a nearshore chain alongside their regular supply chain for more customized or seasonal products and those prone to demand fluctuations.

Another essential aspect of nearshoring involves the proper evaluation and selection of a partner or location. Time zones should ideally have zero to three hours of difference in order to collaborate in real time. This prevents friction caused by delays and enables a faster response. It is also essential, when considering partners, to assess cultural and linguistic fit to avoid communication breakdowns. It is also often conducive to targeting specific partners or locations within regional clusters to leverage local expertise. 

While nearshoring can lead to higher labor costs, an effective way to offset these expenses is to integrate technology. Real-time tracking solutions, IoT sensors to monitor environmental changes, and AI-powered analytics improve productivity and strengthen competitiveness. Finally, it is essential that the last phases of nearshoring implementation involve management alignment and personnel onboarding to bridge any operational or cultural gaps that may arise between the parent company and the nearshore provider.

The pulp and paper industry stands to gain more significantly from nearshoring due to the bulky, high-priority nature of its products. Nearshoring also simultaneously supports sustainability by reducing carbon emissions through shorter supply chains. Ultimately, nearshoring is a valuable response to the growing global disruptions, port congestions, and canal blockages, bay ensuring a responsive and reliable supply of paper products.

Read More:

van Hassel, Edwin et.al., 2022, "Reconsidering nearshoring to avoid global crisis impacts: Application and calculation of total cost of ownership for specific scenarios" Research in Transportation Economics. Elsevier, vol. 93, issue C, DOI:10.1016/j.retrec.2021.101089.