Rising Costs and Labor Shortages: Why Nearshoring is the New Supply Chain Playbook

The manufacturing sector in Western markets is at a crossroads. Soaring input costs, persistent labor shortages, and geopolitical volatility are forcing companies to rethink their global supply chains. For investors, this crisis presents a clear opportunity: focus on firms that are reshaping their strategies to prioritize resilience through nearshoring, automation, and diversified production. Companies like Reebok—struggling to relocate production from Asia—are stark reminders of the risks of outdated supply chain models. Meanwhile, those leading the shift to localized manufacturing and advanced technologies are emerging as winners in this new reality.

The Cost Crunch is Real
Western manufacturers face a perfect storm of rising expenses. Tariffs, logistics bottlenecks, and raw material inflation have pushed input costs to record highs. According to the National Association of Manufacturers (NAM), tariffs alone added a 7.7% average cost burden in Q2 2025, with 61.8% of manufacturers citing reduced export opportunities due to trade barriers. Labor shortages exacerbate the pain: 60% of manufacturers report hiring difficulties, with turnover costs for skilled workers reaching up to $40,000 per employee. These pressures are squeezing margins, particularly for brands reliant on far-flung Asian supply chains.

Reebok's parent company, Adidas (ADS), epitomizes the challenge. Despite years of trying to shift production closer to Western markets, the brand has struggled to replicate the scale and cost efficiency of its Asian factories. reflects this strain, with volatility tracking closely to supply chain disruptions. The lesson is clear: half-measures won't suffice.

The Nearshoring Revolution
The answer lies in a strategic pivot: nearshoring and reshoring. Companies are moving production closer to end markets, leveraging Mexico, Eastern Europe, and even U.S. regions like the Southeast. This shift isn't just about cost—it's about risk mitigation. Mexico, now the U.S.'s top trading partner, has become a hub for automotive and electronics manufacturing, with its proximity and skilled labor pools making it a safer bet than distant Asian hubs.

Joe Foster, a supply chain strategist, warns that “labor dynamics and geopolitical risks are making nearshoring a necessity, not a choice.” His analysis underscores the urgency: firms that delay localization risk falling behind in a world where supply chain agility determines survival.

Automation: The Silent Partner in Resilience
Automation isn't just a cost-cutting tool—it's a lifeline for companies grappling with labor shortages. From AI-driven predictive maintenance to robotic warehouses, advanced technologies are enabling manufacturers to operate leaner and more efficiently.

The robotics sector is booming. Companies like KUKA (KU2) and ABB are supplying the machinery that underpins this transformation. shows a 40% surge since 2023, as demand for automation solutions skyrockets. Meanwhile, logistics firms like FedEx (FDX) and DHL, which are integrating drones and AI into their networks, are also positioned to capitalize on the trend.

Sectors to Watch
1. Automation Technology Providers: Firms supplying robotics, AI, and Industry 4.0 tools (e.g., KUKA, ABB, Siemens) will see sustained demand.
2. Nearshoring Enablers: Logistics providers (e.g., FedEx, DHL) and companies with Mexico/US-Mexico operations (e.g., Caterpillar, Toyota) benefit from proximity and trade deals.
3. Diversified Manufacturers: Companies like Boeing (BA), which are retooling U.S. factories for defense and aerospace parts, or Siemens (SIE) investing in localized energy systems, offer safer bets than those reliant on single regions.

Investment Playbook
- Avoid: Companies with overexposed Asian supply chains (e.g., brands like Nike or Gap without nearshoring plans).
- Buy: Automation leaders and logistics firms with advanced tech integrations.
- Watch: Nearshoring hubs like Mexico's manufacturing zones—investors can access these via ETFs like iShares MSCI Mexico ETF (EWW).

Conclusion
The era of “just-in-time” global supply chains is over. Investors must prioritize firms that are building resilience through nearshoring and automation. Those lagging behind—like Reebok's parent—will face margin erosion and market share losses. The next wave of winners will be those that master the art of localization and leverage technology to stay agile. The tools to navigate this crisis are here; the question is whether companies—and their shareholders—will act before it's too late.