Pandemic could accelerate ‘reshoring’ among German fabricators

The Covid-19 pandemic has led to interruptions in numerous border-crossing supply chains, an effect which could make German companies think twice about relocating production overseas, and instead re-install production at home.

Germany’s association of steel and metals fabricators, WSM, has identified several factors that speak in favour of keeping manufacturing domestic, in a dialogue with Deutsche Bank analyst Eric Heymann. One is the vulnerability against international crises, as is the case with the coronavirus.

Earlier this year, Kallanish heard several WSM member companies speaking about the issues they experienced. One maker of fasteners, for example, returned to making parts in-house when a tool supplier elsewhere stopped production, and transportation companies were also hit by the lockdown.

Another factor identified by Heymann is increasing automation, which minimises the cost advantage for staff in low-wage countries. Germany is relatively advanced in this respect, as its share of robotics in production is the third-highest in the world.

Heymann notes that reshoring – the process of returning the production and manufacturing of goods back to the company’s original country – has for a long time not been a major topic in the industry. However, Covid-19 and its disruptions could bring a re-evaluation. Still, he believes that this would be a slow development over a longer time.