What is the Reshoring Effect?
By Sam Hodges
COVID-19 has brought new challenges to manufacturers across the country. It has devasted some and increased business for others. In this week’s blog, we explain what the “reshoring effect” is and how it may impact Fairfield County.
To begin, “reshoring” also known as “on-shoring” is the practice of transferring a business operation that was moved overseas back to the country from which it was originally located. International trade deals helped to drastically cut labor and retail costs but a majority of companies are realizing the risks this has on their supply chain. Industries relying on offshore production have to rethink their structuring. By “reshoring” suppliers, no longer have to think about international trade deals and long-distance shipping costs.
Candace Browning, Head of Bank of America Global Research stated that “Higher wages in the developing world and advances in automation are reducing some of the cost benefits that have long made overseas suppliers so attractive.[1]” On top of this, U.S. municipalities look to attract business by offering incentives. These incentives can be in the form of tax abatements, reduced land costs, and state/county grants, or a mixture of all the above. Some of you may ask, “How does the county recoup the benefits of giving these ‘breaks’ to large industries?” Here’s an example.
Company X is looking at Fairfield County to “reshore” close to the Charlotte market. They need 30 acres of land to build a 300,000 SF facility that will create 300 jobs over 5 years. Company X looks to invest $25 million in this project. $20 million will be in constructing the new 300,000 SF facility and $5 million will be spent on machinery and equipment.
You may be asking yourself, “Why give these corporations a break?” In order to be competitive with other counties across the state and country, economic developers look to incentivize deals to encourage job creation in their county. For a project of this size, Fairfield County would consider giving the new employer a temporary reduction in property taxes referred to as an SSRC (Special Source Revenue Credit) and sell county owned land that has been fully developed with water, sewer, natural gas and electricity.
In this example, Fairfield County decides to give Company X a 20% SSRC (Special Source Revenue Credit) for the first 10 years. Over these 10 years, Company X, saves $1,086,626. This helps Company X significantly on the front-end of their project and the county has a stable tenant for the years that follow. Fairfield County nets $4,303,042 over the first 10 years. Year 10 marks the end of Company X’s SSRC (Special Source Revenue Credit) and the years following will revert back to the normal fee. This means that during the next 10 years, the County will net $5,429,525 bringing the net to county total over 20 years to $9,732,567.
In year 3, Company X, hits their job requirement. This company has created 300 jobs for the surrounding area and built a brand new $20 million facility in the county. 300 jobs means 300 happier families, economic opportunity, and growth. Fairfield County will benefit with new resources to invest in projects that improve the overall quality of life for future generations to come.
As the “reshoring effect” looms in the heads of manufacturing execs across the world, Fairfield County is uniquely equipped to handle an incoming industry. We are close to Charlotte-Douglas International Airport (65 minutes), Columbia Metropolitan Airport (25 minutes), and the Charleston Port (2 hours and 45 minutes). If the “reshoring effect” happens as many experts have predicted, we have a strong selling point and portfolio of property to handle any type of operation looking to locate in the region.
[1] Brown, Candace. “Reshoring & Deglobalization - Tectonic Shifts in Global Supply Chains.” Bank of America Merrill Lynch, 2020, www.bofaml.com/en-us/content/tectonic-shifts-in-global-supply-chains.html.
