Breaks in distribution chains could put Portugal on a new global investment route

Companies began to opt for the “reshoring” of their production as a way of dealing with interruptions in supply chains caused by the war in Ukraine. Will Portugal benefit?

European companies are looking to the EMEA region (which encompasses Europe, the Middle East and Africa) for an alternative to production and sourcing in Ukraine and Asia, after months of supply chain disruption, concluded the “Supply Chain Disruptions” report, promoted by JLL, a services company in the real estate sector and investment management.

The same study reveals that several companies operating in the retail and manufacturing sectors have already decided to reallocate part or all of their production.

The concept of “reshoring” (also known as “onshoring”) can thus gain momentum, as a process by which companies bring back the manufacture of their products to the countries of origin of the goods.

• New European Beneficiaries

JLL's internal data show that the new European reshoring beneficiaries are Central Europe and Romania.

“Considering the current transport networks and logistical gateways, it can be said that goods will circulate, above all, along two distribution corridors: the traditional European Dorsal (from central England to northern Italy) and the emerging 'Black Sea Banana', which connects Budapest to the Black Sea”, says JLL.

This trend comes in the wake of the pandemic, which caused a breakdown in distribution networks and a serious bottleneck in ports and airports, which is why companies began to opt for “reshoring” as an attempt at a solution to deal with interruptions in supply chains.

JLL also anticipates that the scarcity of land and labor will contribute to an increase in demand in Central Europe, from the primary market to the secondary and tertiary markets, which are strategically located.

• “Nearshoring” gives advantage to Portugal

In addition to “reshoring”, “nearshoring” may also become a trend, which may, in this regard, favor Portugal.

Marlene Tavares, Head of Retail & Logistics Investment at JLL, says that, in this international context, “Portugal has competitive advantages, linked to its very attractive geographical position and demographics, which place us in a prominent position in the European nearshoring strategy.”

More specifically, Portugal's geographical positioning, being between Europe and the United States, can benefit the Portuguese market.

"In this international context, “Portugal has competitive advantages, linked to its geographical position”, says Marlene Tavares, from JLL."

Marlene Tavares explains: “The discussion about nearshoring (when operations are moved to a country close to the country of origin, as opposed to offshoring) is not new. Rising wages in low-cost production locations and increased risk due to climate change, strikes and accidents such as the Suez Canal blockade have fueled debate on this issue over the last decade. However, a more favorable cost/risk ratio and the fact that many production infrastructures were lost in Europe, continued to guarantee the Asian continent the advantage for locating the major distribution and production hubs for a wide range of products. This scenario is now changing, due to the recent situation and also to new consumption habits”.

Mariana Rosa, Head of Leasing Markets Advisory at JLL, adds: “Two years of a global pandemic, followed by the Russia-Ukraine conflict, have consequences. With all the interruption in supply that these two situations caused, companies realized that they needed to diversify production to maintain good levels of stock in European markets. Furthermore, this study shows that the current scenario continues to be one of disruptions in the supply chain and that this is a trend that will continue”.

"Companies have realized that they need to diversify production to maintain good stock levels in European markets”, points out Mariana Rosa, from JLL."

From the perspective of those responsible, respectively, for the areas of occupation and investment in Industrial & Logistics in Portugal, changes in companies' strategies regarding the relocation of their production and distribution hubs closer to the European consumer, can benefit the Portuguese market , which enjoys a strategic geographic position in the connection between the European continent and the American continent. “Real estate in this segment could be the target of a strong increase in demand for occupation and investment”, indicates JLL.

Data from the logistics platform Flexport shows that an average container trip from Asia to Europe has almost doubled since 2019, while research by Buck Consultants International (BCI) confirms the same as JLL: more than 60% of US and European companies are planning to allocate part of its production back to its home country.