Onshoring After the Fuel Shock: What We’re Seeing in Australian Businesses, and What Actually Works
Since March, almost every supply chain conversation we have been in has had the same sentence in it somewhere: we need to bring supply closer. BSI’s August survey put a number on it, with 79 per cent of Australian businesses either nearshoring already or planning to within a year. The instinct is right. The execution, in most of the organisations we see, is not.
We wrote about the economics of reshoring in February and about nearshoring to Southeast Asia in March. This piece is different. It is about what has actually happened inside Australian businesses in the eight months since, the five patterns we keep walking into, and what works instead. It is written for the operations director, the supply chain lead and the CFO who are being asked to make this call before Christmas.
What we’re seeing
The April supplier is still on the books
In March and April, with fuel surcharges arriving weekly and containers being deferred, procurement teams did the sensible thing in the moment: they found whoever could ship and signed them up. A second packaging supplier in Thailand. A contract manufacturer in western Sydney who had capacity. A distributor who could get resin.
Most of those arrangements are still running, on the terms agreed when there was no alternative, and nobody has gone back to ask whether they are now the primary source, the backup or a mistake. In one business we worked with recently, the April supplier was 18 per cent dearer than the original, had never been through a proper quality qualification, and was carrying 40 per cent of the volume because the planner had never been told to switch it back. That is not a resilience strategy. It is an unfinished emergency.
The business case was built at the peak
When the case for onshoring a product line lands on the CFO’s desk, the freight number in it is from July, the diesel number is from the worst week of the year, and the exchange rate is from 2025. Domestic manufacturing wins everything.
The problem is that two of those numbers are already turning. The dollar climbed to around US$0.71 by mid-2026 from 0.64 a year earlier, which makes every imported unit cheaper. Every major shipping analyst now expects container overcapacity and lower contract rates in 2027 as new ships arrive and services return to the Suez Canal. A case that only works at the 2026 peak will be underwater by the time the plant is commissioned. We ask one question of every onshoring case we see: does it still work with freight at 2024 levels and the dollar at 0.71? If the answer is no, the product is not an onshoring candidate. It is a dual-sourcing candidate.
The product moved, the network didn’t
This is the expensive one, and it gets noticed last. A manufacturer shifts a product family from a supplier in Guangdong to a contract manufacturer in Melbourne. Unit cost looks fine. Twelve months later, distribution cost is up and nobody can explain why.
Here is why. The distribution network was built for product arriving in containers at Port Botany and the Port of Melbourne, with regional stock positioned from there. Now the product leaves a factory in Dandenong on pallets. The Sydney distribution centre is still receiving it, still holding it and still shipping it, even though direct dispatch from the plant to NSW customers would be cheaper. Perth and Brisbane now get a long road leg from Melbourne at today’s diesel prices instead of a direct port call. The raw materials, which used to be the overseas supplier’s problem, now arrive through the Port of Melbourne on the business’s own account, into a store that was never designed for them. And the safety stock, which was sized for a ten-week ocean lead time, is still sitting in the system because the planning parameters were never reset.
Every sourcing change is a network change. In our experience, onshoring one significant product family is usually enough to justify re-running the whole network model.
Nobody owns the backup
Dual sourcing sounds like two suppliers. In practice it usually means one real supplier and one name in a spreadsheet. The second supplier has not been qualified at volume, has no contract with allocation priority, is not set up in the ERP, and its lead time is not in the planning system. The procurement team, which was already stretched managing the first supplier, now has twice the supplier management load and no extra people. When the next disruption comes, the backup takes eight weeks to activate, which is about how long the disruption lasts.
The board wants the story; the numbers want something smaller
“Made in Australia” is a good story, and in some sectors it is now worth money: the government fast-tracked $6.15 billion of concessional National Reconstruction Fund finance in April specifically to strengthen critical supply chains, and if you sell to government, Australian content now carries weight in evaluations. But when we run the numbers on a full manufacturing move for a finished consumer product, the answer is almost always that it costs more than the disruption it avoids. The answer that usually does stack up is smaller and less glamorous: import the dense, stable inputs and do the last step here.
What actually works
Sort the portfolio in a day, not a quarter
The organisations that handle this well do not run a six-month study. They sort the range on two questions: would losing this item stop the business, and how much of its landed cost is freight, inventory and risk rather than the unit price. That sorts the portfolio into five groups fast.
Finish-here candidates: anything where the finished product is mostly water, air or packaging. Bulky and low-value items, where freight is a large share of cost. Perishable and promotional lines, where the cost of being wrong on the forecast is high. Regulated and critical items, where a single offshore source is unacceptable. And everything else, which stays offshore with a proper second source and a sensible safety stock.
We do this with clients in a workshop with their own data, and it is the single highest-value day in the whole exercise. It stops the debate about moving everything and starts the work on the dozen items that matter.
Finish here, make there
The strongest onshoring model for Australian businesses right now is final-stage processing, not full manufacturing. Import the concentrate, the bulk powder, the components or the flat-pack. Do the mixing, filling, packing, assembly or labelling in Australia.
Freight is paid on dense inputs rather than on finished goods. Lead time to the customer falls from weeks to days, so the business can make to a retailer’s promotion instead of forecasting it three months out. The capital required is a filling line or an assembly cell, not a factory. And the local processing step is often what earns the Australian content treatment that government buyers now weight. We have seen it work in beverages, cleaning and personal care, pet food, nutrition, building products and furniture. The design question is where the finishing step sits in the network, which is a warehousing and distribution problem as much as a manufacturing one.
Dual source like you mean it
A real second source has four things: a completed qualification at the volume you would actually need, a contract with allocation priority written into it, a live record in the ERP with its real lead time, and a planner who has run a test order through it in the last six months. If any of those is missing, you do not have a backup. You have a hope.
This is procurement work, and it is the part most businesses underestimate. Qualifying a supplier in Vietnam or Indonesia for a product with any complexity takes a year or more, and during that year you carry both suppliers. Budget for it, or do not start.
Reset the planning parameters the day the source changes
When lead time goes from ten weeks to one, the safety stock should fall. When a backup supplier with a longer lead time is added, the safety stock on the items it covers should reflect the longer leg, not the shorter one. Neither happens on its own. In most of the planning systems we see, the parameters were set at go-live and have been overridden by hand ever since. An onshoring move without a planning reset leaves the working capital benefit on the table and often adds inventory rather than removing it.
Redesign the network to carry the result
Where you make changes where you hold, how it moves and which ports and distribution centres you need. The network model needs the onshoring move in it, the inbound materials leg that did not exist before, the backup supplier’s lead time, and current diesel prices. Then it needs to be run again at 2027 freight rates, because designing a network against 2026 peak ocean rates is the same mistake as pricing fuel at the peak.
The useful finding is that the redesign usually pays for itself on distribution cost alone, whichever way the sourcing decision goes. Fewer long road legs, more regional stock, rail for the interstate backbone, and direct port calls into Fremantle or Brisbane for product currently landed in Melbourne and trucked across the country. The fuel shock changed the cheapest shape of most Australian networks. An onshoring decision is the right moment to redraw the map, because the map is changing anyway.
Make someone own it
The businesses that came through this year in reasonable shape had one thing in common: a named person who owned supply risk, with the authority to switch volume between suppliers and the planning access to do it. In the rest, the decision sat between procurement, planning and operations, and the April supplier stayed on at 40 per cent of volume because it was nobody’s job to change it. This is an organisational design question, and it is cheap to fix.
Use the money as a sensitivity, not a foundation
NRF finance lowers the capital cost of a line or a plant, and that is often the term that decides a finish-here case. Government and Defence buyers now favour Australian content. Put both in the model as sensitivities. If the case stands without them, they are a bonus. If it only stands with them, you have a bet on policy, and policy changes.
What the work looks like
When we do this with a client it runs over about eight weeks, and it is deliberately built so the business can act at the end of it, not commission another study.
The first fortnight is the map. Which items are single-sourced, from where, through which ports, and which of them would stop the business. Landed cost brought up to 2026 actuals with three bands on freight, fuel and the dollar, and a disruption cost added for every critical single-sourced item. The April suppliers get their first proper review.
The second fortnight is the sort and the options. The portfolio goes into the five groups. For the shortlist, we get real quotes, including capital, from a domestic contract manufacturer and a nearshore alternative, and we work out which of this year’s panic arrangements becomes primary, secondary or exit.
The third fortnight is the network. The model is run with the shortlisted moves in it, with the inbound leg, the backup lead times, current diesel and 2027 freight, and with the distribution centre footprint open to change.
The last fortnight is the decision pack and the transition plan: which items move, where the finishing step sits, what the network looks like, what the planning parameters become, who owns supply risk, what the contracts need to say, and what it costs and saves over a cycle rather than at a peak.
Signs you should look at this now
If any of these sound familiar, the work above will pay for itself quickly. You changed a supplier this year under pressure and have not been back to review it. You have an onshoring business case on the table built on this year’s freight and last year’s exchange rate. You onshored a product line and distribution cost went up. Your second supplier for a critical item has never received a test order. Your safety stock settings have not changed since before the fuel shock. Or you sell to government and have not worked out what Australian content is now worth in your bids.
How Trace Consultants Can Help
Trace Consultants is an Australian supply chain, procurement and operations advisory firm. We work with manufacturers, importers, retailers and government on sourcing and network decisions, with senior people who have run these processes inside businesses before.
Sourcing strategy and supplier diversification. Our procurement team runs the portfolio sort, builds the landed-cost comparison with the bands and the disruption cost in it, qualifies nearshore and domestic alternatives, writes dual-source contracts with allocation priority, and sorts out this year’s panic suppliers before they renew.
Network design that reflects the new sourcing. Through strategy and network design we model the network with the onshoring moves in it: distribution centre footprint, port of entry for inputs, rail and road at current fuel prices, and the stock positioning dual sourcing needs. We have built the case to open facilities and the case to close them, so we are not attached to either answer.
The finishing step and the inbound flow. Our warehousing and distribution team designs where final-stage processing sits, how inbound materials arrive and are stored, and how the plant and the distribution centres work together.
Planning parameters and inventory. Our planning and operations work resets safety stock and lead times for the new sources, including the backup, and puts the changes into the planning system so they stick.
Owning supply risk. Our organisational design and resilience and risk management teams put a named owner, a decision right and a tested activation plan behind the backup supplier.
Government and Defence. Through our government and defence work we help suppliers work out what Australian content and sovereign capability are now worth in their bids, and help agencies build sourcing strategies that deliver it.
We do this across FMCG and manufacturing and retail, where most of this year’s sourcing moves were made.
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Where to begin
Start with whatever you changed in April. Get the comparison done before the contract renews, while you still have the choice. If there is an onshoring case on the table, test it at 2024 freight and a 0.71 dollar before it goes to the board, and ask whether the finish-here version does the job for a fraction of the capital. And whichever way the sourcing decision goes, put the network model on the same table, because the distribution side is where most onshoring plans quietly give back what the sourcing side gained.
The bottom line
Bringing supply closer is the right instinct for the right products. In most of the businesses we see, it has been done in a hurry, priced at the peak, and never carried through to the network, the planning system or the organisation that has to run it. Finish the emergency. Sort the range. Prefer finishing here to making everything here. Redesign the network to carry it, and give someone the job of owning it.
If you want a plain view of which of your products are worth moving and what your network should look like once they do, we are easy to talk to.
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