With rising concern over continued supply chain interruption, many businesses are seeking new suppliers located closer to home — by onshoring and near-shoring.
However, in the rush to identify new supply partners and to maintain a financially competitive product, businesses may also face unintended consequences of rushed due diligence, as the Gallagher De-Risking Supply Chains: Reducing Exposure with Onshoring and Near-shoring' report highlights.
Hidden risks from new supply chain business partners could challenge your business's ethical practices and pose a financial risk. Having confidence in your supply chain means you can focus on the next growth opportunity or the next new product improvement.
Reducing exposure with onshoring and near-shoring
Over-reliance on single-source supply chains can present significant issues in an environment of uncertainty and crisis.
The 2025 Gallagher Global Business Resiliency survey reveals that 98% of business leaders who diversified suppliers as a result of the pandemic will continue this resiliency strategy and 96% feel better prepared to deal with supply chain risks as a result.
While labour costs traditionally have driven offshoring, supply chain logistics disruptions, global trade battles and geopolitical tensions are making onshoring and near-shoring more attractive.
There are benefits to be gained from near-shoring and reshoring, including:
- shortened supply chains
- less concern about supply chain blockages
- greater control over production
- faster response to market fluctuations and demand
- reduced shipping and transportation costs.
All of these factors mitigate business risks, especially when reducing reliance on product-dominated locations.
Localised and nearby supply chains allow businesses to recover more quickly from disruptions, reducing their impact. It can also provide positive brand messaging for products made locally rather than overseas.
Near-shoring and onshoring supply chains enable manufacturers to move away from the 'take-make-waste' linear model and towards a circular economy, where materials are recycled for a variety of additional uses.
As businesses decouple long-standing relationships to diversify suppliers and bring them closer to home, they are also effectively de-risking their vertical supply chains.
Risks to consider with changing supply chain providers
Although onshoring and nearshoring can increase supply chain resilience, they also can potentially introduce hidden risks.
Businesses may find themselves exchanging one location for another where human rights and environmental impacts are hard to assess.
Prioritising human rights and tighter due diligence within the supply chain has become a central component of governance frameworks and an expectation by investors, employees and customers.
At the same time, businesses face an increasingly demanding set of supply chain regulations and industry standards, which set a firm expectation on oversight accountability.
Around the world mandatory reporting and disclosure requirements have come into effect in recent years across the European Union, United Kingdom, United States, Canada and Australia. Several countries have introduced public registries to track and monitor firms that are known to use forced labour, while also increasing fines and penalties for non-compliance.
The level of scrutiny from regulators and other stakeholders is expected to continue to grow.
Supply chain due diligence is necessary risk mitigation
When unethical practices come to light, companies face backlash. The reputational damage can affect share prices and may even lead to shareholder class actions.
It is no longer adequate for businesses to demonstrate they have checks and balances in place for only their own operations. Now they must also show that steps have been taken to monitor and uphold human rights standards throughout the supply chain, all the way from where raw materials are originally sourced and extracted through to manufacturing and assembly.
This concern multiplies when it involves third-party suppliers you don't control directly.
Companies failing to carry out the appropriate levels of due diligence across their supply chain can leave senior managers exposed to litigation.
Insurance underwriters will only provide cover for directors and officers' liability (D&O) where there is evidence of robust supply chain due diligence, involving documentation, photography and safe storage of relevant materials.
Risk management strategies for onshoring and near-shoring supply partners
Onshoring and near-shoring form part of a broader risk management strategy. Near-shoring to reduce risks by relocating operations may not eliminate risk entirely.
Businesses should consider why some providers can offer much lower prices and what its own legal and regulatory responsibilities are to source materials ethically. Strategic risk management providers may be able to help guide decisions and mitigate key risks.
Resilient companies build risk management in decision-making with an adaptive risk governance model that can evolve along with the landscape and support business growth, beyond merely fulfilling a compliance function.
Key considerations if onshoring or near-shoring for your business
- Transparency remains a challenge for CEOs and businesses globally, with the practical issues associated with trying to establish a 100% view of the end-to-end supply chain and local customs and regulations varying between jurisdictions making it harder to set level benchmarking of fair work conditions.
- Demonstrated commitment to ethical supply chains has become an insurability consideration as insurance providers and underwriters apply closer scrutiny to reputation risk and social and environmental performance.
- Prioritising supply chain due diligence is an important way of protecting your business financially and reputationally while doing the right thing.
How Gallagher can help
Businesses should work with their insurance broker to tailor these policies to their specific needs and ensure comprehensive coverage against potential supply chain disruptions.