The U.S. manufacturing reshoring boom brings a 'once-in-a-lifetime' opportunity for contractors

The scale of the U.S. manufacturing reshoring wave is unprecedented in Didi Caldwell's career. Since 2021, private companies have invested more than $500 billion to bring factories back to the United States, according to White House data. As long as labor shortages don't hinder this momentum, record manufacturing construction activity is not expected to slow in the near term.

"In the past 25 years, I have never seen anything like this," Caldwell said. She is the president and CEO of Global Location Strategies, a consulting firm in Greenville, South Carolina, that advises capital-, labor-, energy-, and water-intensive manufacturers. "What we are experiencing is a once-in-a-generation or even once-in-a-century event."

Even contractors outside of megaprojects can benefit, as historic spending also spills over into other project types such as warehouses, distribution centers, and surrounding community infrastructure. This brings rich opportunities not only for contractors involved in megaprojects, but also for the numerous supporting projects needed to support them.

Billions in manufacturing reshoring drive

U.S. manufacturing reshoring efforts accelerated after the COVID-19 outbreak in 2020. Millions of Americans suddenly working from home led to a surge in demand for remote-friendly devices, including smartphones, laptops, and other electronics. The supply of chips powering these devices could not keep up with demand, which in turn had ripple effects on other industries, such as automakers unable to produce new cars due to chip shortages.

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Beyond consumer uses, chips also have critical military applications and are vital to national security. Commerce Secretary Gina Raimondo earlier this year characterized the chip shortage as a national security issue because it exposed U.S. dependence on foreign chip imports.

However, Caldwell noted that awareness of the importance of domestic manufacturing capacity existed long before the pandemic. Although the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act have all boosted domestic manufacturing construction activity, Caldwell pointed out that this trend was already underway when the pandemic hit.

"In my view, it's like pouring fuel on the fire," Caldwell said of the Biden administration's initiatives supporting manufacturing projects. "We have already seen tremendous growth, especially in these capital-intensive projects."

The role of energy

Past economic shocks have long exposed the fragility of global supply chains. Disruptions caused by events such as the oil embargoes of the 1970s, the 2009 typhoon season in Taiwan, or the 2011 earthquake in Japan highlighted the risks of offshoring manufacturing for U.S. companies.

More importantly, the transformation of the U.S. energy industry—largely thanks to large-scale hydraulic fracturing in the early 21st century—became a key turning point that ultimately fueled reshoring ambitions.

"Perhaps the most influential factor that truly changed the landscape is that we went from a net energy importer to a net exporter," Caldwell said. "The first half of my career was spent helping companies move overseas, especially energy-intensive companies. Over the past 10 to 15 years, I've been helping them move back."

Megaprojects spark further boom

Although public funding has received the most attention in new factory construction, it is also a major catalyst for additional private investment from third-party companies that support or supply these factories, said Robert Hess, practice leader and senior managing director at Newmark, a commercial real estate consulting firm in New York City. He pointed to megaprojects across the country, such as TSMC's $40 billion plant in Phoenix, Micron's $100 billion investment near Syracuse, New York, and Texas Instruments' $11 billion semiconductor plant in Lehi, Utah, as key drivers of further private investment.

For example, TSMC's plant in Phoenix has spurred the expansion of about 28 related projects in the region, said Chris Camacho, president and CEO of the Greater Phoenix Economic Council.

"From materials and equipment manufacturers to logistics and services completing the semiconductor pipeline, these companies benefit from the market's infrastructure, talent pool, and business environment," Camacho said. "To date, these projects have created more than 5,700 jobs, and in the areas surrounding these large developments, this growth certainly impacts local businesses and community services."

The 'halo effect'

This spillover effect has impacted numerous companies supporting these large-scale manufacturing processes, said Mark Baxa, president and CEO of the Council of Supply Chain Management Professionals, based in Lombard, Illinois. In other words, a raw silicon wafer can pass through as many as 40 different locations before becoming a finished product, according to a CSCMP report.

One example is the Cherokee Commerce Center 85, which recently broke ground near Gaffney, South Carolina. Chicago-based commercial real estate firm Glenstar Logistics and its capital partner Creek Lane Capital designed the facility to meet the growing demand from billions of dollars in manufacturing projects in the surrounding area. As the number of these megaprojects surges, the need for efficient warehouses and logistics sites is becoming increasingly evident, said Brian Netzky, a principal at Glenstar Logistics.

"The rapid growth in the number of EV, battery, and manufacturing plants in the Southeast makes it essential for warehouse and logistics companies to expand and accelerate delivery capabilities to quickly ship parts and materials to these manufacturers," Netzky said. "Modern facilities with high clear heights, ample dock doors, and trailer parking are critical for these plants to successfully fulfill their contracts."

As a result, historic public funding will not only spur the construction of new plants, but also drive the renovation and retrofitting of existing facilities in surrounding areas, said Stuart Eisler, a partner at Hanson Bridgett, a San Francisco law firm.

"The industry won't just focus on isolated large facilities and long-distance distribution channels, but will look for regional hubs, possibly near research centers, to support local development needs," Eisler said. "State and local entities may also get involved, offering incentives to attract projects to their jurisdictions, further encouraging private construction and supporting industry partners to build and upgrade."

Hess agreed that the reshoring boom is driving more construction spending beyond the factories themselves.

"There is not only the initial opportunity to build new manufacturing facilities, but there is also a larger halo effect among upstream and downstream suppliers, logistics companies, retailers and wholesalers, e-commerce operations, and housing providers," Hess said. "The economic multiplier is quite high."

He expects that a single megaproject could spawn a large number of Tier 1 and Tier 2 suppliers and service facilities.

"As companies move from R&D stages and pilot plants to mass production, there are significant opportunities to unlock private capital supporting manufacturing space," Hess said. "Many EV suppliers currently have multiple equity partners involved in Series A and B rounds, in addition to private equity and even pension fund capital."

Finding secondary opportunities

Because public funding is primarily concentrated on the manufacturing processes of gigafactories, this has led to insufficient attention to secondary investments and projects around these plants, according to the CSCMP report.

As a result, savvy construction firms are closely monitoring manufacturing-related conferences and events to win such derivative projects, Hess said. Many general contractors have already increased their participation in activities within the battery, chip, and broader industrial sectors to directly target these companies, he added.

Companies eager to win manufacturing spending projects should "work hard to build relationships at these events" to get on supplier selection lists, he said.

Conferences worth watching include those hosted by Benchmark Mineral Intelligence (a strategic consulting firm in the energy transition sector), NAATBatt (an alliance of energy storage and battery companies), and the National Association of Manufacturers. Hess also suggested exploring forums in other global regions.

"The EV industry is a great example," Hess said. "Many new technologies and emerging alternative materials supporting the battery development process are validated at these gatherings."

Building the factory floor

But for contractors hoping to profit from the core of the reshoring boom—the factories themselves—there are ways to translate past experience into the knowledge base needed to build these plants.

General contractors looking to enter this field need to invest in talent and education to transition from other project types to these specialized facilities, Eisler said.

"Flexible contractors who are ready to meet these challenges and invest in talent and institutional infrastructure should be able to benefit from the domestic market that is likely to thrive in the coming years," Eisler said.

As a result, Bechtel, a contractor based in Reston, Virginia, is leveraging its global supply chain network as a key selling point when marketing to clients in the battery and semiconductor industries. The company is seeing a boom in construction of semiconductor fabs, battery plants, and EV charging infrastructure.

For example, Intel selected Bechtel to complete Phase 1 of its $20 billion semiconductor facility in Licking County, Ohio. The contractor also recently opened a new office in Chandler, Arizona, to expand its manufacturing and technology operations.

"Over the past 20 years, Bechtel has procured an average of $18 billion in materials annually, giving us one of the largest building material supply databases in the industry," said Brad Buech, a Bechtel spokesperson. "We understand industrial projects with different chemical processes and extensive piping, which translates well into battery technology and semiconductors."

In addition to this transformation, Eisler added that general contractors need to be familiar with the performance standard clauses and considerations that may appear in RFPs for these megaprojects in order to bid successfully.

"I also expect many projects will use alternative delivery methods," Eisler said. "Contractors would be well advised to find legal counsel familiar with areas such as integrated project delivery, progressive and standard design-build, CMAR, P3, or multi-prime contracting."

Location is critical

Key factors driving geographic growth trends in manufacturing include land availability, low-cost electricity, logistics infrastructure, a favorable business environment, and a supportive workforce ecosystem, according to a Newmark industry report.

Arizona and Texas lead in manufacturing investment, totaling approximately $120 billion from 2020 to Q2 2023, according to Newmark data. But according to the report, Texas, Georgia, and North Carolina lead the U.S. in the number of large manufacturing announcements, each with more than 20 investments of $100 million or more since 2020.

Construction firms can look for emerging markets where manufacturing projects are taking root, and as projects launch, these regions will become more important as supply chains shift, Hess said.

President Joe Biden signed the $52 billion CHIPS and Science Act in August 2022. Since then, private sector investment in U.S. manufacturing has reached $614 billion, according to White House data.

"The CHIPS Act marks an important beginning of progress, and the $500 million allocated for small semiconductor supply chain projects and companies is a necessary focus," Hess said. "But more investment is needed, especially in workforce development, so the private sector is developing more and more new financing models."