Consultant Insight: Nearshoring trends favor Mexico

Pandemic-driven disruptions, geopolitical concerns and complexity in global supply chains have many shippers considering moving some, if not all, of their supply chain closer to their customers.

Whether reshoring or nearshoring, supply chains are evolving as cost pressures and risk mitigation drive change.

Updates in domestic policy, such as the U.S. Inflation Reduction Act and the CHIPS and Science Act, are incentivizing U.S. companies to reshore production.

Thirty-one percent of respondents to a survey by port terminal operator DP World said they reshored their supply chains to take advantage of government local content requirements or government financial incentives. However, 40.7% of survey respondents noted overall cost reduction and 27.4% indicated risk mitigation as their primary reason for reshoring.

Indeed, several other surveys indicate a rise in reshoring plans among U.S. firms, which are expected to reshore almost 350,000 jobs in 2022 — an increase of 25% from 260,000 in 2021, according to consulting firm Deloitte. The shift could reduce the share of Asia-originating shipments to the U.S. by 20% by 2025 and by 40% by 2030, the company said.

But for those shippers looking to reduce costs, nearshoring may be more impactful. As such, Mexico could be a big winner from any nearshoring trend.

Imports increase from Mexico

U.S. Q3 import value, seasonally adjusted, from Mexico increased 8.3% from Q1 2022 and is up 22.9% compared with Q3 2021. The total import value for Q3 was $119.99 billion, according to the U.S. Bureau of Economic Analysis.

However, Mexican infrastructure remains a question mark.

Since the first half of 2022, Mexico’s industrial sector had an occupancy rate of 97%, according to Sergio Arguelles, president of the Mexican Association of Private Industrial Parks (AMPIP). He noted this was because of nearshoring.

“Mexico has attracted between 75 and 100 U.S., Canadian, Chinese, Korean and Japanese companies, which have moved or expanded their operating plants in the country,” Arguelles told CPI Coproduction International, an administrative and shelter services provider for manufacturers in Mexico.

Industrial real estate developer Finsa also noted strong growth, reporting a 99% occupancy rate and 1 million square meters of absorption in 2022, with most transactions taking place in Santa Catarina, Nuevo Leon; Nuevo Laredo, Tamaulipas; and Queretaro.

As warehousing and distribution facilities expand throughout Mexico, the border between U.S. and Mexico continues to be a concern due to slowdowns.

Trucking is the primary mode of transportation between the U.S. and Mexico. The latest data from the U.S. Customs Border and Patrol shows there were nearly 1.06 million commercial truck crossings in November 2022, up 3.5% from November 2020 but down 1.8% from November 2021.

‘Smart borders are essential’

The largest crossing is in Laredo, Texas, with $275 billion in total trade moved through the city from January 2022 to November 2022, according to Daniel Covarrubias, director of the Texas Center for Border Economic and Enterprise Development research and data center at Texas A&M International University in Laredo.

However, technology is needed to connect all logistics players to perform more efficiently.

“I believe that smart borders are essential to more resilient international trade because they can help to facilitate the movement of goods and people across borders in a timely and efficient way,” Covarrubias said this month during a meeting of the Transportation Research Board, a division of the National Research Council. “Exponential technologies are revolutionizing our world as we know it. Logistechs — such as IoT, blockchain and artificial intelligence — can automate many operations that slow down trade, such as inspections, paperwork and clearance.”

While more established border crossings face the need for technologies, others are facing a boom with infrastructure investments such as road-widening projects and warehousing.

A record 160,000 commercial trucks crossed the Mexico-U.S. border at Santa Teresa in 2022. As a result, the port is expanding, and improvements to roads and a regional airport are being made, according to Marco Grajeda, New Mexico Border Authority executive director.

“We’re the port of entry for hazardous materials like gasoline and such and the port of entry for oversized, overweight vehicles,” Grajeda said. “We see this port as having a regional impact, so not only does New Mexico benefit from it, but El Paso and Juarez are going to benefit.”

As Mexico prepares for the possibility of nearshoring, it must work with the U.S. to ease border constraints and encourage alternative modes of transportation, including rail and air.