Mexico Nearshoring Gains Momentum As Country Becomes Top Us Trade Partner

Mexico nearshoring is moving faster than many people expected. The phenomenon has manufacturers, freight transportation, parcel, and logistics companies exploring growth opportunities on both sides of the border. According to the US Commerce Department, Mexico has surpassed China as the leading source of goods imported to the United States. The value of 2023 Mexican imports jumped nearly 5% to $427 billion year-over-year (YoY).1

Mexico also dethroned Canada last year to become the top overall trading partner of the US. Combined exports and imports were just shy of $800 billion.2

Port Laredo is riding high on the growing cross-border flow of parts and finished goods between the US & Mexico. In 2023, Laredo surpassed The Port of Los Angeles and Chicago O-Hare as the nation’s top international port. The World Trade Bridge which spans the Rio Grande in Laredo handles a remarkable 17,000 trucks daily.3

In this SSI blog post, we explain how and why the Mexico nearshoring trend is moving faster than expected. Further, we highlight Mexico’s top exports, reveal the expected as well as the surprising beneficiaries of the United States-Mexico-Canada (USMCA) free trade agreement, and explore how the nearshoring boom is impacting parcel, freight, and logistics companies.

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What this means is that if you are nearshoring from Mexico, SSI can audit and pay your bills whether they are submitted in English or Spanish. Your bills can then be paid in dollars or pesos, as per your carrier agreements.

MEXICO NEARSHORING GAINS MOMENTUM – EXPLAINING THE SUPPLY CHAIN TREND

Nearshoring is an increasingly favored supply chain resilience strategy. Around the world, companies are moving production closer to customers by reshoring (domestic) or nearshoring (importing from nearby sources). The practice tends to accelerate the time to market of finished goods by reducing the risks posed by global shipping disruptions and geopolitical tensions.

One reason Mexico nearshoring is swiftly gaining momentum is because many businesses serving the huge US market are demanding distant suppliers set up or expand manufacturing facilities in North America or risk losing their business.4

Mexico has a well-established manufacturing sector, a stable trading relationship with the US and Canada, and comparatively low land and labor costs. For these and other reasons, the country is an attractive destination to company leaders eager to expand their North American supply chains. 5

MIGHTY MEXICO IS ALREADY A TOP 10 GLOBAL EXPORTER

Supply chain managers unfamiliar with the country may be surprised by Mexico’s current economic strength. The country is the 14th largest economy in terms of GDP, the 10th largest in total exports and the 13th largest in total imports.

The top exports of Mexico are cars ($48.4B), computers ($39.3B), crude petroleum ($38.2B), motor vehicle parts and accessories ($38.1B), and delivery trucks ($29.1B).

Overwhelmingly, the manufactured exports are transported by truck or rail to the United States ($421B) and Canada ($22.2B). However, Asian economies also rely on imports from Mexico including China ($12.7B), Chinese Taipei/Taiwan ($7.86B), and South Korea ($7.29B).6

MEXICO IS EXPERIENCING THE EXPLOSIVE EFFECTS OF NEARSHORING TREND

Mexico’s foreign direct investment (FDI) was up 30% last year. Nearly half of that was made by companies with no former presence in the country and were choosing to establish new operations in Mexico. A report by the Mexican Association of Private Industrial Parks (AMPIP) estimated industrial property demand for 2023-2024 was a remarkable 2.5 million square meters. That’s an 80% increase compared to a year ago.7

According to a report by Morgan Stanley, a global financial services company, nearshoring has the potential to bolster the growth of Mexican manufacturing exports to the US by 35% to an estimated $609 billion in the next five years.8

In 2023, at least 400 different companies were seeking nearshoring opportunities in Mexico, per the country’s Economy Minister, Raquel Buenrostro. She credits Mexico’s close proximity to the huge US market with driving much of the interest.

AUTOMOTIVE & ELECTRONICS COMPANIES LEAD THE WAY

Not surprisingly, many of the companies looking to start or expand operations in Mexico serve the automotive, truck or electronics industries.

The North American automotive supply chain is highly dependent on Mexico. Currently, nine out of ten vehicles made in Mexico are exported. 10 GM produced more than 722,000 vehicles in Mexico in 2023 alone. Other automotive companies have flourished in the country, including Nissan (615K vehicles manufactured in 2023), Stellantis (467K vehicles), Ford (365K vehicles), and Volkswagen (349K vehicles).11

Vehicle parts produced in Mexico are sold to major brands including, GM, Ford, Mercedes-Benz, Toyota, Honda, Nissan and Kia, per the Federal Reserve Bank of Dallas.12

Of course, the strength of the automotive production sector is attracting interest and investment from global companies that manufacture electric vehicles. For example, Tesla has announced plans to build a Gigafactory near Monterrey. Foxconn, the world’s largest contract electronics manufacturer, is expanding the company’s footprint in Mexico, in part to meet the demand for electric vehicles in North America.

A multinational with a strong Mexican presence is Schneider Electric, the French electrical equipment giant. In 2021, Schneider already had 9 factories operating in Mexico with nearly 12,000 employees. Now the company is opening new manufacturing sites and expanding existing facilities. Headcount will soon rise to 20,000 employees.

Per Jesús Carmona, the President for Mexico and Central America at Schneider, 75% to 80% of the company’s goods produced in Mexico are exported into the US market.13

IS CHINA AN UNEXPECTED BENEFICIARY OF THE USMCA?

Unexpected beneficiaries of the USMCA may be the scores of major Chinese companies that are reportedly investing aggressively in Mexico.14

The average US tariff on imports from China is 19 percent. That’s more than six times 2018 levels. These tariffs on China’s goods have, in turn, made imports from other countries such as Vietnam and Mexico more competitive—a disadvantage that China can mitigate with relocations to Mexico.15

According to a recent article in The Economist, China appears to be promoting this strategy. Further, the country’s leaders recently said it was a priority to export products that are used to make finished goods, rather than the finished goods themselves.

This savvy approach will allow Chinese companies to assemble finished goods and include enough North American content to export products tariff-free from Mexico into the massive US market. 16

One may infer that whatever the political strains between the US and China may be, the commercial forces linking businesses in the two countries are even more powerful.17 Further, as mentioned previously, some of these companies are merely accommodating their customer’s requests to move operations closer to North American end users.

The inrush of Chinese businesses to Mexico is making headlines in the US. However, in many ways these companies are following the path of many other businesses from Japan, South Korea and elsewhere in Asia that already have manufacturing operations in Mexico.

Yet, it is possible that with many Chinese companies opening facilities in Mexico, trade tensions between the US, Canada and Mexico may rise. The USMCA will be reviewed by the governments of the three countries in July, 2026.18 Only time will tell if geopolitics will alter the existing free trade deal at that time.

WHAT DOES THE MEXICO NEARSHORING TREND MEAN FOR PARCEL & FREIGHT COMPANIES?

Mexico’s burgeoning manufacturing growth is a source of optimism for carriers that transport parts and finished goods across North America.

In a recent article in FreightWaves, one freight-brokerage executive shared that their cross-border truckload, LTL, and intermodal volumes are notably rising due to the expansion of companies setting up operations in Mexico. He added that some of their automotive industry customers view all of North America as one integrated supply chain.19

UPS and FedEx also recognize Mexico’s emerging role in regional supply chains. UPS sees an opportunity to grow their business by providing end-to-end physical and digital solutions, per Kate Gutmann, EVP and President of International, Healthcare and Supply Chain Solutions.

Further, UPS operations in Asia can transport components to Mexico by air, then directly fulfill the shipments to facilities, and subsequently fly or haul volume north to inland US hubs, bypassing crowded border hubs.20

Per Jorge Luis Torres, Vice President, FedEx Express Mexico, the carrier is adapting well to supply chain regionalization.21 The company has recently expanded flight schedules within Mexico and now offers service from Mexico to the US and Canada seven days a week.22

Ryder Systems has responded to cross-border freight growth by recently opening a new US warehouse in Laredo, while simultaneously expanding a drayage yard south of the border in Nuevo Laredo.

Ricardo Alvarez, VP of Supply Chain Operations at Ryder Mexico, said: “If you look at the market, truck border crossing activity between the US and Mexico is up more than 20% annually since the pandemic, as more businesses look to nearshoring to diversify their supply chains and shorten lead times.”23

According to Ben Enriquez, Head of Mexico Logistics and Customs at Uber Freight, “nearshoring is estimated to generate demand for up to 8 million square meters in industrial spaces in Mexico by 2027. As more companies migrate to Mexico, there will be a growing need for increased capacity to ship to the U.S., posing a challenge for shippers and impacting rates.” 24

Some US freight carriers are partnering with established freight and logistics companies in Mexico. For example, LTL stalwart, Saia recently inked a deal with Carga Express, the LTL unit of Fletes Mexico. Both carriers have agreed to exclusively haul each other’s cross-border freight. The partnership was announced as a win-win since each carrier will benefit from the other’s well-established network.25

ABOUT SSI

In this Mexico Nearshoring Gains Momentum blog post, we have provided a clear overview of this transformative supply chain phenomenon. No matter how you plan to transport your products from Mexico to the US, or to any other destination, SSI can protect you from wasting money on your shipments with our best-in-class freight audit solutions.

At SSI we transform the complexity of global freight audit into cash savings and supply chain intelligence, providing actionable insights to maximize your profit potential.

  • Customizable solution scales with your growing and dynamic business needs
  • Automated freight audit drives savings to your bottom line
  • Accurate, timely freight payments to your carriers in the world’s most common currencies, including pesos
  • Actionable business intelligence supports your supply chain optimization efforts
  • Cutting-edge data visualization facilitates your analysis of data and trends

Want to learn more? Our team is eager to help you save money. Contact SSI.

Footnotes:
1. Paul Wiseman, Associated Press, “Mexico overtakes China as the leading source of goods imported to U.S”. February 7, 2024, as published by PBS News Hour.
2. Ken Roberts, “U.S. Does More Trade With New No. 1 Mexico In 2023 Than Ever, Data Shows”. February 7, 2024, as published by Forbes.
3. Jason Mack, “Port Laredo named No. 1 international trade port in US for 2023”. February 7, 2024, as published by the Laredo Morning Times.
4, 14, 17. Peter S. Goodman, “Why Chinese Companies Are Investing Billions in Mexico“. February 3, 2023, as published by The New York Times.
5, 19. Noi Mahoney, “Borderlands Mexico: Nearshoring boom brings more production closer to US“. March 10, 2024, as published by FreightWaves.
6. The Observatory of Economic Complexity, “Mexico Country Profile”. 2022 data, as published by the OEC.
7. Jorge Gonzalez Henrichsen, “Nearshoring Is Booming in Mexico. Here Are Five Numbers to Prove It”. March 29, 2024, as published by Supply Chain Brain.
8. Morgan Stanley Research, “Mexico is Poised to Ride the Nearshoring Wave”. Jun 21, 2023, as published by Morgan Stanley.
9. Bridget McCrea, “Supply Chain Design Meets the Reshoring Trend”. March 2, 2023, as published by Supply Chain Management Review.
10, 12, 15. Luis Torres and Aparna Jayashankar, “Mexico awaits ‘nearshoring’ shift as China boosts its direct investment”. April 14, 2023, as published by the Federal Reserve Bank of Dallas.
11. MND staff, “Mexican vehicle production rose 14% in 2023”. January 11, 2024, as published by Mexico Daily News.
13. Ana Swanson and Simon Romero, “For First Time in Two Decades, U.S. Buys More From Mexico Than China“. February 7, 2024, as published by The New York Times.
16, 18. The Americas staff, “Could there be a US-Mexico trade war?”. March 12, 2024, as published by The Economist.
20. Max Garland, “UPS sees big opportunity in Mexico’s nearshoring wave“. April 9, 2024, as published by Supply Chain Dive.
21. Óscar Goytia, “Supply Chain Priorities in Automotive Industry Transformation“. March 20, 2024, as published by Mexico Business News.
22. Ian Putzger, “Busy Mexico escapes as US integrators look to cull air operations“. November 15, 2023, as published by The LoadStar.
23. Ian Putzger, “Logistics players expand operations as near-shoring boosts US-Mexico traffic”. February 23, 2024, as published by The LoadStar.
24. Connor D. Wolf, “Nearshoring Trend Drives More Border Growth“. March 4, 2024, as published by Transport Topics.
25. Colin Campbell, “Saia partners with Fletes Mexico’s LTL for cross-border shipping“. April 4, 2024, as published by Trucking Dive.

SSI blog post entitled: Mexico nearshoring gains momentum as country becomes top US trade partner.