Nearshoring Is Hard to See

Last week I was in Mexico City to speak at the Logistics World Summit, an annual event that draws thousands of truckers, freight forwarders, manufacturers, and software vendors to the soon-to-be-renamed Citibanamex Center. The topic on everyone’s mind was “nearshoring,” the much-touted shift of manufacturing from Asia to Mexico so as to reduce supply-chain risk. Real estate experts insist there’s a mass movement underway as foreign manufacturers seek factory sites convenient to the U.S. border. Trade and transportation data, however, paint a different picture. If nearshoring is underway, it is not yet visible in the numbers.

In my talk, I pointed out that increased concern about supply-chain interruptions plays to Mexico’s advantage as a location for manufacturers targeting the North American market. But for all the talk of nearshoring, manufacturers seem reluctant to plunge in. This hesitation, I think, has to do with some real-world problems that have grown worse in recent years. Concerns about security are mounting all over the country. Electricity prices are high, despite government subsidies. Renewable energy is in short supply, deterring investment in factories to serve companies that face pressure from customers or regulators to reduce greenhouse-gas emissions in their supply chains.

Moreover, Mexico seems unprepared for things to come. Factories in Mexico have increasingly used inputs from China to assemble goods for the U.S. market; given geopolitical tensions, it’s a good bet that Washington will crack down on imports of such products. And in the automotive sector, where Mexico’s role in international supply chains is most prominent, exports of auto parts are under threat as electric vehicles capture a larger share of the vehicle market in the United States and Canada. Recent announcements of a new Tesla assembly plant near Monterrey and a BMW battery plant in San Luis Potosí have obscured the fact that an electric vehicle contains thousands fewer parts than an internal combustion vehicle of similar size. The supply chains that funnel Mexican-made pistons, fuel injectors, catalytic converters, and other parts to points north are likely to decline rapidly over the next few years.

Geography offers Mexico great opportunities as manufacturers and retailers rethink their supply chains. So far, though, it isn’t taking much advantage of them. Unless the Mexican government makes some big changes, nearshoring may be slow to develop.

Tags: ,

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit exceeded. Please complete the captcha once again.

This site uses Akismet to reduce spam. Learn how your comment data is processed.