Nearshoring: Expansion, Challenges, and Success in Mexico

Global supply chain disruptions in the past few years have caused nearshoring to grow from a general phenomenon to an important and strategic step for U.S. companies. Driven by favorable economic conditions, advancements in technology, labor availability, and the cost of manufacturing, many businesses have taken to nearshoring in Mexico rather than outsource overseas. While transforming company models to invest in nearshoring represents a significant undertaking, it provides a variety of advantages for the transportation industry, when done effectively.

For example, at Echo, nearshoring represented a natural next step to expanding our preexisting solutions in Mexico. Based on economic trends and requests from our clients, Echo was able to establish operations on both sides of the border, in Mexico City, Monterrey, and Laredo, Texas, to provide comprehensive logistics advancements, including in the process of navigating customs and border crossings.

The history of nearshoring has long been a complex one, but it continues to prove more and more advantageous, considering the circumstances:

Proximity to the U.S. - Mexico's geographic proximity to the U.S. means transportation costs and transit times can be reduced, resulting in greater supply chain optimization. Monterrey is three hours from the border, meaning products can reach the U.S. market much faster than the 20-45 day wait for container goods from China. Efficiency can further be improved with operations on both sides of the border, making crossings easier to navigate. Nearshoring also reduces the overall risks associated with lengthy supply chains. By consolidating in proximate locations, companies can avoid disruptions in distant regions, shipping delays, and rising fuel costs.

Trade agreements and reduced costs - The U.S.-Mexico-Canada Agreement (USMCA) provides favorable trade conditions between the U.S., Mexico, and Canada. This results in lowered tariffs and smoother cross-border operations. In 2023, U.S. imports from Mexico totaled more than $475 billion, roughly $20 billion more than in 2022. Nearshoring could boost exports from Mexico to $609 billion by 2028. Additionally, nearshoring maximizes fuel efficiency and minimizes dependency on ocean freight, making quicker means of shipping, such as road and rail transportation, more viable.

Cultural and time-zone alignment - More closely aligned time zones and cultural understanding with our neighbors to the South facilitates better communication and faster issue resolution. Though national policies differ between countries, transitions become simpler between regularly scheduled, proximate shipping lanes. Expansion in Mexico helps the pool of skilled workers increase, allowing companies to employ laborers from a variety of skills and backgrounds. This also encourages the employment of bilingual workers, a necessity in cross-border business.

Reduced carbon and fuel consumption- Lastly, costs of fuel and a company's carbon footprint can both be reduced through nearshoring. By minimizing the carbon emissions associated with long-distance shipping, businesses can conserve fuel to create a more energy efficient supply chain.

Historically, companies have preferred to develop supply lines in major foreign markets such as Europe and Asia. In light of global uncertainty due to volatile political climates and looming conflicts, nearshoring offers businesses greater control. As a result, Mexico is seeing large scale increases in manufacturing and greater market share. Although nearshoring requires the establishment of new, interconnected networks within certain regions, it results in a simpler supply chain, is less cost prohibitive, and allows for more accessibility.

Beginning investments in nearshoring initiatives can be a challenge and having a foundation on which to build operations enables companies to more easily integrate preexisting solutions into a new market. Yet once in place, nearshoring brings the potential for lowered supply chain risks as well as reduced labor and transportation costs. As networks develop and relationships are established, the wide distribution of freight lines through nearshoring brings the promise of efficiency and successful growth.

To learn more about Echo's cross-border operations in Mexico, visit www.echo.com.

For informational purposes