In 2021, the United States and other countries faced a severe supply chain crisis. After a global shutdown for several months, global production was down, yet demand was up. As a result, US companies faced a severe supply chain crisis that saw container ships backlogged outside the ports of Los Angeles and Long Beach in numbers well over 100 at a time. Most of these were forced to drift in deep water for weeks on end.
This and other events on the world scene have prompted many to seek out new ways to build resilient supply chains. Wars, epidemics, shortages, and natural disasters can happen without warning. And global disruptions should be viewed as the norm, not the exception. It’s not a matter of if they will happen, but when.
And forward-thinking executives in manufacturing should prioritize building a resilient supply chain to stay ahead of the curve. One of the best ways to achieve this is through nearshoring.
Most analysts agree that, in the ever-evolving landscape of global commerce, the next five to ten years are poised to bring about profound changes across industries worldwide. The speed and nature of these transformations remain uncertain, as does their impact on global supply chains. The intricate dynamics of supply chains operating across multiple economic levels reveal various risks, stemming from interdependence among different components of the supply chain system.
Due to the various uncertainties and risks associated with global supply chains, the need for shorter and more efficient supply routes has become paramount. Indeed, the world is rethinking globalization. Achieving a resilient supply chain has become more prized than highly efficient but unforgiving processes.
And so, nearshoring, the relocation of production to neighboring countries like Mexico, offers significant benefits such as reduced transportation costs, shorter lead times, and participation in duty-free programs under agreements like USMCA. Many factors are driving companies to make the switch to Mexico, including geopolitical tensions, logistical challenges, and technological advancements. And these moves are not knee-jerk reactions, but carefully considered, data-driven decisions to choose resilience as a long-term profitable strategy.
And just what is nearshoring? Nearshoring involves relocating part of the production process to a neighboring country, typically one with closer proximity to the target market. For US-based companies, Mexico has emerged as a prime destination for nearshoring, offering a range of benefits including reduced transportation costs, proximity to the largest consumer market, and participation in duty-free programs.
Another factor that makes Mexico a priority option is the ongoing trade tensions between the United States and China. This tariff war, coupled with geopolitical instability and disruptions caused by the 2020 health crisis, have prompted companies to reevaluate their global supply chain strategies.
Simply put, nearshoring to Mexico presents an attractive alternative, offering lower transportation costs, reduced lead times, and a stable trade environment under the USMCA agreement. These are just some of the many benefits of nearshoring.
In order to leverage nearshoring to achieve a resilient supply chain, several critical components must be present. Any nearshoring location must have the following aspects to be a successful nearshoring partner.
Efficient infrastructure is crucial for successful nearshoring operations. Mexico boasts a well-developed network of roadways, seaports, airports, and trade-oriented Customs Offices, facilitating seamless commerce with the US. This robust infrastructure ensures certainty in lead times, minimizes delays in customs, and mitigates regulatory risks.
The adoption of technology plays a pivotal role in enhancing productivity and resilience in supply chain operations. Global trade executives recognize the importance of technology in increasing agility, compliance, and visibility throughout the supply chain. Integration with stakeholders such as 3PLs and Custom Brokers further enhances efficiency and reduces risks.
Implementing a nearshoring strategy requires not only adopting technology but also embracing change management processes to minimize disruption to business operations. Specialized global trade management technology enables companies to streamline processes, ensure compliance, and gain real-time visibility into operations.
Nearshoring to Mexico offers significant cost savings and competitive advantages. Lower labor costs, favorable trade agreements, and efficient logistics infrastructure make Mexico an attractive destination for manufacturers. And the country’s strategic position and robust manufacturing sectors further enhance its competitiveness on the global stage.
While nearshoring offers numerous benefits, it also presents logistical challenges such as transitioning costs, establishing new shipping lanes, and navigating regulatory requirements. However, the positive impact on working capital, reduced dependency on credit facilities, and enhanced financial health outweigh these challenges. And shelter services greatly enhance the transition for US producers.
Data-driven viability assessments are essential for evaluating nearshoring options to ensure a resilient supply chain and long-term success. Factors such as freight costs, lead times, labor availability, and tariff stability must be carefully considered. Conducting a comprehensive “battle drill” simulation exercise might even enable companies to assess the feasibility and potential benefits of nearshoring.
In an era marked by geopolitical uncertainties and global crises, it’s no surprise that so many US companies are making the switch. Among a turbulent terrain of global supply chains, nearshoring emerges as a transformative catalyst for manufacturing resilience. It just makes sense to reduce reliance on remote sources and engineer agility into your manufacturing plan.
Nearshoring strengthens companies’ ability to weather disruptions and thrive in an ever-changing business landscape. And nearshoring to Mexico offers makes the most sense for companies seeking to achieve this. By leveraging Mexico’s proximity, infrastructure, and competitive advantages, companies can enhance efficiency, reduce risks, and position themselves for long-term success.
