”Why is it important to take a deep-dive into the topic of Nearshoring?
Information
Nearshoring, defined as the strategic practice of relocating business operations to a neighboring or nearby country, has garnered increased attention in recent years.
The Covid-19 pandemic and the war in Ukraine have exposed the fragility of global supply chains, further highlighting the necessity for more resilient and adaptable supply chain strategies.
Consequently, companies are increasingly turning to nearshoring to mitigate the risk of supply chain shocks, enhance economic resilience, and navigate the evolving geopolitical environment.
In this context, the United States-Mexico-Canada Agreement (USMCA), signed into law by President Donald Trump in January 2020, plays a pivotal role. It revises NAFTA, introducing substantial changes to automobile origin rules, labor and environmental standards, intellectual property rights, and digital trade, aiming to strengthen North American economic integration and cooperation.
Land ports are emerging as the new dominant hubs for trade, surpassing seaports in terms of volume and value. In 2022, approximately $800 billion worth of freight was transported between the United States and Mexico, with 71% carried by trucks, 12% by rail, and 12% by vessel, according to the Bureau of Transportation Statistics. This shift in trade dynamics was further emphasized in February 2024, when the United States imported more goods from Mexico than from China for the first time in two decades. As trade with China is primarily maritime-based, it is more susceptible to global shocks, highlighting the increasing importance of land-based trade with neighboring countries like Mexico and Canada.
Focusing on demographics highlights the synergistic potential between Mexico and the United States. In 2020, China’s median age of 38.4 years exceeded that of the U.S. for the first time, whereas Mexico’s median age was estimated at 30.6 years in 2023. This demographic complementarity between Mexico and the U.S. enhances the appeal of nearshoring strategies, leveraging Mexico’s younger workforce to support the evolving economic landscape of North America.
However, companies must navigate potential risks such as corruption, weak rule of law, infrastructure deficiencies, regulatory challenges, and security concerns. Despite these challenges, Mexico’s strategic location, competitive labor costs, free trade agreements, and manufacturing clusters make it an attractive nearshoring destination, particularly in sectors like automotive, aerospace, electronics, and medical devices.
Technology
Technology is transforming the landscape of nearshoring, leveraging automation, smart border controls, and digital innovation to boost operational efficiency and market competitiveness. Advancements such as AI-enhanced logistics and blockchain for secure supply chain management are leading this shift, enabling businesses to navigate international trade with unprecedented agility and security. These tools not only optimize logistics and ensure supply chain integrity but also pave the way for deeper economic integration between nearshoring partners.
As the demand for electric vehicles (EVs) surges and manufacturing expands, the need for improved energy infrastructure becomes critical. The United States, in collaboration with Mexico, must focus on enhancing grid integration and investing in renewable energy projects. Mexico’s strategic location offers immense potential for the development of solar and wind energy, essential for supporting the growing EV market. This potential, coupled with the scalability of infrastructure projects, presents U.S. exporters with significant opportunities in renewable energy subsectors, such as wind and hydro projects, encouraging sustainable collaboration and investment.
In addition, AI technologies are playing a crucial role in streamlining nearshoring operations. Language models, for example, are automating customer support, simplifying regulatory compliance, and providing insights from large datasets. These advancements facilitate smoother communication across different languages and cultures, enhancing efficiency and enabling businesses to adapt quickly to new regulations and market trends.
As automation and warehouse technologies advance, industrial real estate will need to adapt to accommodate increased demand and new operational requirements. Modern distribution centers and fulfillment hubs must be designed to integrate AI-powered robotics, automated guided vehicles (AGVs), and other cutting-edge solutions that optimize material handling and inventory management. This transformation necessitates reconfigured floor plans, enhanced safety measures, and robust infrastructure to support these sophisticated systems.
The integration of these technologies into nearshoring strategies not only supports the operational aspects of trade but also contributes to broader economic and environmental goals. By focusing on sustainable energy solutions and leveraging AI for operational improvements, the U.S. and Mexico can foster a more resilient and dynamic economic relationship. This approach not only addresses the immediate challenges of nearshoring but also sets the foundation for long-term growth and innovation in key industries.
Overall, the synergy between technological advancements and nearshoring strategies underscores the importance of embracing digital transformation to meet the demands of modern trade. As nearshoring continues to evolve, the adoption of innovative technologies will be key to unlocking new opportunities, enhancing supply chain resilience, and driving sustainable economic growth in the U.S. and Mexico.
Sentiment
Sentiment is mixed, but in aggregate below represents how different groups of people may feel towards nearshoring:
Employees and Workers:
- Domestic workers may feel threatened by the potential loss of jobs to nearshore locations with lower labor costs.
- Some may be concerned about wage stagnation or downward pressure on salaries due to competition from nearshore labor markets.
- However, workers in the nearshore locations may view it positively as it brings job opportunities and economic growth to their regions.
Local Communities:
- Communities in the company’s home country may oppose nearshoring if it leads to job losses and economic impacts on their towns or cities.
- On the other hand, communities in the nearshore locations may welcome the investment and job creation opportunities that come with nearshoring.
Customers and Consumers:
- Some customers may have concerns about the quality of products or services if they are outsourced to nearshore locations, especially if there are perceived cultural or language barriers.
- However, others may appreciate the potential cost savings that could be passed on to them through lower prices if companies can reduce their operational costs through nearshoring.
Policymakers and Governments:
- Governments in the company’s home country may be wary of nearshoring if it leads to job losses and negative impacts on certain industries or sectors.
- However, they may also recognize the potential benefits of companies remaining competitive and reducing costs through nearshoring.
- Governments in the nearshore locations are likely to welcome the investment and economic opportunities that come with nearshoring.
Labor Unions and Worker Advocacy Groups:
- These groups may strongly oppose nearshoring if they perceive it as a threat to domestic jobs, wages, and working conditions.
- They may advocate for policies or regulations to discourage or limit the extent of nearshoring.
Business Leaders and Corporate Executives:
- Many may view nearshoring positively as a way to reduce costs, access skilled labor, and remain competitive in the global market.
- However, some may have concerns about potential risks, quality control issues, or the long-term impacts on their business and brand reputation.
In looking across various channels to measure sentiment on this topic, the term itself is newer across platforms, however the frequency is rising.
