Nearshoring, the relocation of manufacturing from Asia, mainly China, to North America, particularly Mexico, has played a crucial role in the establishment of CPKC (Canadian Pacific Kansas City), the first and only transnational railroad linking Canada, the United States, and Mexico. The merger of Canadian Pacific and Kansas City Southern was announced in 2021, a year after the ratification of the USMCA, replacing NAFTA, which had facilitated the privatization of Mexico’s national railroad system.
The push factors driving nearshoring and reshoring (bringing manufacturing back to the U.S. from overseas) include the pandemic and the Russia-Ukraine conflict, which led to disruptions in global supply chains. Companies are seeking to mitigate risks by moving their supply chains closer to home, and time zones have become more relevant with increased video-conferencing for meetings and management.
Security concerns due to sanctions on Russia have prompted companies to consider “friend-shoring” in countries with lower risk of sanctions. Additionally, an energy crisis, particularly in Europe, has led firms to seek locations with more energy availability and reliability, making North America, including Mexico with its renewable energy potential, an attractive option.
To fully leverage this opportunity, close dialogue and collaboration among the three countries are essential. Measures to improve cross-border mobility, establish tri-national protocols for supply chain management during crises, and promote sustainable economic and social development are vital steps.
For companies considering nearshoring, Mexico offers several cost benefits, including a stable corporate tax rate, an incentive program, low labor rates, and affordable inbound freight costs, especially when compared to China. Mexico’s composite tariffs with the U.S. are significantly lower than China’s, and the country’s tax rates have remained stable. Moreover, Mexico’s participation in multiple free trade agreements enhances its position as an attractive manufacturing and distribution hub.
Overall, nearshoring to Mexico presents a promising opportunity for businesses seeking to optimize their supply chains, benefit from the advantages of USMCA, and navigate the impacts of the COVID-19 pandemic and international trade tensions. By understanding the cost of doing business and conducting comprehensive cost-benefit analyses, companies can take advantage of Mexico’s strengths as a manufacturing powerhouse with well-integrated supply chains and favorable economic conditions.
“U.S. proximity to Mexico is a major advantage to businesses due to quicker transit times. Transporting goods from Mexico to New York can take about 6-12 days while going from Shanghai to New York can take about 35 days. Mexico to Los Angeles is 4 days, where Shanghai to Los Angeles is 22-26 days. Additionally, components can be sourced from the U.S., assembled in Mexico, and shipped back to the U.S. in a short amount of time. With Mexico located in the same time zones as the U.S. (Pacific, Mountain and Central), companies will benefit from greater efficiency and productivity. As more Americans speak Spanish and more Mexicans are speaking English, the language communication barrier is less of an issue in today’s marketplace.
“Mexico’s transportation and communications infrastructure have been upgraded, promoting the flow of freight over the border, reducing bottlenecks and improving logistics for U.S.-Mexico cross-border trade. Mexico has 16 major maritime hubs offering Pacific Ocean and Atlantic Ocean. access. Critical investments include CPKC’s (KCSM) Veracruz rail corridor connection to Oaxaca connecting the Atlantic and Pacific coasts, and an expansion of the Lázaro Cárdenas Specialized Automotive Terminal. Finally because of Mexico’s geographic proximity and figurative closeness with the U.S., corporate social responsibility practices and trends are on the rise in Mexico.”
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