Nearshoring an Invaluable Opportunity for Mexico

The last three years have undoubtedly been complex for the paints, inks and coatings industry, as it has had to face a wide range of challenges, from a global pandemic to supply chain disruption and high levels of inflation in many of the world's economies.

This series of events has caused both manufacturers and suppliers to face not only a shortage of essential raw materials for their production, but also a shortage of containers, which shot up costs by up to 400%, as many were stuck in Asian ports, given the COVID-19 contagions that started in 2019 and led to the global pandemic in 2020.

Another factor that impacted the operation of shipping lines was the high price of fuel oil, as oil prices increased more than 60%, added to the bottlenecks due to anti-COVID measures and the increase in raw material prices, especially in the price of steel, which reached up to US$7,500; this, in addition to the blockage of the Suez Canal after the  Ever Given container ship ran aground, which affected maritime traffic, and the saturation of the Panama Canal. 

All this caused maritime container cargo to drop 4.3% in 2022, while air cargo decreased 7.4% from January to November 2022 compared to the same period of the previous year, according to Maersk company estimates.

But it is not all bad news. This environment has provided an invaluable opportunity for Mexico: nearshoring, a strategy in which a company transfers part of its production to third parties that are located in nearby market destinations and with a similar time zone, which allows them to reduce costs, unlike what happens in offshoring.

Having a privileged geographic location is an advantage that Mexico should not waste, especially because the logistics sector has been severely affected and quick solutions need to be found to move forward. 

Today, the scenario is also favorable for more US companies to adopt nearshoring and focus on our country, especially if we consider that there are other aspects at stake, such as the United States-Mexico-Canada Agreement (USMCA), which facilitates trade between our country, the US and Canada, the proximity to the northern neighbor, fast supply chains, the good performance of the national industry, especially in the automotive sector, and the relations between the US and China, which have been strained recently.

However, we cannot forget other countries with which we can do business, since finding new markets and suppliers on the very continent to which we belong will boost not only the country's growth but also that of the entire region.

Last January alone, there were 23 announcements of new nearshoring investments in Mexico, totaling approximately US$2.5 billion, from companies in Germany, the US and China, according to data from Datamétrica-Aporta. 

A good part of these announcements has favored states in the north of the country, although they are also permeating other states in the Bajio region and are also expected to favor those in the center and south of the Mexican Republic. 

In summary, we are experiencing a unique moment for the country's economy, given that nowadays it is impractical to sustain productive activities on an intercontinental scale and the country has the facilities to take products to its northern neighbor.

According to forecasts by the Inter-American Development Bank (IDB), Mexico could be the greatest beneficiary of nearshoring in the region, since it could obtain up to a little more than US$35 billion a year, due to the export of goods. This represents almost half of the US$78 billion a year that could be generated by Latin America and the Caribbean following this business strategy, an environment where Vietnam currently ranks No.  1 worldwide in the nearshoring potential index, based on a study by the real estate consulting firm Savills, in the United Kingdom, which carries out a ranking based on the nearshoring potential indexes of countries that are close to large consumer markets. 

In this same ranking, Mexico ranks 15th out of a universe of 40 countries, Brazil, another Latin American country that appears in this ranking, is in 25th place, which speaks of the great advantages we have with respect to other large economies in the region. This is attributed to various factors, such as energy costs, the quality of logistics facilities and infrastructure, the regulatory framework, labor costs and relative distances to major markets or production centers.

Therefore, it will be important to establish a favorable environment for new companies to arrive in our country, through actions such as the streamlining of procedures, which will be essential to take full advantage of the global economic context. This is a unique opportunity; we definitely can't afford to miss it. Therefore, we must continue to roll up our sleeves  and keep working to reactivate our economy.