STORY INLINE POST
Nearshoring, Reshoring, Ally Shoring. What is the Difference? Let’s start by answering this question.
Nearshoring is the opportunity for new international companies to settle in a different country from where they are from.
Reshoring are the companies that were already in a new country and they are coming back home to restart operations.
Ally Shoring are the companies that by request of a value chain partner settle operations in a new country.
To clarify, nearshoring, reshoring or ally shoring are great opportunities for the USMCA region to capture these companies and, obviously, for Mexico to lead this logistics evolution.
What caused nearshoring? Mainly the stratospheric increase in sea freight, before COVID arrived and changed our life.
In 2020, a China to Mexico FCL was between US$1,800 and US$2,500. In 2021, the same route and same container capacity ranged from US$12,000 to US$16,000. In 2022, sea freight is coming down but still remains close to that in 2021.
This impacts the four main logistics KPIs of companies: Fill Rate, Inventory Levels, Forecast Accuracy and Logistics Cost.
- Fill Rate – Delays in delivering client orders
- Inventory Levels – Increasing the amount of safety stocks, increasing warehousing costs
- Forecast Accuracy – Right now, we are getting more stability in our forecast but in 2020 and 2021, the markets (industries) were unpredictable
- Logistics Cost – Self explanatory
Another catalyst for nearshoring is the speed-velocity of order deliveries. Before the COVID era, with regard to logistics there were three main pillars to decide the sourcing of a material, finished good or service: Price/Cost, Quality and Technology. Now, we have to add a fourth pillar: Speed. Speed of fabrication, speed of delivery, speed of transit times, speed of reception, speed of payments, speed, speed, Speed along every step of our supply chain.
Why is Mexico more attractive to USMCA partners in the Nearshoring era?
Definitely the labor cost. Our workers have all the capabilities to do an extraordinary job, competing on the same level as US or Canadian workers; unfortunately, we are cheaper and we generate savings for companies, a lot of savings.
Which are the potential nearshoring areas in Mexico?
Before answering this question, we have to talk about the nationality of the companies that are coming to settle in Mexico: they are from China, Germany, Spain, France and the US and they are mainly related to the automotive industry. Remember that five out of every 10 cars that are produced in Mexico are exported.
So, in Mexico, the areas experiencing a nearshoring explosion are:
- Monterrey, because of its proximity to the US, and right now it is supported by the Salinas Victoria Tamaulipas area. In 2019, Chinese companies used 7,000m2 in Monterrey. In 2020, that grew to 25,000m2 and in 2021, they were occupying 275,000m2, according to the Mexican Association of Industrial Parks of Mexico.
- Central Mexico (Bajio ), Queretaro, Guanajuato and San Luis Potosi are great opportunities to establish for foreign companies. The very big challenge for the government of each state is to attract investment. Right now, the Queretaro government is on an European tour to convince European companies to settle in Queretaro, citing its economic KPIs, quality of life and leadership in the central region that it says make it the best option to invest in the country.
- Mazatlan — yes Mazatlan — is growing. It now has state-of-the-art industrial parks to relieve the saturation at Manzanillo and Lazaro Cardenas, making it a great option to receive Asian products.
Final question: Are you prepared to take China’s leading logistics position and push Mexico to the top? I am pretty sure you are.