Nearshoring Opportunities Are Coming, Will Mexico Catch Them?

Credit Suisse’s third edition of the “Mexico Nearshoring Tracker” points that commercial activity remains strong but shows a seasonal decline. Challenges include trade disagreements that could prevent foreign companies from bringing production to Mexico, as they could become exposed to retaliatory trade sanctions. Challenging situations can also stop the country from taking advantage of upcoming opportunities, such as the production restrictions affecting electronics supply in Asia.

The nearshoring model has gained strength, increasing the number of companies that relocate their plants and production closer to consumption centers to reduce costs. “Within this geopolitical context associated with the growing demand for logistics services worldwide, a window of opportunity has opened for Mexico to take advantage of nearshoring since our country continues to be the best-positioned destination in Latin America for this purpose and the situation has laid the groundwork to attract manufacturing plants to Mexican territory,” said Ruben Iman, CEO, Onest Logistics. While experts agree that Mexico’s nearshoring potential is unmatched, they also agree it has been held back by the country’s energy policies, lack of infrastructure and qualified talent.

In November, Credit Suisse identified 12 new export-oriented manufacturing facilities that announced US$1.2 billion in investment commitments, against US$1.7 billion on average per month in 2021 and 2022 for a total of US$18.4 billion. Out of the 12 announcements, six did not include committed amounts. Total exports rose 11 percent year-over-year in October, similar to the pace seen during the third quarter but slightly lower than September’s 15 percent.

The relocation of the electronics supply chain could benefit Mexico. During November, several reports show significant challenges to electronics production owing to COVID-19 outbreaks and social upheaval in Asia. Furthermore, the US Federal Communications Commission (FCC) banned the sale of certain telecom equipment produced in China on Nov. 24 due to national security considerations. 

Mexico’s Grupo Aeroportuario Centro Norte (OMA) and Grupo Aeroportuario del Pacífico (GAP) are expected to benefit the most from nearshoring trends. For OMA, 81 percent of its traffic is exposed to the Mexican states linked to nearshoring; likewise, GAP’s total traffic exposure is 62 percent, according to Credit Suisse’s report. 

However, challenges keep arising. In addition to the ongoing USMCA consultations on the energy and automotive fronts, the US Department of Agriculture noted that it could initiate formal measures in the context of USMCA if a new rule is implemented to eliminate imports of transgenic corn and glyphosate by 2024. 

Despite the challenges, the USMCA shows great potential to benefit many sectors including automotive, aerospace, machinery and equipment, medical equipment, pharmaceuticals, digital economy, logistics and agricultural transportation, said Kenneth Smith, Former Chief Negotiator of the USMCA for Mexico and Partner, Agon-Economia, during the Mexican Business Council of Foreign Trade, Investment and Technology (COMCE) Foreign Trade Congress. 

The priorities should be to strengthen the USMCA and increase the region’s competitiveness to avoid wasting the opportunities brought by nearshoring. The treaty could be strengthened with the introduction of regional cooperation mechanisms, the adoption of international trends and the performance of a comprehensive review of the USMCA 2026 in which a consultation process at the national level is defined, said Smith. 

The challenges that the new Minister of Economy will face will be to continue defining the international agenda, seeking to attract investment, continue with FTA negotiations and resolve disputes surrounding the USMCA in the areas of energy, automotive and agriculture.