4 Reasons Why Nearshoring Manufacturing is Here to Stay
The shipping disruptions that proliferated during COVID-19 permanently altered the global supply chain landscape. These changes are continuing to transform the way manufacturing companies operate in today’s economy. In particular, more businesses have come to realize the benefits of producing goods in nearby countries, commonly known as nearshoring.
For the first time in 2023, Mexico became the biggest trading partner to the U.S. With a 2,000-mile shared border and a developing economy, Mexico and the United States are natural trading partners. While China previously held the top spot since 2014, supply chain disruptions during the pandemic combined with rising geopolitical tensions have helped turn the tide.
Many companies that began manufacturing in Mexico out of necessity in recent years have grown to appreciate the many advantages of nearshoring. Below are four reasons why this growing trend is here to stay.
Faster Delivery Times = Happier Customers
By manufacturing their goods in nearby countries, companies can guarantee quicker delivery of their products. According to a report by Statista, the time it took to ship containers from China to the U.S. more than doubled from approximately 51 days in January 2020 to 107 days in March 2022, a number that pales in comparison to the three or fewer days it typically takes to ship products from Mexico. In fact, some companies can produce products in Mexico and deliver them to the U.S. in as little as 24 hours. Manufacturers in Asia would be hard pressed to match that speed.
Greater Oversight Into Production
Nearshoring manufacturing enables U.S. producers to have greater oversight into production along with improved quality control — conducting regular visits to factories in Latin America and Canada is far easier and quicker for executives and senior managers than traveling to Asia. As a result of NAFTA, and more recently the United States-Mexico-Canada Agreement (USMCA), the economic bonds between all three countries have never been stronger. According to the Office of the United States Trade Representative, U.S. goods imports from Mexico were $454.8 billion in 2022, up 18.9 percent from 2021 and more than 64 percent higher than 2012.
An added benefit of nearshoring is the potential to reduce the costs of manufacturing and delivering products to customers in the U.S. In addition to lower costs to install, repair and upgrade existing equipment, shipping fees from nearby countries are substantially lower than for overseas deliveries. With FedEx International Priority DirectDistribution (IPD), Latin American-based customers can deliver consolidated shipments from a single location to multiple piece customers throughout the U.S., enabling quicker delivery times as well as reduced inventory carry costs. Another good option is FedEx Global One Rate, which provides a flat rate pricing option for qualifying international shipments.
Average manufacturing wage costs are also much lower in Mexico than China. According to recent research from Bank of America, hourly wages in Mexico are a fifth lower than in China, “a huge turnaround from just 10 years ago when they were nearly three times higher.” While the cost is likely to rise over time as the Mexican economy and labor force continues to develop, the difference should remain substantial for the foreseeable future.
Strong Labor Force
Both Mexico and Canada have a strong and growing labor force. According to North American Production Sharing (NAPS), which provides services to companies manufacturing in Mexico, the country offers well-trained employees “ranging from production labor to highly skilled professionals.” Mexico’s employee base also skews younger, with more than 40 percent of its 117 million inhabitants currently ranging in age from 20 to 49 years old.
U.S. companies that embrace nearshoring in Mexico and other neighboring countries will reap the benefits, from reduced costs to greater customer satisfaction, allowing them to move ahead of their competitors that continue to conduct business as usual.
Randy Carr is president and CEO of World Emblem, the largest supplier of embroidered emblems and patches in the world. World Emblem de Mexico, based in Central Mexico since 2005, produces and ships approximately 40 percent of the company’s orders annually.