Over the past three decades, Mexico has emerged as a critical enabler and a key hub of supply chains on the North American continent. Rising labor costs in other regions, recent trade wars, and growing concerns about supply chain resilience, make Mexico all the more attractive. Nearshoring may not be the right move for all companies, but there are some compelling incentives.
Geographic proximity and access
Mexico’s proximity to the United States is increasingly attractive to US businesses. Distance can be an added complication in supply chain management and the pandemic has exposed some of the frailties of the global supply chain. Moving things closer to home enables a shorter, more agile supply chain. It reduces the risks inherent with longer modes of transit and enhances communications and hands-on oversight with plans and suppliers.
Shorter transit times have become particularly attractive as businesses look to recover from the impact of the pandemic, and the long-tail effects of its disruption still reverberate across the global supply chain (as my colleague Brian Nemeth summarized in his recent article). A shipment from Mexico can reach any part of the US in four days or less on average. In contrast, it can take three to five weeks – under normal circumstances – for a shipment to reach the US from Asia. This relatively quick transit lowers transportation and storage costs, and mitigates risk in the supply chain, keeping companies leaner and increasing their agility to deal with any external shocks.
Rising transportation costs, tariffs, and wages in China have also led many US companies to reconsider nearshoring. New and more resilient supply chains rely on a balancing of capacity between suppliers in China and Mexico as a means to continue operations. If either are shut down by, say, a natural disaster or a pandemic-like event – which not too long ago was a far-off concept – there is increased flexibility which allows operations to continue despite wider disruption.
When evaluating Mexico’s role in their supply chains, US manufacturers and distributors should consider the impact of time and distance against their company’s sophistication in global trade, and their products’ value, complexity, and speed-to-market requirements.
Supply chain characteristics that favor Mexico include:
- Product types or categories with faster speed-to-market for just-in-time supply chain requirements
- High-value products with higher carrying costs benefiting from fewer days in transit
- Less sophisticated global traders that will benefit from faster and easier access to local operations and suppliers