Mexico's Rise: Nearshoring, trade and impact on air freight and logistics

Mexico stands tall as a leading economic force in Latin America, second only to Brazil. Bolstered by its population of 128 million, it is the most populous Spanish-speaking nation globally and the third most populous in the Western Hemisphere. Its geographic location positions it as a strategic hub for global trade. Further enhancing its economic stature, Mexico is a significant player in the commodities market, leading globally in silver production, ranking seventh in copper and 12th in petroleum, according to data from the U.S. Geological Survey . Deepening US-Mexico ties A significant yet often overlooked aspect of U.S.-Mexico relations is the escalating trade levels between the two nations. Last year, Mexico overtook China to become the top trading partner to the U.S., with bilateral trade reaching $798.8 billion. The first purple circle shows the time when China surpassed Mexico in 2001 and the second one shows the time when Mexico surpassed China in 2023. Figure 1 – Monthly U.S. imports of goods by customs basis from China vs Mexico

Notably, 80% of Mexico’s exports head to the United States. U.S. exports to Mexico in 2023 included petroleum and coal products, motor vehicle parts, semiconductors and other electronic components, basic chemicals, and computer equipment, among others.

The U.S. accounts for 60% of Mexico’s total merchandise trade, impacting the stock of material resources through imports and exports. In 2023, U.S. merchandise imports from Mexico included items such as motor vehicles, motor vehicle parts, computer equipment, oil and gas, and electrical equipment. The robust economic linkages owe much to the U.S.-Mexico-Canada Agreement (USMCA), which succeeded the North American Free Trade Agreement (NAFTA) in July 2020. Bilateral foreign direct investment also plays a crucial role, with significant increases in investments over the years. However, concerns persist about China using Mexico to circumvent U.S. tariffs, as evidenced by the correlation between the rise in Mexican imports from China and increased exports to the U.S. In 2023, $1.57 trillion of transborder freight between was moved across all transportation modes, showing no change from 2022 (see Figure 2 below). Airfreight accounted for $57.1 billion of the total transborder freight, a 1.2% decrease from 2022. Figure 2 - International U.S. freight share 2023

Before 2006, the value of U.S.flows with Canada typically surpassed those with Mexico. However, there have been numerous occasions since 2015 when the value of U.S. freight Mexico exceeded that with Canada. This shift first emerged in October 2015 and persisted, intensifying during the pandemic. Despite the changes in freight value, the weight of freight transported between the U.S. and Canada has consistently remained higher than that with Mexico. This is primarily due to the significant volume of petroleum and mineral fuels transported between the U.S. and Canada via pipelines. But the key question here is: How will nearshoring in Mexico impact airfreight in North America? As shown in Figure 3, airfreight accounts for just 3% of all freight modes between the U.S. and Mexico. Given this small proportion, the impact of nearshoring on the airfreight industry in the United States may be limited. Figure 3 - US freight with Mexico by mode (in billion USD), 2023

The dynamics of nearshoring and onshoring present opportunities and challenges for U.S. airfreight growth. Positively, nearshoring to Mexico and onshoring within the U.S. have led to closer production centers, significantly reducing transit times and boosting the frequency of shipments. This shift enhances domestic airfreight demand, especially fueled by the rise in e-commerce, which demands faster delivery and efficient inventory management. However, moving production closer to the U.S. market diminishes the need for long-haul international airfreight, particularly affecting carriers reliant on trans-Pacific and trans-Atlantic routes. The transition could also lead to higher production costs, potentially decreasing overall production volumes and prompting a shift to road transportation, subsequently leading to a decline in airfreight demand. Mexican nearshoring”,’ US-China competition The Mexican government is balancing complex economic relationships, maintaining close ties with the U.S. while managing competition with China and seeking independent economic pathways. This situation has drawn attention in Washington, with the Biden Administration working to distinguish between locally produced and Chinese-origin steel and aluminum. The automotive sector, with major investments from Tesla and BYD of China, is becoming a focal point of U.S.-China economic competition. Geopolitical tensions are also affecting air cargo, with increased scrutiny and potential tariffs impacting trade flows. The 2026 review of the USMCA will be pivotal for trade relations. Despite Mexico's advantageous geographic position for maritime shipping, it faces challenges like rising costs, outdated infrastructure and political uncertainty, which could hinder the nearshoring trend. Rising costs for industrial space, materials and labor are additional concerns. Major logistics firms expand into Mexico UPS recently announced its decision to acquire Mexican express delivery company Estafeta as part of its strategic expansion in Mexico. The acquisition, which includes Estafeta's assets such as its fleet of six Boeing 737-400 freighters , enhances UPS' logistics capabilities within Mexico and its connections to the U.S. and beyond. Estafeta operates a comprehensive network that spans air, maritime, rail and trucking services, catering to over 220 countries and territories. This move is aligned with UPS’ "Better and Bolder" strategy to position itself as a leading international logistics provider, capitalizing on shifting global supply chains and Mexico’s increasing role in global trade due to nearshoring. Similarly, Ryder System has been bolstering its logistical operations in Mexico, evident from the recent opening of a warehouse in Laredo and the expansion of a drayage yard in Nuevo Laredo. Located near the World Trade Bridge connecting the two towns, these facilities are designed to optimize Ryder’s supply chain services across the increasingly busy U.S.-Mexico border. Both Ryder and UPS are leveraging Mexico’s growing economic and strategic importance to enhance their service offerings. Expansion by major logistics players like these underlines the potential and importance of Mexico as a central hub in North American logistics, driven by the rise of nearshoring and the need for efficient cross-border trade solutions. Mexico's evolving role in global trade As Mexico prepares for a leadership transition with Mexican President-elect Claudia Sheinbaum , who is expected to take a pragmatic approach to issues such as energy and trade, the upcoming U.S. presidential election could have a profound impact on U.S.-Mexico relations. Furthermore, the dynamics of U.S.-Mexico relations are increasingly viewed through the lens of the U.S.-China rivalry, particularly in economic and strategic areas. Decisions on the horizon will determine Mexico's geopolitical stance amid internal challenges and external pressures from these global powers. Mexico's strategic importance in North America continues to grow, underscored by its robust trade relations with the U.S. and its pivotal role in global supply chains. The recent shift toward nearshoring has enhanced Mexico's position as a critical hub for manufacturing and logistics, influencing everything from airfreight dynamics to broader economic policies. Significant investments in the logistics sector, such as those by UPS and Ryder, are expanding operational footprints, enabling firms to capitalize on closer production centers. This enhances airfreight efficiency by streamlining supply chains and reducing transit times, demonstrating the sector's adaptability and responsiveness to market demands.

Mexico’s Rise: Nearshoring, trade and impact on air freight and logistics

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