Consultant’s Insight: Reshaping globalization through nearshoring

Thailand, Malaysia, Vietnam, India and Mexico are some of the gainers as the growth of nearshoring leads to reduced dependence on China. [caption id="attachment_69752" align="alignleft" width="235"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] However, SEKO Logistics Chief Executive James Gagne pointed out in a recent company update that “what we’re witnessing is not a collapse of globalization but more of a proper reshaping of it.” Gagne pointed out that the United States, for example, remains dependent on China for containerized goods, citing trade data that indicates 30% of U.S. containerized imports originated in China at the end of 2022. Gagne further said SEKO sees customers interested in “reducing dependence on China by 10% to 15% versus 50% or more.” While geopolitical issues are a concern to supply chains, shippers should consider additional points. For example, in a UPS Supply Chain Solutions webinar this week, Director of Carrier Sales for Mexico Alex Jennings highlighted other essential points for shippers to consider when evaluating nearshoring, including: Location of suppliers; Proximity to end receivers; Transit needs; and Transportation costs. Jennings shared that not only is nearshoring occurring, so is nearsourcing. He defined nearshoring as relocating entire production lines from overseas and from the U.S. to Mexico, and nearsourcing as manufacturing overseas and utilizing Mexico for fulfillment and distribution. Mexico’s manufacturing exports increasing While there is no direct evidence of nearshoring or nearsourcing to Mexico, according to the UPS Supply Chain Solutions webinar, Mexico’s total manufacturing exports have steadily increased year over year since 2016, up 6.3%. In addition, growth boosted by federal direct investments has reached $35 billion. U.S.-Mexico trade, in terms of the value of goods, is up almost 8% year to date through March, based on U.S. Bureau of Transportation statistics. It is commentary that has sparked the possible growth in nearshoring and nearsourcing in Mexico. For example, in a case study shared during the UPS Supply Chain Solutions webinar, Jennings said a customer that shifted manufacturing to Mexico reduced its fulfillment and labor costs by 76%, fulfillment costs by 53% and tariffs on goods by 82%. “Those markets along the [U.S.-Mexico] border are literally on fire,” Hamid Moghadam, chief executive of property management firm Prologis , said on an analyst call last month. “There is no vacancy, and we're seeing a lot of nearshoring happening there as sort of a diversification move.” Moghadam also mentioned Asia, saying, “We’re also seeing some of the China manufacturing bleed out to the rest of Southeast Asia, but we’re not really active in those smaller markets, but we do see that. And it’s moving west in China, and it’s moving to other areas in Southeast Asia. But Mexico is the big story here.” Whether it is a new trend or expansion of an existing one thanks to agreements such as the United States-Mexico-Canada Agreement, carriers and providers are preparing, just in case. Rail operator Canadian Pacific ’s acquisition of Kansas City Southern , which offers rail service to Mexico’s Port of Lazaro Cardenas, and logistics providers Redwood Logistics and BlueGrace demonstrate the potential of nearshoring and nearsourcing.

Consultant’s Insight: Reshaping globalization through nearshoring

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