Nearshoring Boom Faces Growing Pains
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The escalation of nearshoring this year has brought an increased need to bolster infrastructure investments and supply chain operations, according to experts.
“The reality is nearshoring continues to grow,” said Ben Enriquez, head of Mexico logistics and customs at Uber Freight. “We estimate that between last year and this year, there are already 453 new companies that are in the process of relocating to Mexico. At the same time, there’s a lot of investment from companies that already have a footprint in Mexico.”
Uber Freight estimates imports from Mexico could increase by 30% or 40% over the next five years. Its data also showed that out of all the companies either expanding or moving operations into Mexico, about 80% of their cross-border moves are likely to run through Laredo, Texas.
“We’re seeing this as the start of the expansions,” Enriquez said. “Many of these companies are barely getting the land for construction of their manufacturing plants. Some of them are working on expanding their plants. These projects take a few years to get finalized.”
Trucks bound for Mexico wait at the Pharr Port of Entry in Texas. (Michael Gonzalez/Getty Images via Bloomberg News)
The Mexican government found in an economics report that foreign direct investments increased 41% year-over-year to $29 billion during the first half of 2023. The United States has contributed the most of any country to these investments at 43%.
“Trucking, I think, has had the bulk or the lion’s share, if you will, of the cross-border moves,” said TD Cowen analyst Jason Seidl. “I think we’re probably going to see rail win some market share over time. There has been a big pickup in some of the demand for cross-border LTL since Yellow’s demise and companies like TFI have been benefiting from that.”
Seidl is anticipating that nearshoring is going to have a multiyear runway for growth. He noted more investments at the border and ports are necessary to help the supply chain going forward.
“By investments in our ports, I mean, we need to bring them up to speed with technology so we can make them more efficient and cross-border, we need to create more facilities that can handle some of this traffic that’s going to be coming our way,” Seidl said. “So, absolutely, we need more and I think we’re going to get more. It just takes time.”
Enriquez echoed the point while adding that should include new warehouses in Laredo, Dallas and Houston since a lot of the cross-border freight flows through those areas. He also pointed to new highway projects around the Nuevo Leon region of Mexico.
“This will help alleviate some of the traffic,” Enriquez said. “But there are other things that the Mexican government needs to think of, such as electricity. You have to be able to not only supply but distribute electricity to all these manufacturing plants.”
C.H. Robinson has tackled the issue by expanding its operational presence on the border. The transportation and logistics company announced Sept. 11 that it had opened a new facility in Laredo to speed up cross-border movements for customers.
“Many global shippers are really diversifying their risk by moving closer to their customers and that’s the main point,” said Mike Burkhart, vice president for Mexico at C.H. Robinson. “We’re going to feel this along the entire southern border, so not just Laredo. But Laredo’s growth is more evident than anywhere else.”
C.H. Robinson's new facility covers 400,000 square feet and includes 150 dock doors and 700 trailer spaces. (C.H. Robinson)
C.H. Robinson data found that the city experienced a 20% increase in cross-border trade last year to $268 billion. This year has thus far been on track to see a similar year-over-year increase. The new facility was built to capture that activity as well as anticipated growth beyond that. It covers 400,000 square feet and includes 150 dock doors and 700 trailer spaces.
C.H. Robinson Worldwide ranks No. 1 on the Transport Topics Top 100 list of the largest logistics companies in North America.
Redwood Logistics released a report warning that nearshoring is causing a growing differential between domestic and cross-border trucking rates. The report identified rising diesel costs, a Mexican driver shortage, cargo theft and dollar-to-peso conversion depreciation as the main causes.
“The Mexican government needs to take major steps to make their highways safe,” said Jordan Dewart, president of Redwood Mexico. “Cargo theft is only part of the problem; unsafe highways lead to heavier traffic during daylight hours, less drivers willing to get behind the wheel and rising insurance costs.”
Dewart believes the company needs to work to shorten loading and unloading times as well as on and off times at intermodal ramps and ocean ports and reduced border-crossing times.
“In response to recent market shifts with the nearshoring trend, we’ve invested in establishing a substantial presence in Laredo, Texas, opening a new terminal several years ago,” said Ali Faghri, chief strategy officer at XPO. We’ve hired more people, including drivers and dockworkers, and bolstered our equipment inventory, adding trailers, dollies and forklifts. Additionally, we’ve established a driving school in Laredo.”
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