Nearshoring Trend Escalates for US Companies
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The turn toward nearshoring escalated this year, a trend that saw renewed interest during the coronavirus pandemic.
Nearshoring is the process of companies moving offshore operations to neighboring countries. Mexico has been a main focus for U.S. nearshoring efforts. The U.S. Census Bureau reported during the first quarter that Mexico surpassed China as the No. 1 trade partner at 16.1% of total trade.
“We are going to continue seeing this trade partnership grow,” said Ben Enriquez, head of Mexico logistics and customs at Uber Freight. “We’re going to see more companies coming in the next three to four years. So, I think this is the first year where things are coming to fruition and they’re starting to ramp up. But it’s just the beginning of something much bigger.”
The Uber Freight Q2 Market Update and Outlook Report found that more than 400 companies are expected to open businesses this year in Mexico. The country is also expected to see 25 new industrial parks, representing an investment of $25 billion, and $35 billion in new exports.
“We’re seeing that the number of companies that are moving here is increasing and they’re coming from all types of industries,” Enriquez said. “Once you can get a truck to the border you can get it to pretty much any point in the U.S. between four and five days.”
Laredo, Texas, has become a focal point of the nearshoring boom as a trade hub situated right on the border. RXO is one company that has targeted the city with the opening of a cross-border facility March 29.
“Our customers kept reiterating the importance of offering additional services at the border,” said Demetri Venetis, president of freight forwarding at RXO. “We listened and built a state-of-the-art facility in Laredo, Texas, which sits at the center of the nearshoring movement. Our 127,000-square-foot facility is a warehouse and distribution service site that helps our customers streamline their end-to-end supply chain operations.”
Venetis added the facility strategically positions the company to take advantage of the dramatic growth it has seen in cross-border volumes.
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“Omni is investing in our capabilities and infrastructure that serve the Mexican market,” said Jim Blaeser, chief procurement officer at Omni Logistics. “We currently have nine locations in Mexico supporting our clients with a large variety of logistics services in the market, including all modes of freight, import and export, as well as a variety of service levels ranging from expedited to economy. Likewise, we have invested in our U.S. border operations.”
Omni Logistics ranks No. 38 on the Transport Topics Top 100 list of the largest logistics companies in North America.
Total Quality Logistics (TQL) reported a 67% year-over-year increase in cross-border loads in 2022. The company noted Laredo had approximately 5.2 million total trailers cross the trade bridge with its forecasts expecting that to be surpassed in 2023.
“We’re having a lot of advisory conversations with shippers on how to navigate the Mexican logistics and customs environment,” said Richard Garza, executive sales director for Mexico cross-border operations at TQL. “Based on these conversations, I would tell you there is a wave of more manufacturers contemplating sizable investments in the country. Simply put, nearshoring is just getting started.”
TQL ranks No. 8 on the TT100 logistics list.
Garza doesn’t see the change as a trend but more as a defining change to the global supply chain. But he pointed out the pandemic merely fanned the flames of something that started in the 1990s.
“Locations in Mexico City and Monterrey are being scouted for BlueGrace Mexico, slated to open late 2023,” said Scott Schara, chief commercial officer at BlueGrace Logistics. “We’ll enable cross-border service offerings with a heavy focus on the CPG, automotive, electronics and appliances industries, eventually leaning into inter-Mexico transportation. BlueGrace’s nearshoring efforts are customer-led.”
BlueGrace ranks No. 73 on the TT100 logistics list.
Flexport found in a report April 27 that container throughput at Laredo reached a monthly record in March at 235,000 20-foot-equivalent units. But the report warned evidence for nearshoring is still murky. Chief Economist Phil Levy noted trade volumes swinging around so much that it’s hard to know what’s a real move and what’s just caught up in those fluctuations.
“Is there a clear message coming out of the data yet? No, there’s not,” Levy said. “Some suggestive things that maybe stuff is bubbling up. But it’s just going to take more time and more letting everything sort out and see what’s signal and what’s noise.”
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Circle Logistics has seen an increase in cross-border volumes that has been primarily in the automotive sector. But there is uncertainty whether that has been due to increased volumes overall or a greater market share gain.
“We’re seeing a rise in over-the-road movement from that,” said Karl Fillhouer, vice president of sales at Circle Logistics. “We’re seeing a lot more freight going from the U.S. into Mexico, into these plants, and then a lot more freight coming from those plants back across the border. I don’t know if it’s displaced rail freight or if it is truly a change in where we’re manufacturing goods.”
Circle Logistics ranks No. 84 on the TT100 logistics list.