The Future of Nearshoring in Mexico

Logistics

The Future of Nearshoring in Mexico

10 May, 2024• Logistics, Nearshoring

The landscape of nearshoring in Mexico is at a critical juncture, influenced by two momentous political events: the 2024 Mexican presidential elections and the 2024 U.S. presidential elections. The outcome of these elections could have a significant impact on Mexico’s attractiveness as a destination for the relocation of production operations.

A Complex Scenario of Variables:

Analyzing the future of nearshoring in Mexico involves understanding the complex interplay of variables emanating from both electoral processes.

On the one hand, the elections in Mexico will define the government’s direction in terms of public policies that directly impact nearshoring. A government favorable to foreign investment, modern infrastructure, and streamlined customs processes could generate a climate of stability and confidence, attracting companies interested in relocating.

On the other hand, the outcome of the U.S. elections will also play a fundamental role. A U.S. government that promotes free trade, regulatory collaboration, and reduced migration tensions could create a favorable environment for nearshoring in Mexico. However, an opposite scenario, with protectionist policies, increased migration tensions, or a weakened U.S. dollar, could generate uncertainty and discourage foreign investment.

Beyond the Election Results:

It is important to note that the future of nearshoring in Mexico is not solely dependent on the election results. The country’s competitiveness as a nearshoring destination will also be determined by factors such as:

  • Infrastructure quality: Efficient roads, ports, airports, and telecommunications networks are essential for the logistics and competitiveness of the manufacturing sector.
  • Human capital: A qualified, adaptable workforce with the skills needed for the industries seeking to relocate is a key attraction factor.
  • Regulatory framework: A transparent, predictable legal framework that facilitates investment and trade is essential to build investor confidence.
  • Collaboration between the public and private sectors: Close collaboration between both sectors will be crucial to identify opportunities, design strategies, and overcome obstacles to the development of nearshoring.

Ultimately, the future of nearshoring in Mexico presents a complex and challenging landscape, but also one full of opportunities. The country’s ability to navigate uncertainty, strengthen its competitiveness, and seize the opportunities that arise from the political scenarios will be crucial to consolidate itself as an attractive destination for the relocation of production operations and economic growth.

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US-Mexico Cross-Border Trade Reaches New Heights

2 April, 2024• Economy, Logistics

In a significant turn of events, Mexico has once again emerged as the top trading partner of the United States, surpassing both Canada and China for the year. Trade between the U.S. and Mexico saw a notable 2.5% year-over-year surge, soaring to a staggering $798 billion in 2023. This surge was largely fueled by a remarkable increase in exports of gasoline and other fuels, alongside a surge in imports of passenger vehicles.

Meanwhile, bilateral trade between the U.S. and Canada experienced a slight dip, totaling $773.94 billion, marking a 2.37% decrease from the previous year. On the other hand, China ranked third, and witnessed a significant decline in trade by 16.73% year-over-year, amounting to $575.03 billion.

At the forefront of international trade gateways in the U.S. stood the port of entry in Laredo, Texas, boasting a remarkable total trade value of $320 billion. Remarkably, this marked the first time Laredo clinched the top spot as the nation’s premier trade port for the year.

Laredo’s dominance in cross-border commerce was primarily attributed to its robust trade with Mexico, which tallied an impressive $312 billion in 2023. China secured the second spot for trade through Laredo, although with a significantly lower figure of $1.8 billion.

Experts attribute Mexico’s ascendancy in global trade to the burgeoning trend of nearshoring south of the border, particularly against the backdrop of strained U.S.-China trade relations. The expansion of Mexico’s manufacturing base has emerged as a compelling alternative to production in China, driving increased regional trade and nearshoring activities.

Despite Mexico’s triumphant position as the top U.S. trading partner for the majority of 2023, Canada managed to reclaim the throne in December, boasting trade totaling $61.1 billion. Mexico followed closely behind at $60.4 billion, with China rounding out the top three at $46.1 billion. Throughout the year, the port of entry in Laredo maintained its steadfast position as the premier international trade gateway in the U.S. December saw Laredo’s total commerce soar to $24.4 billion, reinforcing its pivotal role in facilitating trade between the U.S. and Mexico.

The cross-border trade between the U.S. and Mexico underscores the enduring significance of their economic relationship. With millions of cargo trucks crossing the border annually and key ports facilitating substantial trade flows, the symbiotic trade ties between the two nations continue to thrive and evolve.

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The Importance of a Balanced Strategy

26 March, 2024• Economy, Logistics

In the business world, growth is often seen as a sign of success. However, what happens when that growth is too fast and uncontrolled? Is accelerated growth always the best option?

For many transportation companies, keeping trucks constantly moving is crucial for profitability. But with operating costs on the rise, this approach can be unsustainable. Rapid expansion can bring many challenges, from pressure on staff to increased operating costs and potential safety lapses.

The problem arises when a company grows too quickly for its internal infrastructure. Important aspects such as truck maintenance and driver safety can go overlooked amid rapid growth. This can have negative implications for the safety and reputation of the company.

The key to successful growth is a balanced and deliberate approach. Rather than pursuing growth at all costs, companies should focus on sustainable growth that allows them to maintain and improve their internal infrastructure. This may involve hiring additional staff, implementing automation tools, and paying greater attention to risk management.

A company’s long-term success is not solely measured by its size but by its ability to grow sustainably. By adopting a more strategic and balanced approach to growth, companies can mitigate the risks associated with rapid expansion and ensure healthy and sustainable growth in the long term.

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The 2024 Presidential Elections and Supply Chains

19 March, 2024• Economy, Logistics

As the 2024 presidential election approaches, businesses are bracing themselves for potential disruptions to supply chains. With global disruptions already putting stress on U.S. supply chains in the first two months of the year, the looming election adds another layer of uncertainty to the economic landscape.

Predicting the specific impacts of an election on supply chains is challenging due to the complex interplay of various factors. However, historical data can provide insights into potential trends. For example, the election of Donald Trump in 2016 led to increased uncertainty in trade policies, causing businesses to delay investments and stock up on inventory temporarily. Similarly, the trade war between the U.S. and China during the Trump administration contributed to disruptions.

Trade policy is one area where presidential candidates typically have distinct stances, including on trade agreements, tariffs, and foreign relations. Changes in these policies can significantly affect the cost and flow of goods imported and exported from the U.S. Additionally, infrastructure upgrades, regulations, and labor laws can impact transportation efficiency, production costs, and overall supply chain efficiency.

Furthermore, election outcomes can influence consumer confidence and spending patterns, affecting demand for goods and potentially causing temporary disruptions in specific sectors. Immigration policies may exacerbate existing labor shortages, particularly in warehouses.

While the exact nature and extent of the impact of the 2024 election on supply chains remain uncertain, businesses should stay informed about candidates’ platforms and potential policy changes. Additionally, considering other factors influencing the supply chain landscape and utilizing risk management solutions, digital twins, and simulation tools can help businesses better prepare for potential outcomes and mitigate risks. Ultimately, businesses must remain agile and adaptable in navigating the evolving economic and political environment.

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8 Steps to Importing from China to Mexico

27 February, 2024• Economy, Logistics

Importing goods from China to Mexico can be a lucrative venture for businesses looking to diversify their offerings or tap into new markets. However, navigating the complexities of international trade requires careful planning and execution. To help streamline the process, here are eight steps to streamline your business venture. 

Step 1: Check Trade Laws

Ensure compliance with current regulations and restrictions for both exporting from China and importing to Mexico. Stay informed about changes in policies and identify necessary documents for smooth customs clearance.

Step 2: Decide What to Import

Research the demand for your products in Mexico and assess potential profitability. Consider market trends and customer preferences to make informed decisions about your merchandise selection.

Step 3: Choose a Shipping Method

Select a shipping method based on the type, weight, and quantity of your products. Options may vary, so seek recommendations if needed to ensure efficient transportation.

Step 4: Find a Supplier

Establish relationships with Chinese suppliers that offer quality goods aligned with your business needs. Utilize various methods such as online platforms, business fairs, or sourcing companies to connect with reliable suppliers.

Step 5: Estimate Tax Liability

Anticipate taxes and fees, including the 16% value-added tax applied by Mexican customs. Stay informed about trade regulations to avoid unexpected expenses and ensure compliance.

Step 6: Define Incoterms

Familiarize yourself with Incoterms to clarify responsibilities and liabilities between buyers and sellers during international transactions. Define terms related to payments, insurance, and customs procedures.

Step 7: Customs Clearance

Understand the stages of customs clearance, including information entry, declaration, assessment, permit acquisition, cost payment, warehousing, and goods exit. Ensure thorough preparation to expedite the clearance process.

Step 8: Hire a Freight Forwarder

Engage a reputable freight forwarder with experience in international shipping to manage transportation logistics. Benefit from professional assistance in handling inventory from factory to final destination.

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China’s Export Boom to the US Despite Economic Challenges

21 February, 2024• Economy, Logistics

In an interesting turn of events, the trade landscape between China and the United States presents a paradox: while China grapples with a series of economic challenges, including dwindling consumer confidence and a turbulent stock market, the volume of ocean container freight flowing from China to the US is surging, reaching its highest levels since May 2022.

The surge in shipments can partly be attributed to the customary pre-Chinese New Year rush, during which factories in China expedite the movement of goods to ports before the holiday hiatus. However, this year’s peak transcends the typical patterns seen in previous years, with container volumes steadily mounting despite the backdrop of economic uncertainty in China.

China’s manufacturing sector, as reflected in the Purchasing Managers’ Index, has contracted for the fourth consecutive month, signaling a downturn in industrial activity. Compounding these woes, the liquidation proceedings of Evergrande, one of China’s largest property developers, loom large, with significant debts overshadowing its assets. Moreover, Chinese stocks have witnessed a downward spiral, with major indices experiencing substantial declines over the past year.

Against this backdrop, the question arises: Why is the port of Shanghai, among others, witnessing an unprecedented surge in shipping volumes despite China’s sluggish GDP growth, which hit a 21st-century low of 5.3% in 2023?

It appears that rather than being driven by a resurgence in China’s manufacturing prowess, the surge in shipping volumes is propelled by the robust demand from US importers. Inventory levels in the US have depleted significantly, with inventory-to-sales ratios falling below pre-pandemic levels. Simultaneously, retail sales in the US have exceeded expectations, indicating strong consumer demand.

The months ahead are poised to be favorable for US ports, particularly those on the West Coast. Low inventory levels coupled with robust economic growth necessitate the swift movement of goods, tightening transportation capacity and leading to increased freight rates.

However, global supply chains face additional challenges stemming from geopolitical tensions. Attacks in the Red Sea have disrupted international shipping routes, compelling vessels to circumvent the Suez Canal, thus prolonging transit times and reducing available container ship capacity. These disruptions, coinciding with heightened shipping volumes from China, have propelled spot rates on the trans-Pacific route to record highs.

Commenting on the impact of these disruptions, Dave Bozeman, CEO of C.H. Robinson, highlighted the strain on global supply chains and the resultant escalation in container rates. With the Red Sea crisis showing no signs of abating, the strain on capacity and elevated spot rates are expected to persist, at least in the near term.

Data from the Port of Los Angeles further corroborates the surge in container volumes, with TEU volumes in Week 6 registering a substantial increase compared to the previous year.

So, while China grapples with economic headwinds, its role as a key driver of global trade remains unyielding. The surge in container shipments to the US underscores the resilience of trade dynamics amid challenging times, albeit with complexities and disruptions that necessitate agile responses from stakeholders across the supply chain.

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How Imports from Mexico Are Winning Super Bowl Sunday

14 February, 2024• Economy, Logistics

With the buzz from Sunday’s Super Bowl LVIII lingering, we want to take a moment to shed some light on the real stars of game day (No, not the four-time Super Bowl Champions, the Kansas City Chiefs), the food. More specifically, avocados and beer from Mexico. While millions of viewers across the nation sat down for the showdown between Kansas City and San Francisco, the journey of these beloved party staples from Mexican farms to American living rooms is a story worth celebrating.

The Super Bowl isn’t just a game; it’s a cultural phenomenon with an entire food culture standing beside it. According to the National Retail Federation, Americans are projected to spend a staggering $17.3 billion on Super Bowl-related expenses this year alone, a testament to the magnitude of this event. Behind the scenes, a complex supply chain ensures everything from chicken wings to avocados arrives on time and in abundance.

Avocado consumption, particularly for guacamole, skyrockets during Super Bowl Sunday, with estimates suggesting that the game accounts for approximately 20% of annual avocado sales in the United States. Mexico, the world’s largest avocado producer, plays a pivotal role in meeting this demand, supplying 81% of avocados consumed in the U.S. In the weeks leading up to the big game, over 6,000 truckloads of avocados make their way across the border, with Texas ports of entry in Laredo and Pharr serving as crucial gateways.

Similarly, Mexican beer has become a fan favorite for Super Bowl celebrations. With annual exports totaling around $5 billion, brands like Modelo Especial and Corona have become synonymous with game day. Modelo Especial, in particular, made headlines in mid-2023 when it surpassed Bud Light as the top-selling beer in the U.S. market. From the bustling port of Eagle Pass, Texas, millions of cases of Mexican beer make their way to eager consumers, solidifying their status as must-have beverages for Super Bowl Sunday.

According to Instacart’s “Snacktime Report: The Big Game Cravings,” Modelo Especial and Corona Extra rank among the top 10 most popular beers on game day, underscoring their enduring appeal among football fans nationwide. 
From the avocado farms of Michoacán to the breweries of Mexico City, these imports from south of the border add an extra layer of flavor and festivity to America’s biggest sporting event. So, when you sit down and cheer on your favorite team, take a moment to appreciate the journey of your snacks and raise a glass to the flavors of Mexico that every year make Super Bowl Sunday a fiesta to remember.

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Key Trends in Shipping in 2024

23 January, 2024• Logistics, Nearshoring

In a world of constant motion, the shipping and logistics sector faces a time of rapid transformation. Looking ahead to 2024, six trends emerge that completely reshape how we conceive and execute global shipments. From digitization to sustainability, these trends will not only overhaul the movement of products but also shape the future of the entire industry.

For 2024, these six pivotal trends will set the course:

1. Digitization: Both major shipping companies and small firms are embracing digital practices. This streamlines shipment tracking and reduces paper usage.

2. Economy: Despite positive signs, concerns persist about inflation and soaring fuel costs, impacting shipping expenses.

3. Sustainability: With increasingly frequent natural disasters, the industry is moving toward cleaner fuels and measures to mitigate environmental impact.

4. Last-Mile Delivery: Major retailers like Walmart now take more control over their final deliveries, seeking faster options, and even exploring autonomous trucks!

5. Supply Chain Resilience: Post-pandemic, businesses seek flexibility and smarter strategies to manage risks in their supply chains.

6. Cybersecurity: With the rise in digitization, safeguarding information becomes crucial. Expect substantial investments to protect data.

These trends signify a fundamental shift in the industry, where adaptability will be essential to tackle economic and environmental challenges, ensuring that shipping operations keep moving forward!

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International Companies Triumph at Newest Mexico Airport: Flow, Efficiency, and Security

26 December, 2023• Logistics, Nearshoring

In a recent statement, Mathilde de Rocquigny, Director of Air France KLM Martinair Cargo in Mexico, expressed the benefits and operational efficiency experienced at the Felipe Angeles International Airport (AIFA). The relocation of cargo operations from the Mexico City International Airport (AICM) to AIFA, initiated in July 2023, has proven advantageous for both the airline and logistics companies.

Rocquigny highlighted the ample space provided by AIFA, which has streamlined tasks for cargo operations. Notably, the reduced traffic and improved loading and unloading processes contribute to a more efficient workflow compared to the previous scenario at AICM.

The director acknowledged the seamless transition, emphasizing that customers have adapted well to the change, and operational times have significantly improved. The presence of the Mexican Armed Forces at AIFA adds an extra layer of security, with Rocquigny praising the proficient management of the airport by the Secretariat of National Defense (Sedena).

Rocquigny expressed confidence that the airline industry will not witness abrupt changes affecting airport activities. The recent announcement of the restart of cargo flights to Guadalajara from Mexico City further solidifies the positive outlook, with each flight expected to transport around 80 tons of goods, predominantly fruits, and medicines. Besides KLM kanye companies will benefit from this enhanced efficiency and security measures.

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Elon Musk Secures Key Contracts for Rural Connectivity in Mexico

15 November, 2023• Logistics

Elon Musk, the South African entrepreneur and founder of SpaceX, has further solidified his presence in Mexico by securing two contracts in a bid by the Federal Electricity Commission (CFE) to provide satellite internet services through his unit, Starlink. This strategic move aims to address the need for more connectivity in rural areas of Mexico and marks a significant step in Musk’s foray into the telecommunications sector in the country.

Contracts and Challenges

Starlink Satellite Systems in Mexico has secured contracts extending until December 2026, with an estimated value ranging from 887.5 million to 1,775 million pesos. These contracts aim to provide low Earth orbit satellite backhaul connectivity services, along with the supply of necessary equipment to establish telecommunications infrastructure. The initiative falls under the CFE’s public internet and telephone access program, specifically targeting connectivity-deprived rural areas.

Despite being Elon Musk’s second business venture in Mexico, entering the telecommunications sector poses significant challenges. While over 25 million Mexicans lack internet access, satellite connectivity currently represents only 0.6% of connections in the country, according to data from the Federal Telecommunications Institute (IFT) as of March 2023. Competing with established companies such as Hughes, StarGo, and Viasat will not be easy.

Opportunities and Obstacles

The pricing of satellite internet packages will be a crucial factor in the competition. With prices starting from $999 per month, Starlink aims to stand out in a market where optical fiber is the dominant technology, representing 44% of fixed broadband connections in Mexico.

Jorge Bravo, President of the Mexican Association of Right to Information (Amedi), emphasizes the importance of the connection speed offered by Starlink due to its constellation of low Earth orbit satellites. Elon Musk’s presence adds an element, generating interest and attention in the nascent satellite connectivity industry in the country.

Challenges for the Mexican Government

While the entry of Starlink is perceived as a positive development, Bravo warns that the Mexican government must closely monitor the development of this model. He underscores the importance of a connectivity policy that considers the convergence of technologies, emphasizing the speed and efficiency of satellite connectivity, especially in rural areas or emergencies.

Elon Musk, who had previously announced substantial investments in Mexico with the future Tesla factory in Nuevo León, continues to view the country as fertile ground for his businesses. The arrival of Starlink not only highlights the importance of the satellite industry and raises questions about the government’s role in promoting new connectivity models.

Elon Musk and Starlink’s entry into the satellite internet market in Mexico promises renewed competition in the sector and the potential to improve connectivity in currently underserved areas.

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