6 minutes

Dennis Katsnelson

Experts in trade predict that Mexico's strong currency, inadequate infrastructure, and freight capacity may cause problems in 2019. More manufacturing is being drawn to Mexico thanks to nearshoring, as shippers seek out supply chains that are more convenient, less expensive, and supportive of doing business with the United States.

According to the U.S. Census Bureau, Mexico has been the top trading partner of the United States since the beginning of 2023, with $397 billion in two-way commerce from January through June. China ranked third at $276 billion over the same period, while Canada ranked second at $388 billion.

"In recent years, we've already seen a positive increase in Mexico's nearshoring, especially from businesses that already have production facilities there. As a result, there has been an increase in freight flow into and out of the United States, according to Ed Habe, vice president of sales for Averitt Express, a cross-border LTL carrier, who spoke with Newjob4you.

According to a recent Morgan Stanley analysis titled "Mexico Is Poised to Ride the Nearshoring Wave," nearshoring has the potential to significantly accelerate the development of Mexican manufacturing exports to the United States, from $455 billion currently to an expected $609 billion over the next five years.

A company that uses nearshoring as a business strategy moves part or all of its supply chain activities to a location that is closer to its final market. The decision by carmaker Tesla to establish a $5 billion electric vehicle plant in the city of Monterrey, northern Mexico, has been the largest single investment to date. The facility is expected to open in 2025, having been announced in February.

According to Nikolaj Lippmann, an equities analyst at Morgan Stanley Research, "We think the path will be via Mexico if U.S. manufacturing is to be less dependent on China." "It is anticipated that nearshoring will be a protracted competition that could contribute to the creation of new ecosystems in Mexico's current manufacturing centers."

According to Habe and other Mexican trade experts, Mexico has to hire more truck drivers, strengthen highway security and commercial transportation infrastructure, and resolve outstanding trade issues with the United States to stay ahead of the race. The construction of more manufacturing facilities in Mexico will be the next stage of nearshoring, which might limit the capacity of equipment, according to Habe.

"I think there will be more investments made in the future to increase the amount of freight moving between the United States and Mexico," he stated. Shippers must anticipate when capacity could become limited in the upcoming market cycle if they want to profit from Mexico's nearshoring boom. According to Jordan Dewart, president of 3PL Redwood Mexico, "Mexico still uses a trust- and relationship-based style of doing business; building those ties is critical to success versus rate shopping."

Jorge Canavati, a principal of J. Canavati & Co., a San Antonio-based business that offers international logistics and trade consultancy, was also interviewed by Newjob4you in addition to Habe and Dewart.

Capacity could tighten dramatically in 2024

According to both Dewart and Habe, there will be less room for trucks and trailers in the upcoming year, therefore, it will be beneficial to establish new carrier partnerships now to have more possibilities for shipping down the road.

The numerous plant expansions and new facilities emerging throughout Mexico may be the primary reasons for reduced capacity in the upcoming year. Many auto suppliers declared they would construct production facilities in the nation to supply parts to the electric vehicle manufacturer after Tesla revealed that its newest facility will be located in Monterrey.

"Due to the imbalance of freight moving north versus south, trailer capacity will continue to be an issue," stated Habe, whose company, a freight transportation and supply chain service provider based in Cookeville, Tennessee, specializes in LTL, truckload, dedicated, distribution, and fulfillment services.

"The truth is that nearshoring has been taking place in Mexico since the 1960s," stated Habe. There has been heat and cold over the years. It is so hot right now. However, this will be a long-term trend, if not a permanent one. Numerous businesses are being prompted by this to reevaluate their present cross-border operations and investigate other options, such as the distribution of LTL pools at borders, via rail, and even by sea.

Shippers should present a variety of shipping alternatives and maintain as much flexibility as possible, according to Dewart. "We like to say you want more than one bullet in your gun," Dewart stated. Examples of this include using several border crossings, increasing trans-loading possibilities, and employing carriers with B1 drivers. Redwood Mexico is a division of Redwood Logistics, a 3PL located in Chicago. In an effort to reach more businesses and their nearshoring initiatives in the nation, Redwood Mexico doubled its team and relocated to new premises in Monterrey in April.

According to Dewart, capacity demand will be enormous, and cross-border prices will surge after reaching a critical point in 2024.

The enormous investments in plant expansions and new plant building that will start to come online next year, along with the anticipated recovery of the US economy in 2024, will continue to drive shipping volumes, according to Dewart. "Mexican airlines have the same driver shortage problems as U.S. carriers, but they need to grow their fleets actively. Rates will undoubtedly increase since supply cannot keep up with demand. The carrier market will be worse than it was during COVID-19.