According to The World Bank, by 2015 manufacturing in China will cost as much as manufacturing in the United States. This leaves many companies uncertain about the future of their operations in China due to the negative impact on profitability. This impending development has brought nearshoring to the limelight for many organizations.
As China’s wages and fuel costs rise, nearshoring surges in popularity. As U.S. shippers look to save on costs, the prospect of nearshoring manufacturing to Mexico and Central America offers both lower operating costs and reduced transit times to U.S. markets. Beyond simply lowering freight costs, manufacturers that include Mexico in their supply chains stand to achieve other operational improvements such as faster time to market, lowered inventory costs, and fewer supply disruptions.
In addition to these factors, manufacturing in Mexico and Central America can be superior in other ways, including a well-educated work force, consistent quality control, and numerous trade agreement benefits.
Despite all of these advantages, nearshoring to Mexico is not without challenges. While the Mexican government continues to make large strides to develop the transportation infrastructure throughout the country, it is still lacking in comparison to many other industrialized nations. Other challenges include the lack of security and complex customs regulations.
When considering nearshoring, it’s essential to evaluate your supply chain’s current state and your future goals. If the challenges of nearshoring seem to outweigh any long-term benefits, there are steps you can take to tip the scales in the other direction.
Adapt. Natural disasters, along with economic, environmental, and social issues affect trade in Mexico. The fluid nature of Mexico requires the flexibility to quickly adapt as conditions change. Build in the flexibility you need to overcome these types of events that can disrupt your supply chain:
- Work with trusted providers that understand Mexico’s differences.
- Plan carefully and create multiple contingency plans.
- Use technology to gather data and improve supply chain visibility.
Consolidate. Minimize risk at the border using consolidation. Often, less than truckload (LTL) shipments in Mexico are regionalized, more expensive, and have longer transit times due to Mexico customs regulations. Consolidation limits touch points, streamlines accountability, and addresses freight location issues for a smoother, more visible border-crossing experience.
Learn. Facilitate the flow of cross-border freight by learning the security implications of government programs such as C-PAT. Whether the expertise to navigate U.S. Customs and Border Protection (CBP) security requirements is available internally or through an outsource solution, this understanding is critical for a seamless customs experience.
As said before, uncertainty is present in today’s global market—both for the future of manufacturing in China and Mexico. Nearshoring is one option for the anticipated changing market conditions. Whatever your decision—to continue manufacturing in China or nearshore to Mexico—be sure to build your strategy with the necessary safeguards to prepare for whatever the future may hold.
Mike Burkhart has been the Director of Mexico for C.H. Robinson since 2012 and has served in increasingly responsible roles over his 17-year tenure, beginning with sales in San Diego. As produce manager of the perishable operation in Mexico City, he imported U.S. and South American produce for Mexican retail distribution, and developed key Mexican grower relationships for northbound produce distribution in the U.S. and Canada. He also opened the company’s office in Queretaro, Mexico; helped develop C.H. Robinson’s infrastructure in Laredo, TX; and acted as general manager in Plano, TX, before assuming his current role.