Shipping from and to Mexico: Topics, Trends and Insights
Cross-border trade between Mexico and the U.S. is a big topic on freight transportation and part of the influence these two countries have with nearshoring. Maximizing efficiency in cross-border manufacturing supply chains when nearshoring in Mexico is essential to growth in the transportation industry. To achieve greatness in the transportation sector it is important to continu expanding the network of warehouses and distribution centers, businesses can help while serving the North American market via Mexico. This approach highlights how flexibility and agility are becoming crucial for a resilient supply chain. Maximizing efficiency in cross-border manufacturing supply chains when nearshoring in Mexico
Reshoring on the U.S. vs Nearshoring Mexico
Nearshoring and reshoring are two strategies for managing supply chains. Nearshoring aims to bring supply chains closer to a region rather than a specific country. This region must meet certain criteria: the countries must be geographically close, have strong political ties, and be commercial allies. Close relationships are key. In contrast, reshoring involves bringing supply chains back to a specific country.
For Mexico, nearshoring is a promising opportunity. It could lead to greater integration with North America, resulting in increased trade with the United States and Canada, more knowledge and skill exchanges, and improvements in Mexico’s productive capabilities through modernization. If nearshoring is fully realized, it could provide Mexico with an economic boost similar to what occurred after the North American Free Trade Agreement (NAFTA) in 1994.
While nearshoring has attracted new companies to Mexico, experts are worried about the increasing trend of American companies moving back to the U.S. They note that although new firms coming to Mexico could balance out the loss, this situation still presents an extra challenge for Mexico’s economic growth. Understanding the position of Mexico in the first wave of nearshoring can give us a clear picture of how the situation will look like.
In 2023, Nuevo Leon and Aguascalientes saw negative Foreign Direct Investment (FDI) from the United States, with losses of $117 million and $71.1 million, respectively. This is notable for Nuevo Leon, which usually attracts high U.S. investments. In contrast, no negative FDI from the U.S. was reported in any Mexican region in 2022. Experts believe this decline might be due to U.S. companies moving operations back home (reshoring).
One major reason American companies are moving their business back to the U.S. is the drastic increase in transportation costs between Mexico and the U.S. over the past few months. For instance, shipping a standard pallet of cargo weighing 500 pounds from Houston, Texas, to San Luis Potosi, Mexico, has become significantly more expensive than it was a year ago. A few things to take into consideration of the shipping costs rising rapidly due to various factors include:
- The shipping provider’s rates
- The origin and destination of the shipment
- The cargo’s size, value, and nature
- The mode of transportation
However, Mexico has seen some encouraging results with nearshoring. In 2023, foreign direct investment (FDI) related to nearshoring surged by 93% compared to 2022, especially in sectors like automotive production, and semiconductors, which are connected to global value supply chains. Investment in automobile and truck manufacturing, the largest nearshoring sector in Mexico, grew by 72%. In the economic sector, there are regional clusters in Mexico that correlate with economic growth.
Trends of Exports and Imports between Mexico, the U.S. and Canada
Three decades after NAFTA and over three years since USMCA, Mexico’s trade and investment ties with Canada and the United States are crucial for its economic growth, industrial development, and job creation. Mexico can enhance its growth and development by becoming a top investment destination in North America, attracting firms relocating to the region. United States imports from Mexico have increased significantly in the past decade, overtaking the value of imports from Canada.
Several factors have created nearshoring opportunities for Mexico. Companies are moving their production to Mexico for strategic reasons, including duty-free access to the U.S. market. In 2021, U.S. Commerce Secretary Gina Raimondo emphasized that Mexico is a critical ally and a top destination for U.S. exports. She highlighted the importance of leveraging this partnership to rebuild from the pandemic and strengthen regional supply chains.
Impact of the Elections in Mexico and the U.S. on the Freight Industry
The cross-border trade between Mexico and the U.S. has shown an increase. In 2023, it grew by 10%, and U.S. land imports from Mexico are expected to stay strong. This growth may likely be due to the upcoming U.S. election and possible changes in trade policy, it is mainly due to shippers wanting to reduce supply chain risks associated with distant operations. Mitigating risk and variability, alongside growth and cost reduction, is essential for any successful business. In the Biden administration’s the nearshoring strategy aims to create diversified and resilient supply chains, further supporting this trend.
In 2024, Mexico is holding a federal election. Given its status as a trading partner and neighbor to the US, events in Mexico carry weighty implications for its northern neighbor. This year holds particular importance for the established trade dynamics and evolving financial landscape. Mexico stands poised to potentially elect its inaugural female President, while border disputes persist as a prominent concern. The outcome of Mexico’s 2024 election could wield substantial influence over trade relations, contingent upon the unfolding scenarios.
The 2024 US elections are expected to disrupt supply chains, especially affecting cross-border trade and commodity flows. Here are the key points:
- Mexico’s Trade Surge: Mexico has surpassed China as the top exporter to the US.
- USMCA’s Future: Everyone is watching the upcoming 2026 review of the USMCA, which was negotiated during Trump’s presidency.
- Stalled Senate Bill: A bipartisan border bill is on hold until after the election.
The discourse on shipping between Mexico and its North American counterparts, reflects a dynamic landscape shaped by evolving trade policies, economic strategies, and political events. The trend towards nearshoring, driven by factors such as risk mitigation and cost reduction, underscores the importance of flexibility and agility in supply chain management. Mexico’s potential as a nearshoring destination presents opportunities for enhanced regional integration and economic growth, yet challenges persist, including concerns about reshoring and fluctuations in foreign direct investment.
Against this backdrop, the upcoming elections in both Mexico and the United States loom large, with implications extending beyond domestic politics to the realm of trade relations. Meanwhile, the anticipated disruptions stemming from the 2024 US elections raise further questions about the future of trade dynamics, emphasizing the need for resilience and adaptability in the freight industry. In navigating these challenges, stakeholders must remain vigilant, responsive, and collaborative to safeguard the integrity and efficiency of cross-border trade between Mexico and its North American neighbors.
