Check the label on the products you buy. More and more of them now say, “Made in Mexico.”

Near-shoring of manufacturing and supportive services continue to escalate in Mexico. It seems not a week has passed without an announcement that another company is setting up operations with our neighboring country. About 88% of U.S.-based small and medium-sized businesses (SMBs) will reorganize their supply chains to leverage suppliers in the U.S. or Mexico in 2023, according to a recent survey from Gartner-owned consultant Capterra. Mexico also ranked as the United States’ top trading partner for the third consecutive month in February, with total trade increasing 8% year over year, to $60.6 billion, compared to the same period in 2022, according to census data analyzed by WorldCity.

Mexico’s Value Proposition

Among the factors fueling near-shoring to Mexico are supply chain disruptions, trade wars, languishing plants in China because of pandemic shutdowns, high shipping costs, mounting political uncertainties caused by the war in the Ukraine, and increasingly uncomfortable strains between the U.S. and China. Labor shortages in the U.S. are also influencing near-shoring activity, including an under-supply of workers in logistics and transportation.

Additionally, under President Joe Biden’s supply chain resilience plan, the U.S. identified four strategic sectors to mitigate supply chain risk: semi-conductor manufacturing and advanced packaging; high-capacity batteries; critical minerals and rare earth elements; and pharmaceuticals and active pharmaceutical ingredients (APIs). 

Offering to overcome global supply chain challenges, Mexico benefits from its geographic proximity to the United States, an abundance of human capital, a well-established export-oriented industrial sector, its inclusion in the U.S.-Canada-Mexico Agreement (USMCA) trade deal, and other factors. Of course, companies are also looking to Mexico to reduce shipping costs. A tremendous benefit of locating manufacturing in Mexico is its shared land border with the U.S. Almost 88% of U.S.-bound Mexican exports are transported by road to the U.S. During the pandemic, bilateral trade between Mexico and the U.S. largely by-passed seaborne port-related disruptions.

Give credit to Mexico for being aggressive, rolling out the red carpet to manufacturers in China, the United States, and other countries that also are considering other countries such as Vietnam, Thailand, Malaysia, and India. Throughout Mexico, regional organizations are striving to tout their locations as ideal for doing business. For example, the Tijuana Economic Development Corporation works hard to woo companies to its growing city bordering California, which touts more than 50 aerospace, 120 electronics, and 150 contract manufacturing companies operating there. But the South Texas border city of Laredo is the number one location among the nation’s 450 international gateways for trade in February per U.S. Census Bureau data, topping Chicago O’Hare International Airport and the Port of Los Angeles, which hold the number two and three spots respectively. About $800 million worth of products pass through Laredo daily.

Although near-shoring is thriving, Mexico is not fully seizing the opportunity. Mexican authorities need to promote the country as a safe place to invest, and provide stronger incentives for manufacturers. Currently, bordering cities boast more near-shoring business due to their closeness to the U.S., but the country needs to work to broaden its manufacturing base and labor pool to regions deeper into the country. Authorities also must strive to improve its highway system, such as the Monterrey-Nuevo Laredo highway, and provide better protection against cargo thieves.

Investments & Production Continue to Increase

Nonetheless, despite the country’s challenges, the escalation of near-shoring in Mexico is akin to a July wildfire. Last year, Mexico garnered more than $35 billion in foreign direct investment, a 12% increase over 2021. As an example, a group of investors from China, Taiwan, Japan, and South Korea recently pulled 44 factories, production lines and distribution centers from Asia to relocate and install them in Monterrey, Saltillo, Mexico City, Tijuana, Ciudad Juárez, and Guadalajara. Auto manufacturers Ford, Tesla, Audi and BMW have a major presence. Last year, toy maker Mattel Inc.’s largest manufacturing facility, with more than 3,500 workers, located in Monterrey, was expanded.

The development of integrated supply chains between Mexico and the U.S., which cover sectors such as manufacturing, automotive, aerospace, agriculture, and textiles, helped enable Mexico to retain its position as the second-largest U.S. trading partner in 2022.

Increased Cargo Giving Rise to Near-Shoring Logistics Support

The dramatic increase of manufacturing and subsequent rise in freight volume from Mexico to the U.S. is prompting the growing adoption of near-shore service providers for support services, including transportation and logistics services. Recently released data for February 2023 finds the top three U.S. imports from Mexico by value were motor vehicle parts, passenger vehicles, and commercial vehicles. According to U.S. Bureau of Transportation statistics, truck crossings from Mexico have continued steady growth since 2020, with 12,740,244 crossings in 2022 representing a 12.5% increase over 2019.

But not all increases are tied to manufacturing. AgriLife Today reports that fresh produce imports from Mexico to the U.S. will increase to 763,416 truckloads by 2030, or 29.2% above 2022 levels. Most loads will run through Texas ports, with imports expected to grow by 32.4% to 430,772 truckloads.

Organizations that want and need on-the-ground facilities and workers in Mexico are turning to knowledgeable and experienced near-shore providers to manage supply chains, particularly those with workforces proficient in Spanish and English.

For organizations seeking a near-shore logistics/transportation services partner, consider the following requirements:

• Experienced and reputable:  You want a partner who has the experience and knowledge to meet your requirements, but also to provide counsel on best practices. The reputation of your service provider is important when it comes to awarding transport and logistics contracts.
• Capable of end-to-end logistics chain management: Select a provider who understands and is experienced with managing the logistics of land, air, and maritime transport.
• Relies on secure technologies: The provider offers the experience and capabilities to help organizations optimize workflows to gain more efficiencies and, ultimately, provide better customer service.

While it may seem obvious that near-shore logistics providers are handling tasks such as track-and-trace, providers are also being tapped to manage much more including I.T., human resources and payroll, facilities management and much more.

Reaching the decision to adopt near-shore logistics services is often a by-product of executing the workforce optimization process in which people, processes, and technology are brought into strategic alignment. With the end goal to maximize customer experience and minimize operational costs, this process can be applied to almost any business function. This process may include sourcing talent from outside the organization to access more readily available, experienced talent at lower cost.

For organizations pivoting to manufacture in Mexico, it is an ideal time to engage in the workforce optimization process.

Robert Cadena is founder and chief executive officer of Lean Solutions Group.