Nearshoring could be having its moment following the election of former Mexico City mayor Claudia Sheinbaum as the country’s next president.
As a physicist, Sheinbaum, 61, was also part of the United Nations climate team that in 2007 received a Nobel Peace Prize. Some believe Sheinbaum has the understanding needed to implement the strategies required to deepen the country’s commitment to sustainability. Those strategies include renewable energy and water management, as well as investment in industrial parks. Investments in the latter would include infrastructure to foster better regional transportation, a plan that’s sorely needed to spur more nearshoring activities.
Related Stories
For the last two years, S&P Global Ratings lead economist for Latin America Elijah Oliveros led studies on how nearshoring is gaining traction in Mexico. He noted that its proximity and access to the U.S. market makes it a obvious potential beneficiary for trade. But infrastructure is still considered inadequate in many parts of the country, whether due to supply of water and energy, or security-related concerns, not to mention the need for a transportation network for freight deliveries and even passenger trains for workers in their daily commute. Recent construction of industrial parks and warehousing in northern Mexico in Nuevo Leon suggested that some shift in production is taking place. The north and some center parts of the country contain already established supply chains. The big questions center on future investment and establishing manufacturing hubs elsewhere within Mexico.
Sheinbaum is the protégé of outgoing president Andrés Manuel López Obrador. While she takes office on Oct. 1, Mexico’s new congress start their terms on Sept. 1. That could give the outgoing López Obrador time to push through a reform agenda that’s considered controversial due to fiscal costs and questions over how to sustainably fund the new initiatives, according to Morgan Stanley Latin American economist Fernando D. Sedano. He added that the pressure on public spending could be on the rise, noting that Mexico’s electricity sector is in need of an upgrade and is key for the nearshoring narrative to play out.
“We are halfway through our first wave of nearshoring,” Sedano said. “Any future waves would require the establishment of new, more strategic manufacturing ecosystems in IT hardware, batteries and renewable energy, and investors are likely to wait for policy certainty as it pertains to key infrastructure and longer-term policy alignment with key partners.”
A post on the U.S. Chamber of Commerce on Monday noted that Mexico has surpassed China as the biggest exporter to the U.S. In October, it published a supply chain and nearshoring report indicating that half of U.S. firms not currently manufacturing in Mexico, South America, or Central America and the Caribbean are planning to move into the region “within the next five years.”
Monday’s post also noted that the Morena party—Movement of National Regeneration, which counts as members Sheinbaum and López Obrador—also secured wins in congress, state governorships and legislatures and municipalities. While Morena gained a two-thirds “supermajority” in the house but fell short in the senate, the post said the shortfall is small enough that Sheinbaum will be in a position to negotiate deals with opposition members to push through some key reforms.
Jorge Gonzalez Henrichsen, co-CEO of outsourcing firm The Nearshore Co., said nearshoring could benefit from a Sheinbaum administration because she “may not feel compelled to play politics, but rather focus on ‘getting things done.'” HIs firm helps firms transfer their manufacturing operations into Mexico.
“When it comes to nearshoring, what ‘getting things done’ means is: build infrastructure, allow private investment in the energy sector, raise the level of education in public education, [and] promote the rule of law,” Henrichsen explained.
For now, logistics firms are taking the lead on U.S.-Mexico nearshoring. Earlier this year, transportation and supply chain management services provider Echo Global Logistics has established a boots-on the-ground operation in Mexico City, in addition to Monterrey and Laredo, Tex. The move marks the first time the company will invest in local offices and personnel. It joins U.S.-based logistics provider Ryder System Inc., which expanded its Nuevo Laredo drayage yard—it now has about 5 million square feet of multi-client and dedicated warehouse and yard space—earlier this year to facilitate the transfer of freight across the border to U.S. drivers.
Separately, shipping firm Maersk has been connecting Mexico’s businesses with the global markets since 1994. The company, which has an office in Mexico City, offers regular sailings from five Mexican ports: Altamira, Lazaro Cardenas, Manzanillo, Progreso, and Veracruz. Earlier this year, it opened a 323,000-square-foot warehouse in Tijuana, a facility that provides services such as sorting, storage, cross-docking, and inventory management, as well as add-on services that include labelling, re-packaging and order fulfillment.
