A recently-issued report from San Francisco-based freight forwarding and customs brokerage services provider Flexport examined the inroads being made on nearshoring initiatives in Mexico through the lens of container throughput at the landlocked Laredo, Texas port, which sits between the United States and Mexico.
This “port,” Flexport observed, is the third-busiest in the U.S., following Long Beach and Newark, and is located more than 100 miles from the ocean, with most of its shipments passed through on trucks and trains without being offloaded, “as it is Laredo, Texas, or Nuevo Laredo, Tamaulipas, depending on which side of the border you sit on,” it said, while serving as what it called a major indicator that suggest a potential shift in trade flows.
The report observed that, for the month of March, container throughput at the Laredo port came in at a new monthly high, increasing by more than 30,000 TEU (Twenty-Foot Equivalent Units), to almost 235,000 TEU. What’s more, through the 12-month period, including March, Flexport noted that Laredo’s inbound volumes have “remained well-above that average for the past twelve months, culminating in the March spike…By contrast, total seaborne TEU into the U.S. were only up 6.6% month-on-month.”
Given the various mixed economic indicators abound, including thing cited by Flexport like tumultuous U.S. seaborne imports, resilient consumer spending, and wholesale and retail inventory levels, the company explained that Laredo’s rising volumes, while representing one piece of the puzzle, could be a temporary surge, with volumes returning to more historical levels.
While that remains unclear, Flexport did note that with shippers focused on supply chain integrity, in terms of proximity to end demand, a survey of U.S-based small and medium-sized businesses issued by Capterra found that 88% of its respondents intend to source in the U.S. or in close proximity to it.
Another point related to nearshoring it raised is that while the U.S. and other nations have taken long looks at nearshoring and onshoring, as a sourcing closer to home option, “it is debatable whether or not this is appropriate for achieving their specific aims,” while adding “it’s not debatable, however, that it is at least being attempted through various measures, including trade agreements, tariffs, and subsidies and tax breaks attached to content requirements. Supply chains are difficult to adjust. But most firms will take advantage of opportunities presented to them and when it comes to Mexico, they appear to see opportunities.”
Flexport Chief Economist Phil Levy explained that in order for shippers to buy in to getting shippers more actively involved in more nearshoring-focused efforts, from concept to taking action, that the push for near-shoring will be effective in getting shippers to consider nearby options.
“It won’t be sufficient in getting them to make costly adjustments in their sourcing,” said Levy. “For that to happen, they’ll need to like what they see. Key factors will include the state of infrastructure and ease of transactions.”
And while the numbers coming out of Laredo cited in the report are encouraging, when asked if it is a long-time coming-type of thing, for that region, or more of a byproduct of the pandemic, he said it is a bit of both, in that pandemic is one of them, as are the Section 301 tariffs and other legacy policies and new policies, like the Inflation Reduction Act.
As for whether the Mexico-based nearshoring push has staying power, Levy made it clear it is really is yet to be determined, as this pandemic-era economy has been comprised of wild swings and surprise shifts.
“We’ll have to see whether this trend is lasting,” he said. “Capacity constraints are going to become a real issue—only so many trucks can transit through a single point without an expansion. An important point to highlight here…is that proximity is not a guarantee of resilience. During the pandemic, certain supply chains were resilient because of distance, not despite it.”
As for the biggest Mexico-related supply chain and nearshoring opportunities, Levy said that data show that companies are finding opportunities in automotives, apparel, and lower-end consumer electronics.
“That is by no means an exhaustive list, however,” he said. “In Mexico’s March trade data, imports of capital goods were up 21.5%. That’s suggestive of a potential broader, ongoing expansion in manufacturing.”