Six Megatrends that will Shape Mexican Nearshoring in 2024
Mexican nearshoring – already a huge driver of business with enterprises in the United States — is poised to continue its meteoric rise in 2024. The nearshoring trend has already rocketed Mexico to the top spot among U.S. trading partners, generating nearly $400 billion in two-way trade in the first six months of 2023 alone.
As the demand for efficient manufacturing and streamlined supply chains continues to rise, we see several megatrends that are set to shape the nearshoring landscape this year. Let’s take a closer look at each, and the potential impact on driving the growth trend upward:
Infrastructure and Energy
One of the critical factors influencing Mexican nearshoring is the state of infrastructure and energy. Industrial parks are facing the challenge of upgrading power transmission lines and substations due to government underinvestment, increasing energy demand, and aging infrastructure. Unlike its fast-growing peers, Mexico’s approach to its electricity grid involves significant investments in federal power transmission lines. This approach, while addressing capacity issues, contrasts with incentivizing private energy contractors seen in other countries. The evolving dynamics of Mexico’s energy landscape will play a pivotal role in nearshoring decisions.
Commercial Transportation
To stay competitive, Mexico recognizes the need to enhance its commercial transportation infrastructure, bolster highway security, and address ongoing trade disputes, according to trade experts. The growth of nearshoring in Mexico necessitates proactive planning for potential capacity challenges in the next market cycle. As businesses increasingly turn to nearshoring, optimizing transportation networks and resolving trade issues with the U.S. become paramount for seamless operations.
Railroad Improvements
Railroad companies are strategically positioning themselves to capitalize on nearshoring trends. Investments in intermodal terminal capacity and the development of industrial parks are enhancing export/import services. Union Pacific, for instance, acknowledges the shift towards nearshoring as companies reassess their supply chains and has enhanced its investments south of the border. With a focus on providing access to major gateways on the southern border, railroad improvements are aligning with the trend of relocating manufacturing operations closer to key markets.
Global Competition and Security
Nearshoring is identified as a launchpad for exporters, enabling them to establish a foothold in lucrative markets, particularly the United States. Kenneth Smith emphasizes the changing landscape of foreign direct investment (FDI) in Mexico, with increased competition from countries like Japan, South Korea, China, and Hong Kong. The need for resources to build infrastructure and address security concerns becomes a pivotal aspect of Mexico’s nearshoring strategy, reflecting the evolving geopolitical and economic landscape.
Rent Growth
The demand for industrial space in Mexico is experiencing unprecedented growth, with net absorption doubling in 2022 compared to 2019 levels. A scarcity of available space, coupled with challenges in bringing supply to the market, has led to all-time high rent growth, reaching 16% in 2022. This trend is expected to persist in 2023, with a significant portion of space under construction already pre-leased. The evolving dynamics of the real estate market play a crucial role in the decision-making process for companies engaged in nearshoring.
Banking Resources
Mexican banks, recognizing the potential boom in nearshoring activities, are gearing up for increased operational demands. Banorte, for instance, plans to hire an additional 1,000 to 1,200 employees specifically to handle nearshoring operations. This move reflects the anticipated surge in global manufacturers relocating their factories to Mexico, highlighting the pivotal role that banking resources play in supporting the nearshoring ecosystem.
In conclusion, the landscape of Mexican nearshoring is set to witness transformative changes driven by these six megatrends in 2024. From energy infrastructure to transportation, and from global competition to banking resources, each trend contributes to the evolving narrative of nearshoring in Mexico. As businesses navigate these dynamics, strategic alignment with these trends will be instrumental in achieving success in the nearshoring landscape.
