By Matt Silver, VP of cross-border solutions at Arrive Logistics
When Tesla announced the opening of the company’s next Gigafactory in Mexico earlier this year, it brought new attention to a hot post-pandemic trend: nearshoring. More companies are bringing production facilities closer to home to guard against supply chain disruptions, reversing a decades-long offshoring trend that often put an ocean between a company’s headquarters and its manufacturing plants.
The new Tesla plant will be a few hundred miles away from the automaker’s corporate headquarters in Austin, Texas. Many other companies are also building production facilities in Mexico, including smaller and medium-sized businesses, and the logistics implications are significant. As the nearshoring trend accelerates, here’s a look at a few key facts logistics decision-makers should consider when nearshoring operations in Mexico.
1. Proximity matters in multiple ways: While shortening supply chains is often the primary driver for bringing production closer to home, a more immediate proximity can also simplify other business functions, such as quality control and employee training. The time zones in Mexico are the same as they are in the Southwestern US, which simplifies communication, a marked improvement from what organizations experience with offshore operations in Asia and Europe.
2. Moving goods across the border is still complicated: It’s important to keep in mind that the logistics are not as simple as a single truck hauling freight for the entire trip. There are cross-border logistical challenges companies must overcome when transporting goods from Mexico to the US. Most companies move products from facilities in Mexico to the border, where a drayage service picks up the loaded trailer, moves it across the border and drops it at a domestic carrier's yard. From there, a US carrier transports the freight to its destination.
3. Relationships and technology are important in cross-border logistics: Paperwork looms large in cross-border logistics, and incomplete or inaccurate customs paperwork can cause significant delays. Repeat issues can also put a carrier’s Customs Trade Partnership Against Terrorism (CTPAT) certification at risk. That’s why many nearshoring companies work with cross-border freight-logistics experts who have established relationships in both Mexico and the US, as well as technology tools built to handle cross-border freight.
4. Service levels and carrier competencies can vary considerably: Companies shipping time-sensitive cargo like perishable food and beverages will have special freight requirements—think on-time delivery guarantees and temperature-control capabilities. Logistics decision-makers who work under these constraints need to find dependable carriers with cold-chain equipment at all points along the route (including transit facilities) to avoid spoilage; they must have reliable ETAs to meet customer delivery-time agreements. Since carrier competencies can vary, it’s a good idea to find a capable freight-brokerage partner.
The pandemic caused the nearshoring trend to gather momentum, and geopolitical tensions have accelerated it as businesses look for ways to secure their supply networks and avoid costly product bottlenecks. There are many advantages to nearshoring, including more control for businesses and better oversight of production facilities outside the US.
That said, while nearshoring can eliminate the complications of ocean transportation, it comes with its own set of complexities that logistics decision-makers must fully understand. A partner with experience and a robust technology infrastructure can reduce the learning curve and help businesses realize the advantages of their nearshoring strategy sooner rather than later.