News, Insights and Best Practices for Manufacturing in Mexico

Near-shoring trend continues to expand as labor costs rise

25 Oct 2013

Category: Automotive Manufacturing, Labor & Economics, Logistics Management, Manufacturing in Mexico

A new study illustrates the slow movement of manufacturing away from China, and into North and South America where companies look to engage local regions and take advantage of supply chains in closer proximity to production.

The study conducted by Penske Logistics, in partnership with Northeastern University's D'Amore-McKim school of business, polled 34 major third-party logistics company CEOs in Europe, North America and the Asia-Pacific region, Fleet Owner reported. The study found that 78 percent of Asia-Pacific respondents said rising wage costs have shifted manufacturing operations away from China, while a number of North American companies were moving operations from the Asia-Pacific region to Mexico. Whether it is pharmaceutical, technology or automotive, the near-shoring trend is continuing to move forward.

"More near-shoring activity and more re-shoring is definitely helping out the industrial companies like Whirlpool," said Evan Armstrong, president of 3PL research and advisory firm Armstrong & Associates. "There is definitely some production coming back. It is different than what it looked like before in terms of the number of employees, but it is coming back to the U.S. in dribs and drabs."

Monetizing offshore logistics
With the respondents representing nearly $50 billion in revenue in 2012, it is significant that 87 percent of North American third-party logistics(3PL) CEOs claimed to provide third party logistics services in Mexico that generate 9.3 percent of revenue in their U.S. market - a figure that is expected to increase over the next three years to 12.5 percent, cited Fleet Owner. Consequently, as production operations move to Mexico - due to trucking logistics - products can make it to market more quickly, decreasing the amount of time a product is sitting idle.

"As companies begin shifting their product origins to local regions, they will look for a third-party logistics provider that can strategically navigate through the new normal in the supply chain industry," Joe Carlier, senior vice president of sales for Penske Logistics, told Fleet Owner. "This includes the shift in supply chain length, changes in speed and demand for warehousing and transportation along trade corridors. More near-shoring to Mexico means more demand for cross-border trucking and drayage services at the U.S.-Mexico border, and less demand for port trucking services at places like the Port of Oakland."

As a result, both the North American and European 3PL markets have forecast growth projections that surpass the previous years margin, of 14.6 and 10.3 percent, respectively. Subsequently, the Asia-Pacific regions forecast have grown anemic, falling from 12.5 percent last year to 11.6 percent over the next three years.

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