Nearshoring to Mexico: A Golden Opportunity for CPG
The nearshoring wave is bringing incredible opportunities for companies looking to streamline their supply chain and save money on their operations. This is what you need to consider if you want to take advantage of this opportunity in the CPG industry.
Since the beginning of the pandemic in 2020, more American companies started looking in Mexico's direction to bring their supply chains closer to home. This is a logical step, as nearshoring has many benefits, such as lower cost of labor, shorter supply chains, beneficial free trade agreements, and business infrastructure, among others.
The immense growth of this trend is reflected by exciting recent milestones. In October last year, trade via the land port of Laredo, TX exceeded that of the seaports of Los Angeles and Long Beach combined, a clear sign of changing times for global freight. We are bullish about what this means for the future of US-MX trade relationships and the impact it can have for businesses on both sides of the border.
For CPG, this is especially relevant due to Mexico’s strategic location, closer to end-users in key markets, offering easy access to both the US and Latin America. There are 60 ports of entry along the length of the US-MX border alone, and every day 427,000 vehicles, 30,000 trucks and 1,000,000 people cross between the two countries. Colgate-Palmolive, Kimberly Clark, Nestle and many other CPG companies are already taking advantage of this growing opportunity.
These are some key things to know about nearshoring to Mexico:
USMCA and intertwined economies. Rising tensions between the US and China, coupled with very favorable trade conditions from the new USMCA free trade agreement, which contains enhancements and modernized approaches to rules of origin, agricultural market access, intellectual property, digital trade, financial services, labor, and numerous other sectors, have contributed to US and Mexico’s economies becoming more intertwined than ever before. In fact, in a recent episode of The Daily podcast from The New York Times, Peter Goodman stated that “the data shows that when we buy a good that’s made in Mexico, roughly, 40% of the value of that good is actually produced in the United States by American workers. The figure for China is something closer to 4 percent, and of course, Chinese state policy is aimed at driving that as close to zero as possible, as China aims for self-sufficiency. So you know, again, when we trade within the region, we’re effectively creating demand for American-made goods.”
Continuous investment pouring into the region. Nearshoring practices are expected to bring in an additional 64 billion dollars in exports to the Latin American region, with 55% of those directly benefiting the Mexican economy. Furthermore, a survey conducted by BBVA Research and the Mexican Association of Private Industrial Parks (AMPIP) forecasts that by 2025, 453 new foreign companies will relocate to Mexico. Industrial parks are also expected to grow in number and capacity, especially around northern and Bajío-west markets. Over the past years, the CPG sector in Mexico has witnessed growth and increased investment, with many multinational CPG companies establishing operations or expanding their existing presence in the country to capitalize on the market potential. These investments are driven by several factors that make Mexico a strategic location for CPG companies to manufacture and distribute their products.
Mexico’s transition to a Knowledge-Based Economy. Mexico has established itself as the United States’ largest trade partner, in part due to a growing, highly skilled and affordable workforce. The country has set up clusters for key industries in manufacturing to facilitate their successful transition in the region, benefiting the exchange of information, and offering concentrated areas of skilled workers with specialized expertise, advanced industry-specific technology, supplier networks, economies of scale, and an established knowledge base. CPG companies can tap into this existing infrastructure and leverage the local expertise to optimize their supply chain operations. Border Now reports that over 65% of executives from companies with manufacturing facilities in China have favorable stances towards Mexico as a source to cater to the U.S. market.
The opportunities that nearshoring is bringing to CPG are abundant, so don't let them pass you by.
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