In January 2018, former President Donald Trump passed a series of tariffs against Chinese imports – just the first of many obstacles US businesses would face over the next five years when it came to doing business with China. Shortly after the tariffs, Covid-19 caused shutdowns, skyrocketing container costs, capacity shortages, and a myriad of other supply chain disruptions. With these disruptions came additional costs for importers, hitting small businesses particularly hard. As a result, there has been an ongoing shift in the US to nearshoring – the process of bringing operations back to a nearby country. And Mexico has been the most obvious and common choice due to its favorable agreements for US trade, proximity, and lower labor costs.
This move is a stark contrast after decades of offshoring – the process of shifting operations overseas, the growing globalization of supply chains. But recent years have shed light on the high level of risks associated with these practices. For example, if something is manufactured in China or another offshore country, this freight must be transported via either ocean or air. If this same good is produced in Mexico, it can be brought into the US by ocean and air, but also by truck and rail, allowing for more agility and price optimization. Geographical proximity also lowers lead times and variability, making it easier for companies to manage inventory levels.
Lead Times to the US from China Versus Mexico
The chart below illustrates the difference in median lead times to the United States by mode. The truckload median lead time maximum since 2020 is just nine days compared to a staggering 43 day maximum from China.
While median ocean transit times are not always lower from Mexico when compared to China, it is much simpler to shift a shipment from ocean to truckload when it is coming from Mexico. While transit time was above 30 days for ocean shipments from Mexico, the median truckload transit time was about one day. The ability to pivot to other affordable options when there are delays gives Mexico the distinct advantage over China.
- The past five years have highlighted the numerous disadvantages of offshoring, particularly in China.
- Nearshoring is becoming a more common practice. US companies are turning to Mexico for nearshoring opportunities.
- Advantages of nearshoring include better agility, lower lead times, and more transportation options.
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