The old adage that warns against putting all your eggs in one basket has a direct parallel today with what importers, manufacturers, and retailers have learned the hard way over the last several years. During the COVID years, many of the moving nodes within the global supply chain came to abrupt halts, resulting in shortages of a variety of goods and components needed throughout the world. During recovery, many companies began to examine methods for taking some of the risks out of the global supply chain through diversifying sourcing for materials and production.
Starting almost immediately after China joined the World Trade Organization in December of 2001, and continuing for many years, companies were lured to produce goods in China due to the low-cost wages resulting from the massive population density of the country, despite the more complex and lengthy supply chain. Companies in China flourished, grew, and even moved further inland from the coastal regions of China. Inland regions had labor costs that were significantly lower and the impact on the global supply chain was a little more complex.
Until COVID, that is, when production and transportation lockdowns created massive demands for time-critical shipments. While demand levels rose exponentially, driven by consumers purchasing more online goods, severe congestion occurred at all the ports and airports throughout the world. During this same time, many of the components and parts required to support global machinery and vehicles were unavailable or seriously delayed due to the shortages that occurred from the prolonged shutdown of production systems across China. All of this contributed to the perfect supply chain storm.
Coming out of the global pandemic, manufacturing managers became keenly aware of the need to diversify their manufacturing and materials sources and arrived at the China Plus One strategy. This strategy refers to staying and competing for market share and profits in China, while simultaneously diversifying the global sourcing tactic to include at least a second manufacturing and materials source in a different country. During this global supply chain reconfiguration period after COVID, the words re-shore and nearshore began to resurface in many logistics and supply chain industry articles and sectors. To re-shore or nearshore is to shift some of the global production capacity and raw materials sources closer to home or back to home in the US.
Mexico will be the winner in the re-shoring or nearshoring shift because Mexico has strong trade platforms and highly skilled and abundant labor. Its convenient location adjacent to the US means that a supply chain from a production site in Mexico can reach almost anywhere within the US in two days or less. Having that fast of a supply chain means that the US manufacturers, distributors, and retail operators will:
- Require less inventory to carry in the global supply chain,
- Less dwell time across the entire global goods movement platform,
- Less impact on the environment because the transportation moves are far shorter, and
- Less time from production to consumption.
We have read the reports: Mexico and the border cities are booming. Bridges are being planned and built for more rail and truck crossings in Laredo, TX, which is the largest gateway for trade between the US and Mexico. Corridors for trade will continue to emerge and drive demand for industrial real estate development in the top border towns and their frontier region. New regional gateways will emerge along the borders of southern states and regions as cities compete for the prize of being part of a new global production strategy.