Every industry has their favorite buzzwords to discuss at industry events, where you’ll hear keynote speakers and panelists dissect the latest trends, challenges, and opportunities.
But one hot topic that’s likely to transcend the buzzword lifecycle and stick around is ‘nearshoring.’
The pandemic brought forth many new ideas meant to mitigate exposure to congestion, risk, and lack of visibility that adversely impact all stakeholders involved in the value chain of transportation and logistics. Several newfound strategies and best practices took root and became fundamental components of a typical business model. However, nearshoring came out as a clear front-runner.
Nearshoring is an increasingly popular move where manufacturers and shippers shift commodities and goods sourcing from “offshore” countries to trading partners that are geographically adjacent to or “near” the country consuming the goods, i.e. the importing country. This allows for shorter transportation turn times and lower tariffs, ultimately delivering the same goods with fewer variables.
While nearshoring is not a new sourcing strategy, the concept has caught on post-pandemic as manufacturers and shippers seek to minimize the risk of disruption. Ratification of the United States-Mexico-Canada Agreement (“USMCA”) in 2020 eased penal tariffs and removed logistical hurdles, creating a favorable environment for manufacturing and sourcing commodities and goods across North America. Mexico has been the primary benefactor and has taken the lead as the United States’ number one trading partner.
Globalization revolutionized the world economy, interconnecting trade and giving consumers more product choices with competitive prices. During the rise of globalization, Asian countries became primary U.S. trading partners, and investments in transportation infrastructure allowed goods to move seamlessly from offshore manufacturing hubs to ports to U.S. gateways.
However, geopolitical, economic, and supply chain disruptions have underpinned the complexities that come with distant trading partners. Remember when the store shelves were a wasteland, missing daily necessities? Or when you ordered a new outdoor living set, and it arrived months later during winter? Nearshoring eases these types of disruption by creating a more linear supply chain that is innately more resilient.
With the tailwinds of USMCA accelerating nearshoring strategies, foreign direct investment in Mexico has surged. U.S. companies have flooded the market and established hundreds of new manufacturing operations, known as maquiladoras, that leverage the advantageous environment Mexico offers. China has also partaken in Mexico’s FDI, allocating over $100 billion to develop manufacturing and logistics hubs servicing the U.S. market. Putting this trend into perspective, we are still within the “tip of the iceberg” phase with nearshoring prominence.
The bulk of U.S. import handling has historically been on the West Coast, predominately at the Port of Los Angeles and Port of Long Beach in California, due to the proximity to offshore trading partners. However, as the shift to nearshoring scales and freight originating in Mexico increases, there is a need for additional infrastructure to accommodate higher trade flows on the southern border. This will involve comprehensive investment in inland rail, seaports and roadways, not only along the southern border in gateway markets, but for upstream transportation corridors.
In Texas, Laredo and Eagle Pass are two of the red-hot markets experiencing the most growth from nearshoring. Currently, Laredo is the fastest growing port in the United States, with U.S. Trade Numbers publishing trade value metrics for April 2024 eclipsing $29 billion. The trend and expectation by analysts are continued measurable growth year over year as new manufacturing facilities are built in Mexico.
So, how will this freight efficiently move across the border and through the U.S. road and rail corridors?
Manufacturing facilities, warehousing complexes, and industrial outdoor storage sites are not planned, capitalized, and developed overnight. As such, a disparity between supply and demand is being created. Utilization for both warehousing and low-coverage industrial outdoor storage remains close to 100% as shippers and logistics service providers quickly absorb any and all capacity that is delivered.
As for transportation infrastructure investment, several Class I railroads have already pledged infrastructure enhancements that would create service continuity with direct routes from Mexico into the United States. Most notably, Kansas City Southern has committed $275MM in infrastructure improvements that will connect manufacturing hubs in Mexico with U.S. and Canadian intermodal hubs.
Other Class I railroads, including BNSF and Union Pacific, are developing new rail hubs and rail lines that connect gateway southern border markets with their primary major rail lines servicing top metropolitan areas. Expect intermodal transportation to dominate in the coming years as a robust network of rail is developed, servicing much of the population within a fraction of the time it would take for a container to be offloaded, processed, and transported from a seaport.
This does not mean the market is absent of an immense opportunity on strong trucking dynamics – in fact, it is the opposite. FreightWaves reported that Laredo realized a 92% increase in trucking lane tender volumes since 2019, with no signs of slowing growth. Smart container drayage and intermodal trucking companies are building capacity in these emerging freight lanes.
Industrial outdoor storage (“IOS”) is a necessary infrastructure component for efficient transportation flows, allowing sea and rail terminals to remain as transit hubs and diverting containers and trailers that need long-term storage to off-dock drop yards.
Whether an IOS asset is occupied by a motor carrier servicing cross-border trade or shippers looking to temporarily store freight until it can be received at a rail hub or distribution center, the real estate is needed more than ever along the southern border in both Mexico and the United States as nearshoring continues to grow.
Considering the drastic imbalance between imports and exports into Mexico, with the United States exporting only a fraction of what is imported, there are thousands of containers and dry vans that terminate in the U.S. and need temporary dwelling in a storage yard.
Drayage and intermodal trucking companies looking to expand into these freight lanes can look to SecurSpace’s on-demand marketplace for capacity without long-term commitments.
Industrial facility owner-operators in the region who want to optimize capacity with minimal sales effort and operational headaches can drive business by listing on the SecurSpace marketplace.