In the recent years, China and Mexico have been battling to be the prime hub spot for logistics operations in North America. While there are still advantages of offshoring to China, for example their already established work force and prime manufacturing facilities, when it comes down to it cost and time are the prime factors for the change. We will be discussing the expected advantages for nearshoring as well as present some statistics that support the trend that suggest that nearshoring, especially for companies that are looking to build manufacturing plants, is the better option.
Top 5 Expected advantages of Nearshoring
Inbound Logistics Magazine released and analysis of the status of the logistics and supply chain industry in Latin America. Below is an excerpt of survey respondents based on research by AlixPartners of the top five expected advantages of nearshoring:
- Lower Freight Costs
- Improved Speed-to-Market
- Lower Inventory Costs
- Time-Zone Advantages
- Improved Cultural Alignment with North American Managers
Nearshoring is becoming more and more attractive as geopolitical changes, and factors such as rising fuel costs, have been affecting the main attraction for China: lower total cost for logistics operations. By 2015, China’s wages are expected to rise to $6 USD, and by this point it will no longer be cheaper than Mexico’s flat wages.
3 Statistics on Mexico as an Advantageous Nearshoring Move
Statistics since our initial post on our case study exploring Mexico as a prime logistics hub has shown that the trend to nearshore is not just very real, but also becoming more and more attractive. Logistics Management’s report exploring how US manufacturing costs are now equal to Mexico and how costs will be equal to China by 2015 seem to be confirmed as we near 2015. The following are statistics that we found that further solidify this trend:
1 – The full landed cost of Chinese production rose from 2005-2010 to 87% of US costs, while Mexican costs fell to 75% of US costs.
Source: Lilly and Associates
2 – Ocean freight from Altamira, Mexico to the port of Miami takes 6 days while a similar shipment from China can take up to a month to arrive.
Source: Lilly and Associates
3 – China’s fuel costs grew at approximately 20 percent per year in the past few years.
Source: Supply Chain Brain
China has some challenges to compete with the attraction of nearshoring to Mexico, and indeed efforts are being taken in order to control the rising fuel costs and the new minimum wage standards in order to remain a strong competitor as an offshoring option for North America. But the concept of nearshoring is now not just a real avenue of exploration, it simply cannot be ignored for those in the North American logistics and supply chain industry.
If you’re interested in finding out more Mexico as a solution for your logistics and supply chain needs, check out our white paper on Mexico and Third Party Logistics!
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