Nearshoring to Mexico in 2024 

Sourcing in Mexico continues to be appealing to companies with manufacturing operations in North America. We noticed this trend become popular in mid-2021, driven by staggering ocean freight challenges, changing labor rates and exchange rates, and impacts from the USMCA trade agreement.   

Unfortunately, Mexican suppliers soon become overwhelmed with inquiries from manufacturers north of the border and they seemed to become much more selective. By early 2023, just as Mexico outpaced China as the US’s top trade partner for the first time in 20 years, we noticed it was getting harder to get responses to inquiries. RFQ lead times doubled and price quotes were becoming uncompetitive compared to Asia on a Total Cost of Ownership basis. 

This trend continues for some commodities. For example, while there are plenty of capable suppliers for CNC machining, open capacity is difficult to find. We’ve also had trouble finding capable suppliers with open capacity for brass castings and advanced coating.   

However, there are some commodities where we’ve had good success in 2024.  Stampings, EPDM gaskets, aluminum extrusions, and stainless steel manufacturing process are all in good shape. Of course, finding the right supplier for the volumes, product mix, and specific attributes you need is always going to be a challenge.   

automotive manufacturing nearshoring | Mexico | Advanced Purchasing Dynamics
  • Coatings for an automotive supplier 
  • Stampings for an automotive supplier 
  • Insert moldings for an automotive supplier 
  • Aluminum castings for a brake system supplier 
  • Copper tubes for a heat exchanger manufacturer 
  • Fabrications for a commercial truck manufacturer 
  • Forgings for an industrial equipment manufacturer 
  • Metal hardware for a residential shower door supplier 
  • Heavy weldments for an agriculture equipment producer 
  • Injection moldings for an industrial sensors manufacturer 
  • Aluminum extrusions for a light truck aftermarket supplier 
  • Aluminum die castings for an audio equipment manufacturer 

North American manufacturers looking to nearshore their supply chain to Mexico need to be patient.

  1. Longer response times. We’ve seen a significant increase in response times for both Requests for Information (RFIs) and Requests for Quotations (RFQs).  Mexican suppliers that used to be able to respond in 2 weeks are now taking 4-6 weeks. 
  2. Limited capacity. Unfortunately, we are seeing suppliers with all the right capabilities but limited open capacity. This is becoming a problem for a variety of commodities, and we’re anticipating things will continue to get worse before they get better. 
  3. Selective suppliers. With more opportunities to choose from, Mexican suppliers are choosing to quote business from manufacturers they already have a relationship with and those that can offer the most promising business that aligns with their growth plans. 
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      • Ocean Fright Challenges.  Container costs are on the rise again for both West Coast and East Coast ports. There appears to be a variety of factors driving this, from geopolitical tensions (e.g. Red Sea crisis) to a lack of empty containers. Spot rates are up 40% in June vs. May (after falling from Jan to May), and continue to rise. An ILA strike in October could cripple North American ports.  
      • Exchange Rates.  The USD-Peso exchange rate had eroded steadily since 2020, from the low 20’s to the mid-teens. Recently, we saw favorable movement for US manufacturers after the Mexican Presidential elections (June 2).  However, some of those gains have been reversed since.   
      • Labor costs.  Hourly wages for Mexican manufacturing workers have risen steadily in that same time period, doubling in terms of USD since 2020. Labor rates remain low compared to US labor rates, but don’t favor nearly as well against other low-cost countries. There are two effects to consider: 
        • Manufacturing labor availability has traditionally been unreliable in Mexico due to low wages. Higher wages should lessen labor shortages and allow suppliers to maintain a steady workforce. 
        • Manufacturing sectors with higher value-add are improving in Mexico. There’s more automation and robotics in the automotive sector, and high tech areas such as electronics, semiconductors, and 3D printing are expanding. 
      • USMCA.  Things are ramping up for vehicle and parts producers. Regional value content is now 75% (64% for heavy trucks and electric light trucks). However, Mexican manufacturers are essentially excluded by the labor value content requirement – 40% of passenger car value and 45% of light truck value must be produced in North American facilities with an average wage of $16 per hour.  
      • Vice President of Procurement for a hatcheries manufacturer shared that continuity of supply and cost competitiveness have been the main drivers of their nearshoring efforts. They shared that they’ve had success nearshoring metal components, plastics, and electronics manufacturing services, primarily in Mexico.   
      • Director of Indirect Sourcing and Major Programs for a fork truck manufacturer shared that supply resiliency is the major driver of their nearshoring efforts, particularly out of China. They shared that they have had success nearshoring plastics and wire harnesses, mainly in Mexico, but are concerned that Mexican suppliers are running into labor constraints as production has been ramping up with North American nearshoring initiatives. 
      • Director of Enterprise Sourcing for a medical devices manufacturer shared that their interests in nearshoring have been primarily cost reduction and shorter lead times. They also cited IP protection, primarily in Asian countries. 
      • Director of Sourcing for a garage door opener manufacturer shared that tariff and freight costs initially drove their nearshoring efforts, but with Pacific ocean freight costs returning to pre-covid levels, the focus is on supply risk related to local covid-related shutdowns in China. They shared that they have had success using plastic moldings suppliers in Mexico.   
      • Director of Commodity Management for a CNC machinery supplier shared that their main motivation for nearshoring is reducing costs. They are still encountering significant supplier price increases even though most commodity indexes are moving downward (with the exception of energy). They have been able to avoid some cost increases by analyzing foreign exchange impacts and addressing in supplier negotiations.   
      • Associate Director of Mechanical Commodities Procurement for a consumer audio products manufacturer shared that risk mitigation is driving their nearshoring efforts. They are concerned with the reliability of getting materials out of Asia, citing geopolitical risks. They have had success nearshoring plastic components, and shared that their biggest challenge has been finding suppliers that can support their high mix/low volume business. 

      Nearshoring to Mexico continues to offer significant advantages for North American manufacturers, particularly in terms of supply chain resilience, reduced lead times, and potential cost savings. However, companies must be prepared for challenges such as longer response times, limited supplier capacity, and increasingly selective Mexican suppliers.  

      Despite these hurdles, success stories across various industries demonstrate that with patience and strategic supplier selection, businesses can effectively leverage Mexican manufacturing capabilities. As geopolitical tensions, fluctuating exchange rates, and evolving labor dynamics continue to impact global supply chains, nearshoring remains a viable option for manufacturers seeking to improve competitiveness and operational stability.  


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