Rising wages and logistics costs in China and other countries leads a growing number of U.S. manufacturers to reshore or nearshore operations, or at least consider one of the two strategies. Mexico plays an important role in some of these operations, and, considering the country’s recent economic investment in seaports, it may take on a more prominent role.
Rising wages in China are a key factor behind nearshoring initiatives. There are, however, other factors to consider. For instance, transportation is one of the most costly elements of production, so using facilities closer to the U.S. offers cost savings. Faster shipping is also a key concern because companies and consumers now place an emphasis on quick delivery. Nearshoring to Mexico holds appeal because it enables companies to minimize the distance between the point of production and consumption, consequently shortening delivery time while also reducing the risk of supply chain disruption.
Mexico’s growing importance in the continental supply chain is now being recognized by North American transportation groups, says John Morris, Cushman & Wakefield’s Industrial Services Lead, Americas. In the latest edition of its Industrial Research Market Note, industrial real estate analysts report that Mexican ports led the growth in import volume, with a 9.2 percent year-over-year increase—outperforming overall North American inbound growth of 6.4 percent.
Modernization of Mexico’s port system is crucial if the country is to take advantage of its strategic assets. Mexico has become a major supplier of vehicles, electronics and other goods for the U.S. consumer market (82 percent of automobiles produced in Mexico are exported to American consumers), so the ports are important in the dynamic to attract investment into the Mexican manufacturing sector, Cushman & Wakefield’s report notes. With this growing opportunity in mind, the Mexican government is spending $5 billion on its network of ports to keep pace with growth.
There are three ports in particular to watch. The first is the gulf port of Veracruz. Port authorities expect the port to increase its capacity by more than 400 percent as a result of a $1.8 billion expansion program that will involve the construction of two container terminals over four years, ending in 2018. The port’s expansion will increase its capacity to 88 million metric tons, and add 35 new berths, two new turning basins, a logistics center for ground transportation and a 13 mile-long double-track railway bypass, the report explains.
The Port of Lazaro Cardenas along the Pacific coast is now handling one million TEUs a year. During the first five months of 2015, LCT moved 310,000 TEUs of cargo, up 30 percent year-over-year. This port’s key asset is its on-dock rail facilities, which are provided by Kansas City Southern de Mexico S.A. de C.V., a subsidiary of Kansas City Southern. That gives Lazaro Cardenas on-dock intermodal links directly into the southern U.S., as well as the shortest route to Mexico City.
Finally, Puerto Manzanillo handled 2.4 million TEUs in 2014. What’s more, since year-end 2010, container volume at the port has increased by 55.8 percent. Manzanillo is Mexico’s largest port and the only one capable of double-stacking containers onto railcars, which provides efficient movement of cargo throughout Mexico and as far as the Texas border 1,000 miles away. With nearly 90 percent of Mexico’s trade being with the U.S., Manzanillo’s access to the western coast, as well as to Houston via rail and other eastern seaboard destinations via the Panama Canal, is seen as key to attracting investment, the Cushman & Wakefield report explains.
Does your company have operations in Mexico or plans for operations there? If so, what do you think of the expansion plans for those three Mexican seaports?