Analyst Insight: Ongoing geopolitical volatility, record-high shipping costs and dwell times, and growing economic incentives all have helped nearshoring explode in popularity in recent years, notably for automotive manufacturers in Mexico. And the trend doesn’t appear to be slowing in 2024, especially as the industry shifts to electric vehicles. 

The National Association of Auto Transport in Mexico expects to grow 20% in the next four years because of nearshoring efforts. Similar activity is happening in Europe, as companies eye countries like Poland, Hungary and Romania as closer production alternatives. But before any automotive manufacturer reorientates its supply chain or expands investment in new locations, it should have a cohesive strategy in place that evaluates risks and maximizes opportunities. Consider the following key factors as part of a strategy that will help you successfully adjust your shipping as you nearshore.

Understand your inputs. The cost of inbound freight after nearshoring can vary significantly, based on factors such as transportation mode and the characteristics of the items being transported, given that most of your suppliers don’t move with you. If auto parts that are now coming from Mexico instead of Asia involve large, bulky items, this could increase costs. It’s also important to consider that longer and unpredictable ocean transit times may require more frequent, and likely more expensive, shipping by air as you evaluate new shipping volumes.

Based on inputs, you may qualify for tax and duty incentives to nearshore. An expert analysis of your supply chain can help determine which incentives fit, to help make nearshoring more beneficial. As the trade landscape rapidly evolves, it’s important to work with partners that understand these complexities and understand the implications and opportunities they provide.

Find your ideal location(s). Determining the optimal location is crucial to making the most from your investment in nearshoring. But it can also be one of the most complicated aspects of developing a cross-border strategy, especially as auto manufacturers depend on just-in-time inventory models. 

The decision requires an understanding of where your suppliers and customers are. For instance, if you’re nearshoring in Mexico, you’ll need to determine which of the country’s 26 ports of entry into the U.S. best serve your needs. Each crossing will vary in how busy it is, and the types of materials it allows through. 

Consider also three often-overlooked elements that determine location quality: water availability, electricity and labor. Even as Mexico’s infrastructure improves, water shortages and power grid failures can still be a common issue. You will also need to find an area with a strong pool of labor, which is increasingly concentrated in cities.

Build flexibility into your cross-border shipping strategy. The turbulence of the last several years has shown how important it is to maintain an adaptable supply chain. 

Diversifying your supply chain is a key benefit of nearshoring, but it only works if you maintain flexibility in your shipping strategy. For example, you should be able to vary your mode of transportation in case of congestion, natural disaster or any other event that can impact transit times. Partnering with a logistics provider that has connections and infrastructure on both sides of the border can help to achieve this much-needed adaptability. 

Outlook: Nearshoring is going to alter global supply chains for years to come. By considering the right factors upfront, you can avoid unexpected costs and complications, and create a more resilient and reliable supply chain for the future. 

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