More than a buzzword: nearshoring in North America

Every industry has its favorite buzzwords at events where 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 introduced many new ideas to mitigate exposure to congestion, risk, and lack of visibility, which adversely impact all stakeholders in the transportation and logistics value chain. Several new strategies and best practices took root and became fundamental components of a typical business model. Among these, nearshoring has emerged as a clear front-runner.

What is nearshoring?

Nearshoring is an increasingly popular strategy where manufacturers and shippers shift the sourcing of commodities and goods from more distant “offshore” countries to trading partners that are geographically adjacent to or “near” the country consuming the goods, i.e. the importing country. This approach shortens transportation times and may reduce tariffs, ultimately delivering 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. The 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, in particular, has been the primary benefactor and has taken the lead as the primary U.S. trading partner.

Shifts from globalization to nearshoring

Globalization revolutionized the world economy by interconnecting trade and offering consumers a wider range of products at competitive prices. During the globalization boom, Asian countries became primary U.S. trading partners, and investments in transportation infrastructure facilitated the smooth movement of goods from offshore manufacturing hubs to U.S. ports and gateways.

However, geopolitical, economic, and supply chain disruptions have highlighted the challenges of relying on distant trading partners. Remember when store shelves were empty of daily necessities or when a new outdoor furniture set arrived months late during winter? 

With the tailwinds of USMCA accelerating nearshoring strategies, foreign direct investment in Mexico has surged. U.S. companies have entered 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 US$100 billion to develop manufacturing and logistics hubs servicing the U.S. market. Yet we are still within the “tip of the iceberg” phase with nearshoring prominence.

Impact to U.S. infrastructure

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 grows and freight originating in Mexico increases, additional infrastructure to accommodate higher trade flows on the southern border is needed. 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 U.S., with U.S. Trade Numbers publishing trade value metrics for April 2024 eclipsing US$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. This is creating a disparity between supply and demand. 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 1 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 US$275m in infrastructure improvements that will connect manufacturing hubs in Mexico with U.S. and Canadian intermodal hubs.

Other Class 1 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.

Nearshoring’s impact on industrial outdoor storage

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 U.S. 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.

Opportunities for carriers and facility owners

A marketplace approach to parking offers an innovative solution to the challenges of managing industrial outdoor storage and drayage capacity, particularly in regions experiencing rapid growth like those along the U.S.-Mexico border. By connecting carriers with facility owners in real-time, marketplaces like SecurSpace provide flexible, on-demand access to much-needed space without the burdens of long-term commitments. This model not only optimizes available capacity but also enhances efficiency and responsiveness within the logistics ecosystem, making it a smart choice for addressing the evolving demands of nearshoring and cross-border trade.

Moreover, as nearshoring continues to reshape supply chains, the ability to quickly and efficiently locate storage or parking becomes increasingly critical. SecurSpace’s marketplace solution empowers carriers and shippers to dynamically adjust to fluctuations in demand, mitigating the risks associated with capacity shortages and ensuring smoother operations. For facility owners, this approach unlocks new revenue streams by maximizing the utilization of their properties. In an industry where agility and adaptability are key, SecurSpace is leading the way by providing a scalable solution that benefits all stakeholders.