Several benefits of nearshoring for the United States become clearer as logistics and supply chain challenges emerge.
How is the U.S. adapting, what role do Mexico and Canada play, and why will this trend continue? Here are some of the answers.
According to a U.S. Senate report, nearshoring can improve the proximity and reliability of supply chains, building on the strong partnership that already exists between the United States, Mexico and Canada.
One step back: the Covid-19 pandemic exposed the fragility of global trade by causing massive disruptions in shipping and global supply chains, including for critical inputs such as semiconductors.
Benefits of nearshoring for the United States
General American Investors Company notes that companies reinvest for three reasons: to maintain their productive assets, to increase production to meet growing demand, and to replace labor with automation through software and hardware to reduce costs.
A fourth measure is already underway. This is the relocation or nearshoring of production to reduce dependence on distant supply chains. A key problem occurred during the pandemic, when countries employed a variety of strategies to deal with its effects. Relocation can impact profit margins. However, these effects are mitigated if prices are improved or cost reductions are achieved.
Logistics
Other events around the world, such as the Russian invasion of Ukraine, attacks by Houthi rebels on cargo ships in the Red Sea and the drought in the Panama Canal, have led to recent delays in shipping.
Conflict, climate change and natural disasters could cause further disruption to the global shipping market in the future.
According to the same report, offshoring production to Canada and Mexico will provide some protection against future disruptions to shipping and global trade.
The alliance between the three countries is rooted in decades of economic cooperation and is governed by a free trade agreement.
Preferential tariffs included in the U.S.-Mexico-Canada Agreement (USMCA) may make offshoring an attractive option for many companies.