Increased Nearshoring and Reshoring Efforts Highlight the Need for Automation and Transportation Visibility

A growing number of US-based businesses are investing in nearshoring and reshoring as a way of minimizing supply chain disruptions. Reshoring refers to the practice of transferring business operations that were moved overseas back to the country from which were originally relocated. Similarly, nearshoring seeks to transfer business operations to a nearby country.  When it comes to trading goods or procurement among US-based businesses, Mexico is increasingly appearing as a logical sourcing alternative to China. Before the pandemic, increasing tariffs on trade between the United States and China, the top supplier of goods imported to the US, contributed to the anticipation of a nearshoring shift among companies dependent on Asia. As per supply chain visibility provider FourKites, shipment volumes from Mexico to the US are up 20%, while the dwell times are down 25%, compared to those levels two years ago. Despite manufacturing and sourcing from Mexico being an option for businesses for years, evolving global competition in addition to factors such as infrastructure, skilled labor, duties, freight costs, and raw material supplier locations have recently influenced Mexico into becoming a much more viable option. The nearshoring trend is steadily gaining momentum as companies take a long-term investment approach to the move, since moving thousands of global suppliers into Mexico isn’t feasible in the short term. This trend of reshoring in Mexico is definitely well-matched, especially for the automotive and Consumer Packaged Goods (CPG) sectors. Mexico has long been a source of perishable products that are shipped northbound to the US and Canada, such as limes, avocados, and tomatoes.

In addition to CPG, perhaps the sector with the biggest traction in Mexico thanks to reshoring has been the automotive sector. This has already been a strong sector in Mexico, with nine out of ten vehicles made in the country being exported. A lot of Original Equipment Manufacturers (OEMs) already ship components south of the border, produce cars in Mexico, and then ship the completed products via rail or trucks northbound back to the US. Automotive OEMs have major production operations and a significant scale that draws from the labor pools in each city and attracts other suppliers around them.

The Mexican manufacturing sector has been the target for 47% of US investment, of which the automotive sector accounted for roughly one-third of those expenses, or US$3 billion. The US auto industry relies heavily on parts produced in Mexican maquiladoras—plants that produce primarily for export. Among Mexico’s other top foreign investors, Japan also maintains a large automotive manufacturing presence. Most motor vehicle parts produced in Mexico are for foreign markets and include such global brands as General Motors, Ford, Honda, Hyundai, Kia, Toyota, Mercedes-Benz, and Nissan.

Due to the rise in automotive production, the demand for industrial space doubled in 2022 compared to 2019 levels. This has led to a sharp decline in manufacturing space and warehousing vacancies to approximately 1%. In turn, rents rose 16% in 2022 and are poised to spike again in 2023. ABI Research expects this movement to play out over decades as local economies focused on reshoring build a critical mass of infrastructure, expertise, and suppliers. This movement will not be limited to the already strong auto sector, as it also expected that electronics will take on a larger role in Mexican exports.

With the demand for fulfillment and manufacturing labor ramping up, there is a need for North American supply chains to be as efficient as possible. With the recent uptick in manufacturing in Mexico, the US will follow suit. The impact of labor shortages is already felt across a wide range of industries and will continue well beyond this year. The US Congressional Budget Office recently forecasted that the size of the US labor force will grow by just 0.2% annually from 2024 to 2031, and by 2030, it is predicted that more than 2.1 million US manufacturing jobs will be unfilled.  This will hamper economic growth and present companies with the need to find new ways to plug gaps in the workforce. As a result, demand for warehouse and factory robots will be strong in countries such as the US where businesses are planning to restore or nearshore their operations to aid their supply chain stability. ABI Research expects over 300,000 Autonomous Guided Vehicles (AGVs) and robots to be deployed in warehouses by 2030 (MD-SMWH-103). The continuing advancements in the ease of application and flexible performance of robots mean businesses can address skill gaps and make better use of their existing workforce. Recent developments by vendors such as ABB, Rockwell Automation, Locus Robotics, and Fetch Robotics in the field of Visual Simultaneous Localization and Mapping (Visual SLAM) technology will also enhance the productivity, flexibility, and speed of mobile robots. Using AI-enabled 3D vision to perform mapping functions, Visual SLAM enables robots to make intelligent navigation based on their surroundings. Solutions like these will enable end users to move away from traditional warehousing and fulfillment practices to integrate and scalable fulfillment practices.

Along with warehousing and fulfillment efficiency, there will be a need for better visibility in transportation too. Rail and road transportation such as long-haul trucking will be at the forefront of this as connecting vehicles with telematic solutions to ensure there is end-to-end visibility will be key. Especially when it comes to nearshoring, seamless cross-border visibility of trucks transporting finished products from manufacturing facilities in Mexico to fulfillment centers in the US, for instance, will be imperative. This is where telematics solutions can bridge the gap. A continued increase in telematics solutions with vendors such as Verizon Connect, Geotab, Motive, and Samsara leading the way is expected.

According to ABI Research, commercial telematics revenues will reach US$41.67 billion globally by 2027 as per its Commercial Telematics Market Data report. In addition, a lot of trucking OEMs have started partnering with telematics vendors to factory-fit telematics equipment in trucks. Lytx, a leading provider of video telematics solutions, recently announced a first-ever OEM integration collaboration with Daimler Truck North America using Lytx's industry-leading video telematics system and all-new camera solution integrated into select Freightliner and Western Star models. The company also revealed an all-new parked vehicle trigger that helps fleets avoid potentially risky parking on the side of a highway or an on/off ramp, filling a much-needed void in the marketplace and addressing a growing concern for drivers and fleet managers. Similarly, MiX Telematics is collaborating with Hino Trucks to become an authorized Hino data services partner. This collaboration will provide MiX customers in North America that operate Hino trucks with rich data sets, informing intelligent decision-making regarding vehicle maintenance, safety, efficiency, and compliance. It also removes the need for the installation of aftermarket hardware in associated vehicles. In addition, Geotab has OEMs like Ford, GM, Mack, Volvo, International Trucks, John Deere, CAT, Renault, Mercedes-Benz, and Stellantis under its partnership network. Automation and increased end-to-end visibility will undoubtedly hold the key to successful nearshoring and reshoring efforts.