The Impact of Nearshoring in Supporting Manufacturing Sustainability
06.29.23The manufacturing industry isn’t new to the ups and downs of the economy and the effects they can have on the supply chain. Yet, within the past few years, operators have been pushed to their limits, with many still trying to fully recover.
In the midst of re-establishing a steadier mode of operations, another challenge is looming. Sustainability has become a growing topic in the industrial world, and the demand from both governments and consumers are raising the standards for what’s acceptable.
However, radical changes in production and processes don’t occur overnight. Though manufacturers are making great strides to improve their eco-friendliness and maintain compliance per government regulations and consumer satisfaction, it takes time.
An automatic way companies can contribute to manufacturing sustainability is through nearshoring. The close proximity between the U.S. and Mexico saves on shipping and transportation costs compared to manufacturing in China. By shortening the distance, it greatly reduces the carbon footprint and increases convenience to those with products intended for the U.S. market.
Sustainability Adds to the Benefits of Manufacturing in Mexico
Mexico’s established infrastructure gives foreign operators various transportation methods to choose what’s most cost-effective and energy-efficient. Between the various port, railroad, and trucking options, the available logistics reduce shipping distances and carbon emissions.
This sustainability only adds to the list of reasons why manufacturing in Mexico has become the preferred option over outsourcing production to China. Nearshoring has become a go-to strategy due to its cost-effective labor, favorable trade relations, and overall production reliability.
Labor
The global labor shortage has hindered production efforts as operators scramble to fulfill millions of industrial roles. Mexico has become a viable solution for many U.S. and other foreign manufacturers, with a competitive talent pool readily accessible to take on all levels of jobs.
In addition to worker availability, the labor rates in Mexico are more cost-effective than in the U.S. The average labor rate for a semi-skilled, fully burdened role is $5.30/hour USD and is based on a 48-hour work week, resulting in greater productivity at a lesser cost.
Trade Relations
In 2020, the U.S., Mexico, and Canada finalized and officially enacted the USMCA. The agreement incentivizes trade among these three countries. For instance, it requires 75% of auto content be made in North America, encouraging economic growth for the respective regions.
The USMCA also updated provisions from the previous trade agreement and maintained duty-free treatment for originating goods and the prohibition of export duties, taxes and the waive of specific customs processing fees.
Production Reliability
Supply chains in China were interrupted or altogether shut down during the pandemic. At the same time, labor rates in the country continued to increase. Whereas, Mexico’s infrastructure remained intact and wages stayed cost-effective. Due to the close distance between the U.S. and Mexico, it’s also easier to maintain quality assurance and production control. This allows operators to more quickly adapt to changes in the economy and adjust processes as needed.