With global instability and supply chain challenges in recent years, there has been an increased impetus to bring manufacturing back to the U.S. Gregg Healy, executive vice president and head of industrial service for North America at Savills, spoke at NAIOP’s I.CON West in Long Beach, California, about some of the pros and cons of nearshoring and which markets are poised for growth.
Here are the top takeaways from his session:
The COVID-19 pandemic changed everything.
Before the pandemic, many companies were forced to look at China as the primary provider of products, while the U.S. manufacturing base withered. That has changed as more firms seek closer and more stable supply chains.
“We started having this trend of changing from a global economy with global sourcing to a regionally global economy,” he said. Now, “there is a tiered approach, with a lot of product coming in from [the global South] and coming to these nearshore or friendshore countries that are more friendly to the United States.”
Mexico is an important emerging market.
While the U.S. might see more volume of goods coming in from China through Long Beach, the value of the goods coming from Mexico is much higher, Healy said.
“You’re talking appliances and automotive and high-tech coming in from Mexico that is being sourced globally and assembled in Mexico,” he said. “This includes items like microchips and pharmaceuticals.”
Nearshoring opportunities are moving, but challenges are real.
While there is increased activity back and forth across the border between the U.S. and Mexico, which increases jobs on both sides, Healy said Mexico has built-in challenges with the political climate, transportation logistics, space and hiring.
“While some companies want to be in a low-cost manufacturing environment, the risks outweigh the rewards,” he said. “Unemployment rates range from a low of 1.4% to a high of 5.7%.” Also, finding sites in Mexico that have good electrical power is a major obstacle, Healy said.
Healy shared an interesting fact: the Chinese government is pushing back on cheap imports.
“If you’re manufacturing in Mexico, China might make it more difficult to import back into China,” he said. “That is another challenge.”
East Coast ports are gaining business, but that can change.
“We’re seeing businesses shipping from the West Coast ports to the East Coast ports and Southern ports,” Healy said. But going forward, the most important ports might be those along the border between Mexico and Texas. It will be crucial to further develop rail access back and forth across that border because there’s a huge advantage in manufacturing in Mexico.
“If you have lower labor costs and you have faster delivery time, you don’t have to worry about time differences,” he said. “Cheapest wins.”
While the opportunities are endless, Healy said pitfalls and market changes will drive businesses in different directions. No one location fits all, but opportunities abound.
Michelle Hofmann is an award-winning freelance writer based in Los Angeles. She has AA and BA degrees in journalism and a master’s degree in mass communications. Hofmann specializes in real estate writing and can be reached on Twitter @realestatewritr.