(Ryan Brower is Director of Client Solutions at Weber Logistics)
Nice job by the Journal of Commerce (as usual) in its April 29 feature on Mexico as an alternative to China for contract manufacturing. The China to Mexico nearsourcing trend is gaining steam, with 33% of recently surveyed manufacturers saying they have or soon will shift production closer to the U.S. (source: Alix Partners).
What is dimming the luster of China as a hub of global manufacturing? Rising fuel costs, rising labor costs, and volatile exchange rates. The cost gap between China and alternate manufacturing sites is narrowing and, in some cases, disappearing. One analyst even commented that “China may soon replace Detroit as the world’s rust belt.”
Many companies are comparing total landed costs as they consider a nearsourcing move from China to Mexico. For companies with a primarily U.S. customer base, things in Mexico’s favor include:
· It’s close! This cuts fuel costs and speeds the cash cycle. Getting Chinese-made goods to retail can take over a month.
· Labor costs are now comparable to those in China.
So the financial numbers are looking better for a move from China to Mexico. But other factors suggest that Mexico may not be quite ready for a large uptick in new manufacturing output. The freight infrastructure remains a work in progress and manufacturing capacity is limited compared to a huge country like China. Drug-related violence in Mexico raises another caution flag to U.S. companies examining nearsourcing options. But progress continues to be made and Mexico is hanging out the “open for business” sign.
Weber Logistics is definitely seeing an increase in interest for our San Diego logistics operation, which is very near the border crossing at Otay Mesa to Tijuana. The interest is from companies that need a staging point for inbound materials coming into Tijuana-area maquiladoras, and also from companies needing a distribution solution in the U.S. for finished goods rolling off the line in Mexico.
As a Southern California 3PL, Weber Logistics is watching the nearsourcing trend very closely and believes the decreasing cost benefit of a China solution will lead many U.S.-based companies to consider Mexico as a viable alternative for contract manufacturing.