Mexico Poised to be Top Nearshoring Partner for U.S.

A new KPMG study reports that Mexico will replace Canada as the best choice for companies looking to nearshore in the Americas.

Over the next two years, this new report projects U.S. companies will shift 9 percent more production to Mexico, bringing that country’s share of the market to 36 percent. Domestic sourcing in the U.S. will still account for the largest percentage for U.S. serving supply chains but it will fall to 44 percent from the current 62 percent level. Canada, which had been the most popular choice for sourcing, will see its share fall from 39 percent to 30 percent, KPMG said.

The study reports on the shifting trend away from “globalized“ sourcing to “localized” models that reduce the distance between points of production and the final customer, citing factors like the pandemic and the Panama Canal’s reduced capacity due to drought conditions.

The report says “The shift away from onshoring in the U.S. suggests companies prize proximity but that other factors are considerations. For example, Mexico’s manufacturing base, low labor costs and its participation in the U.S.-Mexico Canada-Agreement gives it advantages.”

It cites China’s weakening wage advantage over the Americas as a factor that helped Mexico to replace China as the biggest import market for the U.S. last year. Still, “China remains a key supply chain player, with certain companies using a ‘China Plus One’ strategy, meaning the organizations produce goods in China and one other country,” KMPG said.