The landscape of cross-border supply chains between the United States and Mexico continues to evolve, shaped by technological advancements, geopolitical shifts, risk mitigation, and economic development. As we step into 2024, it is crucial to stay ahead of the curve, and understand the emerging trends that will define the cross-border trade scenario between these two neighbors countries, which will also set the pace for the trilateral relationships with Canada for the future to come.
Over the years, the United States, and Mexico have fostered a robust trading relationship, with Mexico becoming the United States’ largest trading partner as of 2023, overthrowing China’s dominance as the largest trading partner for more than 20 years. In 2023, the total trade between the two countries reached a staggering $600 billion, showcasing the magnitude and importance of cross-border supply chains as well as the impact of regionalization strategies from both the public and private sectors.
Yet, these changes are just an early manifestation of the future that is ahead, with so many areas that will mature over time, some in a faster way, others at a more steady pace. Based on Camionix research on the economic landscape, we have put together 4 Key Trends that will “most likely” shift, shape, or transform in a substantial way the environment in Cross-Border supply chains and set a new roadmap for other regions to follow.
The need for companies to stay competitive in a global environment resulted in considering alternatives for building resiliency in their supply chain. Constant disruptions, delays, and tariff barriers between China and the USA, as well as the rising cost of Chinese labor since 2014 that surpassed Mexico’s labor by a 35% cost difference, gave birth to the Nearshoring phenomenon we are experiencing to date. However, it was not until 2020 when the COVID-19 pandemic brought a wake-up call to supply chain professionals and leaders across boards to urge and accelerate the shift from the “low cost at all costs” mentality to a “just in case” mentality, with the goal of having products, production and inventories closer to the consumer.
Shortly after, more geopolitical factors followed, such as the conflict in Ukraine, the constant logistics disruptions, and other political tensions that intensified this need, setting the path for Mexico and other regions to become emerging manufacturing superpowers.
According to U.S. and Mexico’s government data, Nearshoring can add another 4% to Mexico’s GDP in the next five years, yet recently it was estimated to be far more noticeable since, in a very short period of time, China lost 8% of the US Imports Market share, according to recent U.S. Government data.
Countries like the United States, Canada, China, Hong Kong, Argentina, Japan, and the UK have pioneered direct foreign investment initiatives in Mexico, with the automotive and auto parts industries being the sectors with the most investments received. These direct investments are forecast to create more than 1.1 million direct jobs in the near future.
The industrial real state is not just one of the sectors who happens to be highly benefited from Nearshoring, but it is also playing it self a crucial role in enabling a new wave of industrial development that will boost foreign trade operations across many areas in Mexico & the United States.
Dozens of industrial parks are being build across Mexico, opening the landscape for companies to capitalize on the North American Market. However, many of these companies are not just shifting production, but also, adopting new technological advancements, modern approaches to manufacturing, a new industry focus with smart buildings, and eco-buildings, accelerating smart manufacturing practices at all levels beyond the electrical vehicle industry.
All these advancements will be a catalyzer for economic and industrial development on the region.
Another interesting rising trend is the development of emerging commercial routes, such as the inter oceanic corridor “Istmo de Tehuantepec” which happens to be the largest logistics infrastructure for commercial trade being developed in Mexico at the moment, and the one with the biggest potential, an attractive alternative for the Asia to U.S. southeast cost route from the highly competitive Panama Canal.
This infrastructure is still immature and does not yet support the volume of large ships that transit through the Panama Canal; however, it has great potential for other ships as well as smaller ships capable of transporting smaller cargo (not necessarily containers) across Mexico and the USA.
The Inter-Ocean Mexico route has a 303-km coast-to-coast length and a 6-hour transit time; it can mobilize around 1.4 million containers annually. Infrastructure will not only allow companies to explore new economic benefits, but it could also become a leading logistics hub in the future.
Conversations about modern trade policies will continue to evolve in 2024.
The USMCA agreement is the most important commercial agreement shaping the commercial relationship of the United States, Mexico, and Canada, and therefore, it will be a huge catalyst for the trends previously mentioned.
Replacing the 26-year-old NAFTA, the USMCA seeks to modernize key sectors and strike a new economic balance, with new influencing factors that will change trade dynamics, such as a three-year review clause, novel approaches to regional value content, especially in the automotive industry, and labor standards. Amidst these changes, trade policies will continue to evolve as rapidly as cross-border supply chains themselves.
This year we decided to focused on areas with the potential to have a more direct impact, and represent substantial changes in the cross-border trade scenario, yet there are a couple of honorable mentions that are also worth keeping on the lookout for. These two areas have had a lot of significant impact in the industry lately, and have been around for a while as a rising trend now. Here are two honorable mention trends:
Artificial Intelligence
The rise of GenAI (generative AI), has ignited excitement in the business world, with a promising future as a productivity booster. However, it's vital to acknowledge that GenAI is still in its early stages, with crucial challenges like bias, data privacy, and responsible & ethical deployment. In general, GenAI's potential to reshape industries remains undeniable, making it a trend to watch closely, something that Camionix keeps very close in mind.
Sustainability & Green Supply Chains
The conversation has moved beyond mere emission reduction; it's about fundamentally reimagining how we conduct business. Building a future where profitability and sustainability are intertwined is no longer optional, but essential. While the sustainability movement has gained traction in regions like Europe, it hasn't yet reached full stride in other areas. Observing how this trend evolves and whether lagging regions can catch up promises to be fascinating.
Looking ahead, five key trends, such as nearshoring, emerging commercial routes, logistics infrastructure, trade policy shifts, as well as honorable mentions like artificial intelligence and sustainability, will play pivotal roles in shaping the future of cross-border trade. These trends not only demonstrate the current transformation but also pave the way for a new era of economic and industrial development in the region. As we navigate these shifts, staying attuned to these emerging trends will be crucial for businesses and policymakers alike, ensuring they remain adaptable and resilient in the face of an ever-changing global landscape.
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