News / Mexico needs investment to cope with nearshoring boom

© Александр Марко

Nearshoring has catapulted business for logistics providers in Mexico to new heights, but the country needs investment – both from the public and the private sector – to cope with the opportunities and challenges associated with this trend.

This has kicked off a debate that highlights constraints in the existing infrastructure and framework, and the need for investment and alignment with the nation’s northern neighbour.

Logistics consultants and providers have been vocal about a plethora of issues that need to be addressed, from capacity constraints at ports and airports, over rail and road infrastructure problems, to labour shortages, and outdated and insufficient equipment.

Ports like Manzanillo are operating at maximum capacity; border crossing points are frequently struggling with congestion; road infrastructure needs better maintenance; and rail options are limited, noted Jose Morales, co-CEO of forwarder xpd Global in a recent interview with Mexico Business News.

Rogelio Jimenez Pons, under-secretary for transport in the Secretariat of Infrastructure, Communication and Transport, noted during a panel discussion at the College of Civil Engineers of Mexico (CICM) on Monday that rail transport costs in Mexico are around $0.70 cents per ton-kilometre, compared to $0.30 cents in the US. Rail capacity has to be expanded through the addition of new lines, he added.

The trucking sector is also in need of modernisation, he added. The average age of equipment is 20 years, he pointed out.

Trucking is also hamstrung by a shortage of about 50,000 drivers, and it is not the only sector that needs more staff. According to Mr Morales, trained logistics professionals are also in short supply.

Significant investment is needed to remedy these problems. Mr Jimenez listed a range of sectors that are in need of financial infusion, including energy, transport, industrial parks and water. Altogether, this calls for about $400bn in infrastructure funding, he added.

By some estimates, this would require an increase in government spending on the sector from currently 2% of GDP to 3%, which is unlikely. According to Reyes Juarez del Angel, VP planning of the CICM, this amount could only be attained through a partnership of public and private investment, an assessment that was shared by Mr Jimenez.

“Much capital is required to achieve these infrastructure [improvements] and this is the way [to go],” he commented.

Investors may be looking for some changes in government policy. In a recent panel discussion on nearshoring held by the Mexican Institute of Financial Executives, Yuriria Mascott, legal counsel of Baker McKenzie Mexico, stressed that security, adequate policies and judicial certainty are necessary to attract investment, a reference to decisions by the administration that upended developments like the cancellation of the planned airport to replace Mexico City’s congested Benito Juarez gateway.

The administration also needs to coordinate its plans with the US government, Mr Juarez argued. He considers it shocking that nearshoring is not on the bilateral agenda of the two governments.

“I think [nearshoring] is an issue of major relevance and the great challenge is to have a shared, common vision between both countries,” he said.