U.S. catches up to Mexico as preferred North American "nearshore" location, survey finds

The United States has caught up to Mexico as the preferred North American location for U.S.-based companies that are considering moving some or all of their overseas production closer to their end markets, according to an annual survey of "nearshoring" trends released last week.

The third annual survey, conducted by New York-based AlixPartners LLP, a global business advisory firm, found that 37 percent of the 137 respondents would choose the United States as their preferred nearshoring location. An equal percentage would choose Mexico, the survey said.

In the 2012 survey, 49 percent said they would choose Mexico, while 36 percent said they would choose the United States. In 2011, the survey's first year, 63 percent chose Mexico as the preferred nearshoring choice, while only 19 percent said they would choose the United States.

Of the 137 companies responding to the 2013 survey, about half had annual revenues of $1 billion or more. All of the respondents sourced production across multiple continents.

Approximately 49 percent of the respondents to the 2013 survey said nearshoring presented an opportunity for their companies to meet U.S. demand requirements. In 2012, that figure stood at 46 percent. About 57 percent responding to the 2013 survey said they would relocate some or all of their offshore operations to North America within the next two to three years. About one-third had either already done so or were in the process of it, according to the survey.

About 58 percent of the respondents have either reduced or expect to reduce their total "landed cost" by 5 to 20 percent for production that has either been nearshored or is being considered for nearshoring, according to the survey. Landed cost is the calculation of all aspects of a product's lifecycle, including the expense of inventory obsolescence for goods that spend weeks on the water.

Russell Dillion, director of enterprise improvement for AlixPartners, said the growing appeal of the United States as a nearshoring destination is due to several factors. These include closer proximity to end markets; better legal and regulatory transparency; and concerns, real or perceived, about security and corruption in Mexico. About half of the respondents expect security in Mexico will improve over the next five years, according to the survey.

Dillion added that "patriotism" could play a role in the decision-making process, especially as U.S. executives witness other U.S. companies either making the move or considering it.

However, Dillion added that, at this stage, more companies are talking about nearshoring than actually doing it. Business have sunk millions of dollars to scale up overseas production, and "source countries" like China still have a strong labor-cost model that is difficult to replicate in the United States, according to Alix Partners.

Not surprisingly, AlixPartners said truckers, freight brokers, and railroads with strong north-south connections stand to benefit from these trends. By contrast, ocean carriers, airlines, international freight forwarders, and seaports would suffer from the repatriation of production to North America.

One interesting side note is that 7 percent of respondents to the 2013 survey chose Canada as their preferred North American location. In 2012, none of the respondents selected Canada. AlixPartners said the increased interest in Canada is a byproduct of the U.S. market's broader appeal to respondents.