The concept of offshore manufacturing or “offshoring” refers to the relocation of the production or assembly of goods to another country. It is worth noting that when a company establishes a subsidiary in a foreign country to produce goods sold in that country it is not considered offshore manufacturing. The Offshoring process can be performed by a subsidiary of the same company or by a new foreign provider. “Nearshore Manufacturing” or “Nearshoring” differs from “Offshore Manufacturing” in that the foreign manufacturing location is closer to the home country.
A company must first determine its optimal location to pursue a nearshoring plan.
International manufacturing has changed due to the slowdown caused COVID-19 pandemic and the comeback that resulted in massive congestion at ports and airports, the rise in oil prices, and the general inflationary global environment, among other factors no less critical such as the additional China Section 301 tariffs that were imposed on most Chinese imports starting on 2018. While these extra tariffs have been eliminated on some products, US Importers are actively looking for other options.
Mexico continues to be the largest US ‘nearshore’ location. Shipping from Mexico into the US is very cost-effective because most manufactured goods can move over land into the US territory either by truck or railroads. Also, since Mexico shares the same time zone with many of the southwest states in the US, it is easy to conduct teleconferences or travel to the manufacturing locations. Another contributing factor is the existence of a free trade agreement between both countries and Canada, USCMA (formerly NAFTA). Finally, the minimum wage differential of close to 7 to 1 is another big incentive that makes Mexico a preferred nearshore location for US companies.
Nearshore Alternatives: Central America and the Caribbean
Today, businesses need to consider nearshoring more than ever as the dynamics surrounding the supply chain continue to evolve. According to a preliminary assessment by the Inter-American Development Bank (IDB) nearshoring might increase imports from Latin America and the Caribbean by $78 billion a year in the short term.
The wearing apparel industry has been for years a privileged industry when it comes to nearshoring. For example, according to the Commerce Department’s Office of Textiles and Apparel (OTEXA) overall U.S. blue denim apparel imports increased 28 percent last year. In comparison, those from Western Hemisphere countries grew 40 percent compared to 2020. These countries include countries under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR). These countries are: Dominican Republic, Costa Rica, El Salvador, Guatemala, Nicaragua and Honduras. This treaty made the CAFTA-DR countries very attractive to manufacture goods bound to US consumers.
If your business is looking into nearshore manufacturing in any of the above countries, at Promptus you will find the help you need to navigate the export and import processes! Our team is highly qualified to help you understand rules, tariffs, and regulations. We can also help organize transportation and freight forwarding solutions to ensure your goods travel safely to and from their destination country, regardless of size! Contact us today to get a quote for our services.