Locating manufacturing facilities near South America’s east or west coasts is becoming an increasingly attractive prospect for U.S.-headquartered companies, according to DP World. After several years of business-threatening disruptions in global shipping, U.S.-based businesses are moving towards “nearshoring,” turning their focus on locations from which goods could ship to North America more quickly and easily than across the Pacific.
An overwhelming 92% respondents to a recent survey conducted by the giant logistics and port terminal operating company consider creation of dedicated inter-Americas supply chains to be important to their organization’s strategic planning. Of that group, approximately half selected the highest category of “very important.”
The study, “Shifting Supply Chains: Navigating a New Inter-Americas Trade Landscape,” was based on an anonymous survey conducted in June and July 2024, of 101 individuals — 40% of which were shippers or beneficial cargo owners and 24% freight forwarders, 3PLs or non-vessel operating common carriers. Analysis of the data was conducted by Journal of Commerce by S&P Global.
The shift represents a significant change. When globalization began transforming manufacturing in the 1970s, Mexico briefly featured as an attractive source, but China and Southeast Asia quickly rose to positions of dominance in exports to U.S. corporations. “For decades, efforts to establish similar manufacturing bases in Latin America, particularly south of Mexico, were largely unsuccessful. But times are changing,” the report says. Last year, Mexico became the biggest exporter to the U.S. for the first time in 20 years, overtaking China. Now, firms are looking further south.
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In the survey, 43% said cost implications are the most important factor in deciding whether to diversify, consolidate or maintain supply chain in the current form. Points of concern included fluctuating shipping costs (36%) and cargo transit delays (31%), and 43% identified “logistical difficulties” as the most important challenge to expanding trade or activities in South America.
In terms of generally diversifying supply chains, the greatest challenge cited was cost (33%), followed by technology integration challenges (32%). Regulatory compliance and employee training were also drivers.
Nearly half of respondents (47%) believe the primary benefit to having a more diversified supply chain is reducing the risk of disruption from various events such as natural disasters, political upheaval and industrial action.
In terms of how-two strategies, 34% said they are prioritizing their supplier relationships, while 29% are focused on expanding their geographical reach.
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“You need to have redundancies. You need to have alternatives. So, China-plus-one and nearshoring took off. This has forced companies to consider where to develop new, alternative supply chains. Inter-Americas is the first logical choice (for US businesses) because of the geographical proximity,” said Otto Bottger, a senior vice president at DP World’s commercial operations in the Americas, said in the report. “Just-in-time is great until your factory has to stop because the container with your supplies didn’t arrive.”
Despite economic and political uncertainties in South America, the survey showed companies are feeling confident, with 70% saying they are optimistic or very optimistic about their prospects in the region over the next five years.
