Q&A: Mike Burkhart, VP of Mexico, C.H. Robinson

With 2023 marking the first time in two decades that the United States imported more goods from Mexico than China, up 4.4% annually, to $480 billion, coupled with U.S.-bound imports from China off 20% annually, according to U.S. Census Bureau data, it stands to reason that cross-border logistics and trade activity continues to heat up. And this continues to drive home the fact that nearshoring is alive and well, and is very well-poistioned for future growth, to be sure.

LM Group News Editor Jeff Berman recently spoke with Mike Burkhart, VP of Mexico, for Minneapolis-based global logistics services provider and freight forwarder C.H. Robinson, about the ongoing nearshoring push into Mexico and what shippers need to know and be prepared for in order to establish cross-border supply chain and logistics operations south of the border. Their conversation follows below.

LM: Do you think that this is the new normal in the sense that Mexico will continue to be the primary trade partner for the United States, for the foreseeable future?

Mike Burkhart: I really do. Last year, we talked about a lot about nearshoring and what it is—and we said it's coming. And I think we can finally say that it's arrived and more is on the way. We still expect this trend to play out more fully in the next five years. But we see clear signs that it has arrived. Mexico's direct foreign investment is up 24% since 2020, setting a new record in 2023, at $36.1 billionn and it marked the first time in two decades that the U.S. brought more goods from Mexico than China. Imports from Mexico were up while imports from China actually dropped 20%. Last year also set a record for truckload freight crossing the United States to Mexico, which was up 25% in just one year. When I saw that number, I was amazed. I thought it was going to be double-digits. But I didn't think it was going to be 25%.

LM: What do you think are the biggest advantages of Mexico-focused nearshoring for shippers? What are the things that stand out to you?

Burkhart: It absolutely is the proximity to the customer and the proximity to where the marketplace is. But Mexico also offers incentives and advantages for shippers to nearshore into Mexico. So, when a shipper becomes a Mexican entity, they also get to take advantage of the free trade agreements. Mexico has more free trade agreements than any other country in the world. So, not only is it about being close to the customer in North America, but it's also about leveraging other free trade agreements that that are helpful to any shipper in Mexico.

And looking ahead, we think 2024 might be the year we also see a shift in ocean freight volumes because of nearshoring. Imports from Asia to Mexico already increased 8.7% in 2023. Mexico's current industrial parks expect to receive 453 new companies by mid-2025. And 20% of those companies are Chinese. Fifty new industrial parks are slated to open in Mexico this year or next year. This does not mean that the U.S. and the NAFTA, or USMCA countries, have stopped expanding operations. With North America trade agreements providing stability and cost savings through to 2046, we have customers, especially in the automotive sector, that treat the whole continent as one integrated supply chain.

LM: Aside from automotive, what are some other key verticals that are setting up shop in Mexico or have been there for a while and are just continually ramping up their operational presence in Mexico?

Burkhart: Electronics is one that comes to mind immediately. The assembly of electronics assemblers is growing there—they're expanding and in multiple parts of Mexico you have it happening, like the Tijuana area, but also Monterrey. Guadalajara is another area that we're seeing a lot of a lot of those electronics companies. I would say pharma is another big one, as well as energy and food and beverage. All of them are growing. I just think that automotive was ahead in the game, in terms of clustering. Automotive has been down in Mexico for a long time and has continued to develop—like the OEMs and the big brands. And when that happens, you have all of sub-assembly, the tier I and tier II manufacturers begin to cluster around these assemblers and OEMs to be very close to them. You see that happening predominantly in the automotive industry, but it's also happening with assemblers, electronics, and with food and beverage to a smaller degree. But there is an incentive for a lot of these tier I and tier II suppliers to move closer to where they're selling their product.

LM: Does this trade data kind of ramp up the volume, or the pressure, for some shippers to make the move into Mexico? That is as it relates to things like sourcing and manufacturing operations, coupled with things like the ongoing Red Sea and Panama Canal disruptions and U.S.-China trade tension.

Burkhart: All of those things contribute to the decision to move closer to where the finished product its generated.

As an example, one of our auto parts customers in China set up their very first plant in Mexico. We helped them ship what they needed to get set up. We imported the materials and semi-finished components to make their product, and we handled their cross-border freight into and out of the United States. Mexico is a strategic location for their growth, because the automotive companies are there that they supply and are growing in Mexico. Another one of our customers based in China serves more than 60 automotive brands around the world. We have advised them on setting up production in Mexico, and we have started importing components to make their product and set up warehouses for them. There's also a European automotive maker that we brought machinery to Mexico to start up factories. So, we're seeing the upstream [benefits]. We're seeing when these companies are moving across because C.H. Robinson’s project logistics team is moving large machinery, assembly lines, and everything that's needed to create a plant in Mexico. In the upstream part, we're also creating ocean freight opportunities, and then the plant is created, and that generates the outbound opportunities into Mexico and into Canada. We're seeing more Mexico-Canada direct freight than we've ever seen before in both directions. North America is really becoming self-sufficient, in terms of all the inputs and in terms of supply and its supply chain more so than ever. And every year we get closer to self-sufficiency, just because it is more profitable and effective for tier I and tier II suppliers to these large manufacturers to be closer to home. There's incentives for that, so this clustering and this incentive to be close to home is really driving activity.

LM: From a freight transportation perspective, are you seeing noticeable upticks in these lanes into and out of Mexico?

Burkhart: We are seeing growth in all modes, not just intermodal and truckload. We see it in truckload direct, and truckload cross-dock. Consolidation is also growing very rapidly. And when I say consolidation, I mean companies inside Mexico that may push full truckload or full truckload up to the border and then piece out and deliver it by breaking that truckload down and deliver to multiple destinations in the United States. And it is similar with the southbound, in that you may have multiple U.S. suppliers that that were consolidating into full truckload, bringing it down into Laredo and then moving full truckloads from Laredo down into production. We're seeing both of those. We're seeing growth in intermodal and growth in truckload direct, and truckload cross-dock. My belief is that all three are critical components to really balancing supply chain operations.

LM: What type of gains, or value-adds, are there from a labor perspective, in terms of nearshoring?

Burkhart: I would say that you really have to look at this holistically. And, yes, labor is one component of that overall calculation of the value of nearshoring. It’s labor, and it’s transportation. It's all of the costs associated where you're getting your inputs. If you can get the majority of your inputs locally, and then you can get incentives on the balance of those inputs, then your supply chain, including all costs, are cheaper than if you were sourcing from Asia or Europe. Having products closer to the end customer is a value-add for quality purposes, in terms of delivering on time to your customers. The fact that you don't have to keep as much inventory because your inventory stock is reduced dramatically. When you're planning all the way from Asia, if anything happens, you need to be able to pull from something—from some inventory—in order to satisfy the needs of your customer. And now because you're talking about such a short distance and such a very low lead time, you don't have to keep nearly as much inventory in your network in order to satisfy your customers’ needs.

LM: When the pandemic kicked in, it seemed like nearshoring felt more conceptual than real. And now, obviously, it's very real based on the data. That said, do you think that maybe the pandemic helped kickstart the need for effective nearshoring processes in a way?

Burkhart: Nearshoring has always been there. The pandemic sparked hyper-investment, and we are now beginning to feel that wave hit the shore. Foreign investment continues, so that wave will continue to benefit Mexico and North America in the years to come. Nearshoring was a term we all knew before the pandemic. It became a boardroom conversation as a result of the pandemic, and we are now starting to feel the decisions made in that boardroom.

LM: When the pandemic hit, supply chain resiliency was a major narrative and still is today, and it seems like nearshoring is probably, if not the most important tool, one of the most important tools in the supply chain resiliency toolbox. What are some things to watch and monitor that could be in the way of nearshoring going forward?

Burkhart: It's on the industry, and it's on our governments, from a port infrastructure standpoint, to prepare for the 453 new companies [in Mexico's currentindustriual parks] by mid-2025 and to prepare for the 50 new industrial parks that are slated to open in Mexico this year and next. So, when we talk about border flow, we cannot have a world-class supply chain without a world-class border process. And a lot of work needs to go into creating that border flow. We know this last year, from a disruption standpoint, as there were some instances when we had Mexican Customs system go out for a few days. That means nothing exited and nothing entered Mexico for two or three days. All of this creates major problems and planning issues for shippers, and then it creates a wave of activity that suddenly hits the border that Customs agents aren't able to handle because it's too much. And we have to commit CBP to commercial activity regardless of what's happening around them and then also commit other CBP agents that are specifically for the pedestrians and for the people. But what's most important is that we commit agents to commercial activity; otherwise, we lose flow at the border. We need to continue that flow. From a private perspective, we're going to need to stay ahead of what the Laredo infrastructure is and what the El Paso infrastructure is and making sure that there's enough trailer parking space and making sure that there's enough inventory and warehouse space to facilitate and continue to move this product across the border, even in a market where load-to-truck ratios are 15:1-plus.

Right now, it is running smooth, and there is more supply than there is demand. Laredo is liquidating really quick. Product does not sit on a warehouse floor, and trucks do not either, so, it's moving on quickly. But in a different environment where you are looking at 15:1 to load-to-truck ratios, that product sits a little bit longer or a lot longer, and it creates a lot of demand for warehouse space in Laredo. Staying in front of that and balancing it is key. It is not building the church for Easter service, because then you're way in space, but you need to you need to ensure that you have enough space to get you through those times when capacity is very low.