Nearshoring: How We’re Doing Month by Month | Monthly Newsletter | #07

Update on 2024 Investment Announcements – Ministry of Economy

The Ministry of Economy reported that from January 1^st to May 31^st, 2024, 127 investment announcements were made, totaling an estimated $39.157 billion dollars. Additionally, the Ministry pointed out that said amount is expected to enter the country in the next two or three years and would lead to the creation of around 54,347 new jobs. Around 56% of these new jobs would be created in the automotive industry.

In the past month, three new investments were announced, all from the manufacturing sector: Evergo from the Dominican Republic (energy) with an estimated $200 million dollars, LT Precision from the United States (steel industry) with $147 million dollars, and Daikin from Japan (air conditioning) with $122 million dollars.

How´s the Trade Balance Doing? – April

In April 2024, Mexico’s trade balance recorded a deficit worth $3.746 billion dollars, compared to a $1.646 billion dollar deficit logged in the same month of 2023. Thus, in the first four months of 2024, the trade balance recorded a deficit worth $6.452 billion dollars. In the first four months of 2023, the deficit was worth $6.464 billion dollars. Consequently, our estimate of a trade deficit of around $10 billion dollars for the entirety of 2024 possibly seems high because the accumulated deficits for the January-April period is similar for both years, and the trade deficit in 2023 was $5.542 billion dollars.

In April, exports increased 11.4% annually, as there was a 13.1% rise in non-oil exports and a 17.5% decline in oil exports, possibly due to the Easter holiday´s shift  from April in 2023 to March in 2024. Within non-oil exports, those destined for the US increased 12.9%; the most significant increases were logged in automotive products (27.7%), plastics and rubber products (21.1%), electronics (14.1%), professional and scientific equipment (12.8%), and food, beverages, and tobacco (11.4%). Annual growth in automotive product exports resulted from a 30.3% increase in sales to the US and a 13.6% increase in sales to other markets. Thus, in the January-April period of 2024, the total value of exports amounted to $194.846 billion dollars, which entails a 4.1% annual rate of growth. In the first four months of 2024, the value of exports can be broken down as follows: Manufactured goods 88.8%, petroleum products 4.9%, agricultural goods 4.7%, and non-oil extractive products 1.6%.

Simultaneously, imports increased 15.4% year-on-year in April. This figure was driven by a 19.8% increase in non-oil imports and a 28.2% decrease in oil imports. By type of good, consumer goods imports increased by 25.6% year-on-year due to a 48.7% rise in non-oil consumer goods imports and a 43.6% decline in petroleum consumer goods imports (gasoline, butane, and propane gas). Intermediate goods imports increased 11.5% compared to the same month of the previous year, and were driven by a 14.0% increase in non-oil imports and a 19.2% decrease in oil imports. As for capital goods imports, these reached $5.826 billion dollars, which was a new all-time high in the category and a 32.5% increase compared to April 2023. In the January-April period of 2024, the accumulated value of total imports was $201.297 billion dollars, with the distribution as follows: Intermediate goods 75.1%, consumer goods 14.7%, and capital goods 10.2%.

Our Main Commercial Ports

This time, we decided to delve deeper into trade balance figures by analyzing them by mode of transportation and customs. This was done in order to identify some additional risks and challenges in attracting Nearshoring investments. We kept a close eye on imports and exports, and observed a change in trend regarding Mexico´s foreign trade. The modes of transportation that were focused on were: Maritime, air, rail, and road.

At first glance, we noticed that ships and airplanes recorded deficits, meaning that the amount of imports exceeded the amount of exports traded by these means of transportation. Meanwhile, rail and road modes of transportation logged surpluses – exports exceeded imports. In this regard, the analysis is based on the trade balance´s segment that has the largest share in each type of transportation mode. Additionally, it´s important to remember that 65% of exports and 46% of imports are carried out by road, making it the most important mode of transportation for traded goods, followed by maritime (19% and 36%), rail (13% and 7%), and air (3% and 11%).

Taking all of this into account, we noticed that there´s significant congestion in certain customs points within the country, which has led to bottlenecks that could impact trade volumes in case there is an unforeseen event – the most common being border closures in Texas due to migration issues. Road exports increased by 2% in the first quarter of 2024 (compared to the first quarter of 2023), which proves that the exporting sector has positive momentum; the value of exports traded by road totaled $92.8 billion dollars.

Concerning these figures, it´s important to highlight the fact that 36% of road exports were carried out through Nuevo Laredo, Tamaulipas, the most important border point in the Mexico-US relationship, making it essential that the crossing of goods is done quickly and safely. Thus, during the first quarter of 2024, road exports in Nuevo Laredo increased by 6%. Additionally, we highlight the 17% increase in exports that passed through Nogales, Sonora, while in Tijuana and Cd. Juárez, exports decreased by 8% and 3%, respectively. Regarding the most important customs points for rail transportation, we can also highlight Nuevo Laredo, Tamaulipas, and Piedras Negras, Coahuila. However, the former is losing some market share in exports compared to the latter, with an annual -12% having been recorded in Nuevo Laredo and +19% in Piedras Negras compared to the first quarter of last year. Together, these two points exported $14.5 billion dollars’ worth of goods via railways during Q1 2024. Currently, the second rail bridge between Nuevo Laredo, Tamaulipas, and Laredo, Texas, is under construction, which aims to double the freight transport capacity in the short term.

Imports carried out by ship during the first three months of 2024 decreased by -3%, while air imports increased by 12% compared to the same period of 2023. In Q1 2024, maritime imports totaled $52.3 billion dollars, with the Manzanillo and Veracruz ports being the most significant; combined, they both accounted for 58%. These ports showed different trends compared to Q1 2023: The Manzanillo port´s imports increased by 8% and the Veracruz imports decreased -6%. Thus, the Lázaro Cárdenas port recorded the highest rate of growth compared to Q1 2023, by increasing 10% in the first quarter of 2024.

Lastly, goods imported by air during the first quarter of 2024 totaled $14.7 billion dollars. However, it´s important to consider the fact that there were significant changes concerning points of entry. In Q1 2023, Mexico City´s International Airport (AICM for its acronym in Spanish) was the most important hub, as 52% of imports passed through this entry point – compared to 21% in Q1 2024. On February 2^nd, 2023, a decree was established closing Mexico City´s International Airport to concessionaires and permit holders providing national and international regular and non-regular exclusive air cargo transportation services. Thus, said airport has been the most affected one, while other customs points, mostly Felipe Ángeles International Airport (AIFA for its acronym in Spanish), have benefited the most. Finally, Monterrey´s Airport also logged an increase in imports during the first quarter of 2024, with a 7% increase compared to the same period of last year.

Overall, the most important international trade ports in our country are located in only a few cities. This highlights their importance – but it also points to some challenges and opportunities concerning import and export of goods. On one hand, we can see considerable growth in certain customs points, which are increasingly capturing more market share, while other ports have been losing relevance either due to increased competition or decrees. Nearshoring promises greater momentum in international trade; however, to fully capitalize on this opportunity, it´s vital to ensure the proper functioning of our most important customs points, as well as the establishment of new commercial ports that guarantee the swift and secure passage of goods.

How Does International Trade Affect Us?

In its most recent publication, the CPB WTM (World Trade Monitor, by the Netherlands Bureau for Economic Policy Analysis) indicated that global merchandise trade decreased by 0.6% in March 2024 compared to the previous month, after having logged a 1.6% increase in February. The most recent monthly report highlighted an increase in imports from China (+6.3%) and Japan (+3.8%). Conversely, imports decreased in the United States (-2.2%), the United Kingdom (-2.8%), and emerging Asia excluding China (-5.1%). On the other hand, exports increased, particularly in Japan (+3.4%) and other advanced economies (+1.2%). However, goods exported from the United States (-3.1%), the United Kingdom (-2.4%), and other advanced Asian countries (-2.2%) decreased. Thus, there was deterioration in global trade trends at the end of the first quarter of 2024, despite logging 0.3% growth in Q1 2024. This trend was also seen in our country at the end of March, so we could anticipate improved global performance in merchandise trade in April given the most recent information in our country and the US – as there´s high correlation between these indicators. Therefore, it´ll be greatly important to identify the trend in global trade to interpret Mexico´s trade trends more accurately. It´s also important to keep in mind that the World Trade Monitor is a tool used to monitor the development of global trade and is published on behalf of the European Commission, and its data has a 2-month long delay.